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CLOs To See $15-25 Bln Issued This YearBy Marissa Capodanno

The primary market for collateralized loan obligations could see $15-25 billion in new-

issue deals this year, according to panelists at the CLO Sector Review Monday. “I know of six to eight transactions being marketed right now, to close in the first quarter of 2012,” said Sajid Zaidi, executive director and head of CLO structuring at Morgan Stanley. “I’m confident we’ll see $2.5-3 billion in issuance in the first quarter, absent any game-changing moves from Europe.”

U.S. CLOs are cheap relative to other structured products, and with $12.5 billion in issuance from 28 CLOs last year—more than three times what the primary market saw in 2010—things look to be on the right track, according to Justin Pauley, CLO strategist at the Royal Bank of Scotland. “The CLO structure works, and they’re preforming better now than they did before the crisis,” Pauley said. He pointed to Moody’s Investors Service

(Continued on page 29)

Credit Card Deals Could Feature Sub NotesBy Amelia Granger

Credit card deals in 2011 saw the reemergence of mezzanine notes for the first time since

the 2008 financial crisis, and industry players say subordinated notes might not be far behind. Speakers at the Credit Card ABS Sector Review panel noted the presence of B tranches on American Express and GE credit card transactions out last year and said it was a promising sign — and that the market might see riskier credit card paper in the next few years.

Representing the issuer point of view, Kevin Sweeney, director at Discover Financial Services, said his firm was closely tracking spreads on card deals to try and determine when mezzanine or subordinated notes would make sense for them. “Discover is focused on where class B notes are trading, and we would consider [issuing class B notes] when net funding costs compare competitively to other channels,” he said. Discover is the number one issuer of new AAA rated credit

Disclosure, Ratings Paint The Global Policy PictureBy Graham Bippart

Arming investors with information on the securitized products they buy is viewed as a

key to maintaining market discipline, but that alone might not be enough, Adam Ashcraft, senior v.p. & head of structured product, Federal Reserve Bank of New York, said during Monday morning’s Global Securitization Policy Reforms panel. “One line of thought is that more effective disclosure is really enough, and that if we get more information into the hands of investors, ultimately, the market will provide discipline,” he said. “But I think we don’t need to look further than the CMBS market, where there really was meaningful information…in the hands of B-piece investors who actually had leverage vis-a-vis sponsors, to realize that probably is not going to be enough.” Ashcraft noted that the views he expressed


SUNSHINE IN EUROPE

It’s Not All Bad Over There

Familiar Issues For 2012 3

Seen and Heard 4

GSE Market Still Searching 8

CFPB On The Beat 10

Bookrunner League Tables 11-12

INSIDE

p3IT’S GROUNDHOG DAY

This Kind Of Sounds The Same

p3

Agenda 6

Exhibit Hall Map 27

WHAT’S UP? WHERE AM I?


Adam Ashcraft of the Federal Reserve Bank of New York speaks at the Global Securitization

Policy Reforms panel

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ASF Daily Tuesday, January 24, 2012

www.ASF2012.com www.securitizationintelligence.com 3

Eurozone debt woes may end up being a boon for securitization, as the European market

turns increasingly to secured debt. Speakers on the Implications of the European Sovereign Debt Crisis on Securitization panel pointed to the high rates of issuance of European residential mortgage-backed securities throughout the eurozone crisis, reflecting a healthy market demand, good performance on the underlying assets and the sector’s relatively stable spreads. “Investors seem more keen these days on securitization than on senior unsecured debt,” noted Ashley Kibblewhite, senior risk specialist at the Financial Services Authority, speaking about the European market.

The deleveraging European banks are expected to go through in the coming years may open up opportunities for investors on the secondary market as well. Vishwanath Tirupattur, managing director at Morgan Stanley, said banks are likely to offload the securitized products on their balance sheets using

a ratings-based strategy, not one based on the assets’ performance. “That’s an ultimate value play in my mind,” Tirupattur said. “For people with the stomach for it, the opportunities from the eurozone deleveraging are enormous.” He added

European banks hold about $500 billion in legacy securitized products on their balance sheets.

Another plus for the securitization industry that may result from European tumult is that the sector might finally shake some of

the lingering negative perceptions in Europe from the 2008 financial crisis. “All securitized products were painted with the same brush of negativity,” Tirupattur said. “From a policy-maker perspective, maybe they will say that it’s time to

stop the stepchild treatment and look at performance.”

