ASF, CRE Finance Council Weigh In On FDIC Safe Harbor

Posted by Orb Staff on July 06, 2010 No Comments
Categories : Residential Mortgage

erican Securitization Forum (ASF) and the CRE Finance Council have responded individually to the Federal Deposit Insurance Corp.'s (FDIC) proposed safe-harbor rule, which addresses the treatment of assets during the potential insolvency of an FDIC-insurance institution. The FDIC rule is being developed as a result of accounting rules FAS 166 and 167 in order to ensure that assets transferred by an ‘insured depository institution’ into a securitization pool are protected from any insolvency proceedings of that institution. The regulator's proposals would revise the rule to include numerous preconditions, including requirements relating to a transaction's capital structure, disclosure, documentation, origination and compensation. In a comment letter, the ASF said that implementation of the new rules would prevent the securitization market from reopening because they would eliminate certainty for investors that they would receive timely payments from their AAA-rated investments. "Large institutional investors, such as pension funds, mutual funds and insurance companies, seek out highly rated securitizations for their strong yields and certainty of timely payments on their investments," said Tom Deutsch, executive director of the ASF, in the letter. "The FDIC's proposals would cast a deep shadow over the certainty of payments on [asset-backed securities and mortgage-backed securities] by creating an ineffective safe harbor, which will deter our investor members from reentering these critical markets for the availability of mortgage, consumer and business credit." In its comment letter, the CRE Finance Council urges the FDIC to consider the negative impact that piecemeal reforms would have on providing certainty and confidence for market participants, particularly investors, and supporting a commercial real estate recovery. ‘The FDIC must be mindful to ensure that investors have confidence in the protections afforded by the safe-harbor framework and that the framework reflects congressional intent on securitization reform, particularly as it relates to joint rulemaking,’ said Lisa Pendergast, president of the CRE Finance Council and managing director of Jefferies & Co.'s commercial mortgage-backed security group. Both groups pressed upon the FDIC that regulators must coordinate with one another about rulemaking, and both letters called attention to the financial reform package being considered in the Senate. The CRE Finance Council urges financial regulators to work within the new framework directed by the Dodd-Frank Act, which requires regulators to promulgate joint rules by ‘asset class’ to ensure that securitization reforms are coordinated and customized. "The ASF is a strong advocate for targeted reforms in the securitization market, but we believe that reforms should only arise out of an interagency process to ensure a level playing field for all market participants," adds ASF's Deutsch. "Congress is very close to finalizing certain mandates for the securitization markets that call for close coordination of a number of different agencies." SOURCES: [link=http://www.americansecuritization.com/uploadedFiles/ASF-FDIC-NPR-Comment-Letter-Executive-Summary.pdf]American Securitization Forum[/link], [link=http://www.crefc.org/About_CMSA/Press_Releases/2010/CRE_Finance_Council_Comments_on_FDIC__Safe_Harbor__Rule/]CRE Finance Council

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