Robert Plehn, head of asset-backed solutions at Lloyds Banking Group, agreed that securitization’s image abroad might be able to escape the stigma of U.S. subprime RMBS. He added he also hoped European regulators would change their tune. “There’s a bit of regulatory schizophrenia going on,” Plehn said. “They’re essentially punishing securitization, but at the same time the

[European Central Bank] is by far the biggest investor in the securitization market in Europe. Hopefully, attitudes will change as people get away from the headlines and actually take a look at the underlying assets.”

Europe... A Bright Spot?By Amelia Granger

The big post-financial crisis questions about the residential mortgage-backed securities

sector still hang over the market, said panelists participating in the Future of U.S. Mortgage Finance discussion session.

“I feel like this should be called the Groundhog Day panel,” quipped Jeremy Diamond, managing director at Annaly Capital Management. “The situation is still the same, and this time next year will probably look a lot like it does now.” Diamond pointed to a “blizzard of white papers” and housing policy bills in Congress being positives for the sector, even if the markets continue to wait. “Hopefully it will move from ideological to a practical phase,” he said.

In lieu of solutions, participants have to grapple with existing supply and demand issues before any measurable headway will be made. “We’ve got to begin with shadow inventory,” said Laurie Goodman, senior managing director at Amherst Securities Group. “Primary mortgage rates are at their lowest levels since 1960. So if affordability is so great, why is housing in the doldrums?” she posited to the panel.

She said principal modification is a key in decreasing the supply of homes on the market.

Groundhog Panel On MBSBy Marissa Capodanno

Mary Kane, Ashley Kibblewhite, Matthieu Lacaze, Robert Plehn, Atsi Sheth and Vishwanath Tirupattur

Regulatory and macro issues continue to hinder a comprehensive recovery for

both the wider economic landscape and the securitization sector, and they’re not going away anytime soon, according to speakers at the 2012 Securitization Market Outlook panel. “It looks like 2012 is going to be a year of a whole lot of talk and very little action,” said Jordan Schwartz, partner at Cadwalader, Wickersham & Taft. Still on the industry’s to-do list: Dodd-Frank Act implementation, reform of the government-sponsored enterprises and managing the fallout from the European debt crisis, panelists said.

“Different sectors of the market are stabilizing at different rates, like channels,” according to Reginald Imamura, executive vice president at PNC Bank. “Certain channels are just broken still,” he added, pointing to fundamental struggles lingering in the non-agency residential mortgage space.

It’s important to recognize that regulation is not just a banking issue, Imamura said. “These affect everybody, not just the banks,” he said. “That’s where it touches down, but really, it affects liquidity.” The challenge, Imamura emphasized, is that while many of the proposed rules make sense in isolation, their eventual implementation will not take place in a vacuum. “The impact of some of these rules combined could cause liquidity to evaporate,” he said.

Ganesh Rajendra, head of European securitization research at Deutsche Bank in London, told conference goers that part of the holdup on resolution to eurozone troubles lies in that European policy makers lacking the coordination and cohesion of their U.S. counterparts. “It’s always going to be just enough to kick the can,” Rajendra said. “The most important issue is Greece and how you manage, or firewall, that contagion,” he said, calling the process a “noisy web” of policy and politics.

The optimism for residential mortgage securitization, present at last year’s conference, was noticeably absent this time around. “The once-a-year, twice-a-year [real estate investment trust] deal isn’t really a recovery,” Cadwalader’s Schwartz said, referring to the spattering of RMBS deals Redwood Trust has brought to market in recent years—the only new-issue transactions that market has seen since the crisis.

Schwartz also pointed to progress on the GSE front, with a number of bills proposing possibilities for a wind down floating around in Congress in the last year, conceding that none of them are very far along and are unlikely to be passed any time soon.

The panelists said a year from now these same issues would continue be the main concerns on the industry’s mind.

Familiar Issues Looming In 2012By Marissa Capodanno


4 www.securitizationintelligence.com www.ASF2012.com

The qualified residential mortgage rules currently being hammered out by regulators

should ease up from initial proposals, unless the government wants to see the mortgage market shrink even further, said speakers at the Mortgage Underwriting and the Impact of QM panel. The panelists debated the separate qualified mortgage, which is a new underwriting standard, and the qualified residential mortgage, which is the type of loan that would be exempt from coming risk-retention provisions. While the QM standard will define the lending universe, panelists said the QRM standard would define what type of mortgage the capital markets will be able to fund.

Proposals circulating now require a 20% down payment for a QRM. “Twenty percent

sounded neat on paper, but when people went back and looked at loan originations, including [government sponsored enterprise] loans, that disqualified a third of those loans,” said Ryan Stark, director at Deutsche Bank. He speculated

the final rule would need to have a down payment limit closer to 5-10%.

Laurence Platt, practice area leader at K&L Gates, said he thought lawmakers were regretting the original stringent lending

guidelines they set out in the Dodd-Frank Act. “Congress knew what they were doing [when they wrote the rule],” Platt said, adding that Congress initially said borrowers who couldn’t meet the QRM definitions shouldn’t be taking

out mortgages. “At the time, they said those borrowers should be renting. Now they’re saying the regulators went beyond their intent. They have legislative remorse.”

Karen Gelernt, partner at Alston & Bird, agreed the narrowing of credit that was likely to be the result of the

proposed QRM definitions was not Congress’ intent. “You’re causing people to not be able to buy a house,” Gelernt said. “It seems inconsistent with policy that’s part of the legislative history of this country—furthering home ownership.”

Panel: QRM Definition Had Better Loosen UpBy Amelia Granger

“Congress knew what they were doing…

They have legislative remorse.”

— Laurence Platt, practice area leader at K&L Gates

Seen And Heard

You Look FamiliarSecuritization enthusiasts didn’t seem too worried about sharing Sin City with those in town for the 29th annual AVN Awards, the so-called Oscars for adult entertainment, which were held at The Hard Rock Hotel & Casino on Saturday. One ASF attendee said he was keeping a lookout for attendees cross-attending the two events. “I kind of feel like it’s a separate crowd, but you never really know.”

Some VacationIn his lively closing remarks to the Future of U.S. Mortgage Finance panel Monday morning, Alan Boyce, chief executive officer at Absalon summed up his opinion of the sector with a slide depicting a new T-shirt slogan idea: “I spent billions on HAMP, HARP and HAFA and all I got was this stupid shirt.”

What’s In A Name?Gina Hubbel, managing director at Guggenheim Partners, shed light on the mysterious naming process for her firm’s collateralized loan obligation transaction. Guggenheim’s most recent CLO, 5180 CLO LP, was a $1.04 billion transaction that closed Nov. 17. “We had a sort of contest to name it because we ran out of mines to name the deals after,” Hubbel said. Turns out, $51.80 was the return on a $2 bet on Harry Guggenheim’s horse, Dark Star, back in the day. “And I had assumed it was named after

some building somewhere,” said moderator Sara Bonesteel, managing director, head of alternative investments, at Prudential Fixed Income.

Regulatory Overload...Sometimes lawyers seem like regulatory reform nerds, who love nothing more than spending hours poring over the latest Dodd-Frank rule proposals. Other times, they let you know they’re just as fed up as you are. “Today I’ve literally had three people come up to me and say, what are you going to do about your 193?!” exclaimed Ellen Marks, partner at Latham & Watkins, speaking on a panel about credit card ABS. “For audience members who don’t speak in code…” she said sarcastically, before launching into an explanation of the Securities and Exchange Commission’s new Rule 193.

...And Regulatory RoadblockSpeaking of the SEC’s new rule, credit card asset-backed securities banker Steven Moffitt from Goldman Sachs said he wasn’t having much luck getting the regulator to come around on credit card ABS. The rule puts additional requirements on loan-level disclosure, but Moffitt and others don’t think it makes sense for credit card deals’ revolving master trusts, and other deal features like stranded cost transactions. “We had a long discussion with the SEC and we explained how stranded costs deals worked,” Moffitt said. “They

listened to everything we had to say and then they said, okay, so: look at the rule, and go through it, and just do what it says.”

It’s Five O’clock SomewhereThere’s nothing unusual about open bar receptions at industry conferences, but what time is appropriate for them to start? The Seaport Group hosted a Happy Hour event at its booth in the Exhibit Hall for conference-goers Monday. The kick off time? 2 PM. Too early? You kidding? The Seaport Group booth was mobbed by people looking to get the party started with fish tacos and champagne.

Rain? In The Desert?The conference got another round of odd weather to add to Saturday’s high winds, with sporadic rain throughout the day. Few attendees seemed to notice, since most of the more than 4,500 attendees were spending both night and day within the Aria’s spacious walls.

Talk To MeAt the Global Securitization Policy Reforms general session, Christopher Walsh, partner at Clifford Chance, despaired of the different approaches the U.S. and Europe are taking to regulatory reform. “They are oh so, so similar and oh, so, so different, and oh, so, so frustrating as a result,” he said. “Can we just start talking to each other?”

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Agenda

7:00 AM – 6:30 PM REGISTRATION

7:00 AM – 8:30 AM BREAKFAST

7:00 AM – 6:00 PM EXHIBIT HALL

8:00 AM – 9:15 AM GENERAL SESSION Overview of the Consumer Economy Pinyon Ballrooms 4 & 5 A macro look at the economic factors affecting the United States housing market and the broader capital markets for consumer credit.

SPEAKERS: Amy Crews Cutts, Senior Vice President & Chief Economist, Equifax, Inc. Christopher Flanagan, Managing Director, Head of U.S. Securitized Product Research, Bank of America Merrill Lynch

9:15 AM – 10:00 AM Featured Address Pinyon Ballrooms 4 & 5

John Walsh, Acting Comptroller of the Currency, Offi ce of the Comptroller of the Currency

10:00 AM – 10:15 AM BREAK

10:15 AM – 11:15 AM GENERAL SESSION Global Securitization Market Review Pinyon Ballrooms 4 & 5

A broad look at the structured credit markets outside of the United States. MODERATOR James Ahern, Global Head of Securitization, Société Générale Corporate & Investment Banking

11:15 AM – 12:15 PM GENERAL SESSION Future of the Capital Markets for Secured Financing Pinyon Ballrooms 4 & 5

An exploration of the long-term use of securitization and covered bonds in the United States and abroad. MODERATOR Ralph Daloisio, Managing Director, Natixis

12:15 PM – 1:30 PM LUNCH

1:30 PM – 2:30 PM CONCURRENT BREAKOUT SESSIONS REO Disposition Strategies & Outlook Pinyon Ballrooms 1 & 2

An overview of REO issues currently facing the

industry, regulatory community and Obama Administration. MODERATOR Christopher DiAngelo, Partner, Katten Muchin Rosenman LLP

Alternatives to Credit Ratings for Risk-Based Capital Pinyon Ballrooms 6 & 7

A review of the recent United States bank regulators’ proposal to replace credit ratings for risk-based capital purposes and thoughts on future regulatory proposals. MODERATOR James Murray, Managing Director, Citi

Equipment Loan and Lease ABS Sector Review Pinyon Ballroom 3

A review of current issues and challenges facing the equipment ABS market. MODERATOR Paul Jorissen, Partner, Mayer Brown LLP

Federal Legislative Outlook for 2012 & 2013 Pinyon Ballroom 8

An overview of the key policy issues and agenda for the second session of the 112th Congress. MODERATOR Jim Johnson, Managing Director, Public Policy, American Securitization Forum, Inc.

2:35 PM – 3:35 PM CONCURRENT BREAKOUT SESSIONS Government-Backed Securitization Programs Pinyon Ballrooms 1 & 2

A discussion of the issuance and structures of Ginnie Mae, Fannie Mae, Freddie Mac and FDIC residential mortgage securitizations. MODERATOR Jeffrey Johnson, Partner, Bingham McCutchen LLP

Credit Rating Agency Reforms Pinyon Ballrooms 6 & 7

A discussion of the impact of legislative and regulatory reforms on the ratings business and process and the securitization markets. MODERATOR Giselle Barth, Partner, Sidley Austin LLP

Mortgage Loan Warehousing and Repo Market Pinyon Ballroom 3

A review of current issues and challenges facing the warehouse fi nancing market. MODERATOR Steven Becker, Partner, Hunton & Williams LLP

Distressed Debt Investment Strategies Pinyon Ballroom 8

An overview of strategies currently being employed within the distressed debt market. MODERATOR Jonathan Wishnia, Member of the Firm, Lowenstein Sandler PC

3:35 PM – 3:55 PM BREAK

3:55 PM – 4:55 PM CONCURRENT BREAKOUT SESSIONS Mortgage Litigation Pinyon Ballrooms 1 & 2

A debate on current litigation risks and trends, with a heightened focus on RMBS. MODERATOR Scott Walker, Counsel, Lowenstein Sandler PC

FDIC Role in Structured Finance Transactions Pinyon Ballrooms 6 & 7

A discussion of the Federal Deposit Insurance Corporation’s role in the securitization market. MODERATOR Edward Fine, Partner, Sidley Austin LLP

REITs – Past, Present & Future Pinyon Ballroom 3

A discussion of the role of mortgage REITs in the mortgage fi nance industry. MODERATOR Daniel LeBey, Partner, Hunton & Williams LLP

Consumer ABS Traders and Researchers Roundtable Pinyon Ballroom 8

An overview of the past year in consumer ABS and a discussion of what is to come in 2012.

5:00 PM – 6:00 PM CONCURRENT BREAKOUT SESSIONS Comparative Mortgage Finance Systems Pinyon Ballrooms 1 & 2

A discussion of mortgage fi nance systems in other countries and how the United States might draw from other systems for housing fi nance reform. MODERATOR Howard Altarescu, Partner, Orrick, Herrington & Sutcliffe LLP

Dodd-Frank Act – Key Questions Left Pinyon Ballrooms 6 & 7

What key questions concerning the Dodd-Frank Act still need to be answered in 2012? MODERATOR Stephen Ornstein, Partner, SNR Denton US LLP

Accounting Standards and Practices Pinyon Ballroom 3

An update on regulatory and market developments post accounting standards updates. MODERATOR Lisa Filomia-Aktas, Partner, Ernst & Young LLP

RMBS Traders and Researchers Roundtable Pinyon Ballroom 8

A discussion of the fundamental and technical drivers for RMBS. MODERATOR Mani Sabapathi, Principal, Prudential Fixed Income

6:00 – 8:00 PMNETWORKING RECEPTION

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Agency MBS

This trend of large-scale buyers exiting the market isn’t tipped to stop any time soon. “What we’ve seen is a sharp switch in foreign central banks’ portfolios,” Mark Hanson, v.p. of mortgage funding at Freddie Mac, told SI. “For many years foreign central banks were among the largest investors in agency mortgage-backed securities. Now the Ginnie-Conventional swaps indicate a migration from implied guarantee bonds to those backed by the full faith and credit of the U.S. government.”

Foreign buyers are no longer willing to make do with an implied guarantee, he added. “What foreign central banks want is a resolution of the guarantee,” Hanson said. “Until we arrive at some kind of resolution on the guarantee, they’re reluctant buyers of agency MBS.”

Ted To zer, president of Ginnie Mae, agreed 2011 saw more foreign and central banks move into Ginnie bonds, and added he sees an uptick in Ginnie buying activity from players inside the U.S. as well. “When I talk to the market-makers, they’re telling me they see domestic and commercial banks growing their positions in Ginnie Mae,” Tozer noted. He said he thought it was partially due to the need for banks to comply with new risk weighted capital requirements, which would require them to hold capital against Fannie and Freddie bonds, but not against Ginnies, because of Ginnie’s explicit guarantee.

Tozer said he doesn’t have high hopes for movement on resolving the limbo status Freddie and Fannie have been in since 2008, when the agencies were placed in conservatorship. “I think the best we can hope for in 2012 as far as resolution of the guarantee is discussion,” Tozer said. “Hopefully substantive discussion.

Because it’s an election year, the political reality is that you probably will not get a consensus.” He said that he hoped 2012 saw more information gathering and possibly more hearings on the topic in Congress, and that he hoped legislators would at least move toward formulating new policy on resolving the issue of conservatorship and the implied guarantee of Freddie and Fannie RMBS.

But it doesn’t seem like any sector of the market, from foreign buyers to U.S. dealers to governmental regulators, is holding its breath for a resolution of the guarantee to come any time soon. Campaigning politicians from both sides of the aisle called for a swift end to Fannie Mae and Freddie Mac in both the 2010 and now the 2012 elections, but so far credible proposals for resolving the guarantee and enticing foreign buyers back into the market remain scarce. Meanwhile, Fannie and Freddie originate as much as 95% of U.S. residential mortgages.

After Freddie and Fannie went into conservatorship, the Federal Reserve Bank of New York began a program to prop up the flailing agency MBS market. The New York Fed bought $1.25 trillion in agency MBS from Jan. 2009 to March 2010. The size of its buying program indicated to the market that it was a large volume program with a short duration, a market official speaking with SI said, intended only as an emergency measure to help the market get back on its feet after the burst of the subprime bubble.

But in September 2011, Federal Reserve Chairman Ben Bernanke made a surprise announcement: the Fed would reinvest

paydowns on its portfolio of both agency and private label RMBS into agency RMBS. The decision meant that instead of gradually exiting

the mortgage bond sector, as the market had anticipated, the Fed would use the funds generated by the bonds it held hitting maturity or prepaying to buy more agency RMBS, meaning the Fed was staying put in mortgages and putting a renewed focus on the agency sector. Now participants speculate there could even be a third round of Quantitative Easing from the Fed that would include

agency mortgage buys, the official speaking with SI said.

As the agencies continue to have their strongest bid come from government buying programs, Tozer said Ginnie Mae is creating new programs to improve its product and work with its influx of investors. One new program for the market to watch for in 2012 will be an issuer performance scorecard. In Ginnie terms, an “issuer” would be what is more commonly called a “servicer” in the rest of the mortgage world. The scorecard would measure prepayment speeds among the different issuers. Ginnie would then share the scorecard among the issuers, so that they could see if one issuer’s prepayment rate was significantly higher than another’s. This compilation of information would act as a tool to normalize prepayment rates among the Ginnie issuers, Tozer explained. He said the scorecard program was designed to reassure Ginnie investors, and that eventually it would also be made public to them.

Who Wants This Stuff?

GSE Market Still Seeks A BidBy Amelia Granger

The vagueness of the phrase “implied guarantee” hit markets hard in the 2008 financial crisis,

when investors wised up to the fact that Fannie Mae and Freddie Mac’s governmental backing

and status as government sponsored enterprises was untested and undefined. In the years since,

most of the major investors in GSE debt are steadily moving out of the Fannie and Freddie market

and into bonds backed by the “full faith and credit” of the U.S. government, namely Ginnie Mae

bonds and Treasuries.

Ted Tozer


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Regulation

The delay over the appointment of a director to head up the new regulatory body has been blamed on political maneuvering. Elizabeth Warren, Harvard University Law Professor and Special Advisor to the CFPB, was the long-time favorite to head the bureau, but there was considerable pushback from those that saw her as too anti-business. Warren’s advocates often cited the “we are the 99%” phrase that was the rallying cry of the “Occupy” movements in promoting her as a pro-consumer, anti-big business figure.

“People were afraid of Elizabeth Warren,” said Ornstein. “The business community felt like they wouldn’t get a hearing with her.” But Cordray, a former state attorney general from Ohio, has a track record of taking a hardline against banks and the mortgage industry, and Ornstein noted that his appointment is not doing much to calm the business community’s fears.

State attorneys general have suddenly emerged as major players in the securitization world, as state AGs have begun halting foreclosures in recent years across the U.S. Cordray was active as a state AG in the fight against robo-signing and other allegedly faulty foreclosure practices. Market participants say these halts in foreclosures by state AGs are making it difficult for residential mortgage-backed securities investors to model foreclosure timelines, an important part of determining

the bonds’ value. Ornstein said that he sees a functioning foreclosure process—rather than sudden state-by-state freezes in foreclosures—as an essential part of getting the housing market back on track.

In October 2010, Cordray said he would file suit against Ally Financial, the frequent securitization issuer and former mortgage finance arm of GMAC. This was one of the first suits filed by a state AG

over robo-signing, and is credited with leading the charge of state AGs to halt foreclosures. Cordray, speaking at a press conference at the time of announcing the planned suit, said he would seek civil penalties of up to $25,000 per violation of foreclosure procedure. “Some ugly revelations have recently come to light about how foreclosures are being processed in this country,” Cordray said at the press conference. “I’m deeply concerned that GMAC’s unlawful procedures for filing foreclosure are being used by other major servicers in the market.”

Ornstein explained that the CFPB is a uniquely powerful regulator, and not just because of its scope of regulating non-depository institutions. “It’s an enormously powerful bureau because it has its own funding source and a single director,” Ornstein said. “Congress could overrule CFPB decisions, but that isn’t too likely in this age of Congressional gridlock.” Members of Congress filibustered to try to prevent Cordray’s appointment to head the bureau, but

President Barack Obama made use of a recess appointment to install Cordray, a move that drew additional partisan objections to Cordray’s leadership.

Beyond the issues raised by the newly active CFPB, Ornstein highlighted the evolving definitions of qualified mortgages and qualified residential mortgages as important regulatory changes for the market to watch out for in the New Year. A qualified mortgage, or QM, is a new standard for mortgage lending. Some of the parameters that make up a QM are already contained in the Dodd-Frank statute. A QM requires verification of borrower income, prohibits payments from exceeding the principal, and bars points and fees from exceeding 3% of the principal amount, among other lending provisions. But the Dodd-Frank Act also lays out the concept of a qualified residential mortgage, or QRM, which would define what kind of mortgage is safe enough to be exempt from the coming risk retention rule. This would mean the issuer of a securitization made up entirely of QRM collateral would not have to hold a 5% slice of the deal on its books.

“It’s hugely important, because I would think if a loan is not a QRM loan it’s not going to be made,” Ornstein told SI. He said the evolving definitions of QRMs coming out from regulators required a pristine loan with an extremely high threshold of credit. “The proposals for QRMs are stringent guidelines,” he said. “The question is, who is going to make these loans? It doesn’t bode well for a more varied marketplace.”

New Cop On The Dodd-Frank Beat:CFPB Kicks Off Regulatory ActionBy Amelia Granger

The appointment of a leader for the Consumer Financial Protection Bureau marks a new and

important step in the long, drawn-out process of Dodd-Frank reforms, according to Stephen

Ornstein, partner at SNR Denton. The CFPB was established with the signing of the Dodd-Frank

Act in July of 2010, but has been more or less inactive without the appointment of a director.

Now, with Richard Cordray at the helm, the bureau can begin to function as a powerful, far-

reaching regulator with authority over not just banks, but non-depository institutions as well. “The

show starts now for non-depository institutions,” Ornstein said, noting that the CFPB will sweep

securitization deal parties like servicers and mortgage companies further into the regulatory fray.

Richard Cordray


ASF Daily Tuesday, January 24, 2012 League Tables

B of A Secures Two Years Atop ABS League TablesBy Graham Bippart

The bank took 9.8% of the global ABS market with $15.8 billion across 71 deals, an increase of about $500 million from 2010, according to data from Dealogic. Global ABS issuance totaled about $161 billion; an increase of about $36.3 billion from 2010. JPMorgan, Barclays Capital and Citigroup were all among the top four for the second straight year.

B of A secured its top rank in global RMBS despite decreasing its output by about $22.4 billion from 2010 amid an overall decline in that sector, which fell by approximately $111.4 billion year-over-year. The bank took second place in global

collateralized debt obligations, behind Citi with $3.7 billion in deals.

In the U.S., JPMorgan led the way in a modest year of commercial mortgage-backed securities growth, also tying down a two-year streak in that sector among an otherwise shuffling roster of top bookrunners. The bank was bookrunner on 10 deals totaling $6.62 billion of the year’s $39.18 billion in overall CMBS. The biggest upset was Wells Fargo, which climbed seven rungs to take third place in 2011, with $4.6 billion in deals. JPM also secured the lead in Europe’s RMBS sector, despite decreasing its dollar output

by nearly $2 billion to $12.9 billion. The entire European RMBS market slumped to $63.4 billion from $71.7 billion in 2010.

Lloyd’s Banking Group and HSBC retained their spots at first and second, respectively, in European ABS. Lloyds had its name on $4.8 billion in deals, followed by HSBC’s $4.0 billion. The total European ABS market grew by about 79% to $35.0 billion year-over-year. European collaterized debt obligation issuance dropped to zero from 2010’s $1.9 billion. Deutsche Bank was the only issuer of European CMBS in 2011, with one $492 million deal.

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A market leader in the field of

mortgage-backed securities since

1982, Thacher Proffitt was instrumental

in the formation of the MBS and

CMBS markets.

More than 50 lawyers from Thacher

Proffitt’s Structured Finance Group joined

Sonnenschein’s Capital Markets practice

in 2009, providing a national platform

from which to serve their clients.

Sonnenschein combined with Denton Wilde Sapte to

form SNR Denton in 2010. The firm’s Capital Markets

practice continues to serve the structured finance

needs of former Thacher Proffitt and Sonnenschein

clients—and now many others around the world.

1982 2009 2010

snrdenton.com

Bank of America-Merrill Lynch tied down two consecutive years as top bookrunner in

multiple sectors of securitization market in 2011, including global asset-backed securities,

global residential mortgage-backed securities, U.S. ABS and U.S. RMBS.




League Tables

Global MBSRank Bookrunner Value $m No. % share

1 Bank of America Merrill Lynch 61,612 85 10.72 Barclays Capital 60,545 71 10.53 JPMorgan 52,011 80 9.04 Credit Suisse 50,136 78 8.75 Deutsche Bank 49,810 75 8.76 Goldman Sachs 46,379 50 8.17 Citi 34,769 49 6.08 Morgan Stanley 32,909 59 5.79 RBS 31,509 74 5.510 Nomura 22,280 40 3.9

Subtotal 441,959 586 76.7 Total 576,014 810 100.0

U.S. MBSRank Bookrunner Value $m No. % share

1 Bank of America Merrill Lynch 57,534 77 13.02 Barclays Capital 52,739 62 11.93 Credit Suisse 48,479 73 10.94 Goldman Sachs 43,521 45 9.85 Deutsche Bank 43,409 57 9.86 JPMorgan 38,778 59 8.77 Citi 32,191 41 7.38 Morgan Stanley 24,240 44 5.59 RBS 22,918 61 5.210 Nomura 17,121 33 3.9

Subtotal 380,931 523 85.9 Total 443,641 675 100.0

Europe MBSRank Bookrunner Value $m No. % share

1 JPMorgan 12,947 20 20.32 RBS 7,918 11 12.43 Barclays Capital 7,344 7 11.54 Lloyds Banking Group 6,641 7 10.45 Rabobank 4,694 9 7.46 Deutsche Bank 3,687 8 5.87 Santander 3,225 4 5.18 Morgan Stanley 2,926 5 4.69 SG Corporate & Investment 2,894 5 4.5 10 Bank of America Merrill Lynch 2,146 3 3.4

Subtotal 54,421 36 85.2 Total 63,870 40 100.0

Global CDORank Bookrunner Value $m No. % share

1 Citi 3,731 9 30.42 Bank of America Merrill Lynch 2,261 5 18.43 Morgan Stanley 2,125 5 17.34 Standard Chartered Bank 836 6 6.85 Wells Fargo Securities 612 3 5.06 Credit Suisse 407 1 3.37 Mitsubishi UFJ Financial 371 2 3.0 Group8 UBS 297 1 2.49 RBS 204 1 1.710 Daewoo Securities 175 3 1.4

Subtotal 11,018 33 89.8 Total 12,271 37 100.0

U.S. CDORank Bookrunner Value $m No. % share

1 Citi 3,666 8 37.02 Bank of America Merrill Lynch 2,261 5 22.83 Morgan Stanley 2,093 4 21.14 Wells Fargo Securities 612 3 6.25 Credit Suisse 407 1 4.16 Mitsubishi UFJ Financial 371 2 3.7 Group7 UBS 297 1 3.08 RBS 204 1 2.1 Subtotal 9,911 22 100.0 Total 9,911 22 100.0

Europe CDORank Bookrunner Value $m No. % share

No Deals

Global CMBSRank Bookrunner Value $m No. % share

1 JPMorgan 6,622 10 15.92 Deutsche Bank 6,491 16 15.63 Wells Fargo Securities 4,604 9 11.14 Barclays Capital 4,188 7 10.15 Bank of America Merrill Lynch 4,012 10 9.66 Morgan Stanley 3,755 9 9.07 UBS 2,843 5 6.88 RBS 2,663 6 6.49 Goldman Sachs 1,834 3 4.410 Citi 1,553 3 3.7

Subtotal 38,564 53 92.6 Total 41,627 60 100.0

U.S. CMBSRank Bookrunner Value $m No. % share

1 JPMorgan 6,622 10 16.92 Deutsche Bank 5,999 15 15.33 Wells Fargo Securities 4,604 9 11.84 Barclays Capital 4,137 6 10.65 Bank of America Merrill Lynch 4,012 10 10.26 Morgan Stanley 3,601 8 9.27 UBS 2,843 5 7.38 RBS 2,663 6 6.89 Goldman Sachs 1,834 3 4.710 Citi 1,553 3 4.0

Subtotal 37,867 50 96.6 Total 39,184 51 100.0

Europe CMBSRank Bookrunner Value $m No. % share

1 Deutsche Bank 492 1 100.0

Subtotal 492 1 100.0 Total 492 1 100.0

Global RMBSRank Bookrunner Value $m No. % share

1 Bank of America Merrill Lynch 57,600 75 10.82 Barclays Capital 56,357 64 10.63 Credit Suisse 49,215 75 9.24 JPMorgan 45,389 70 8.55 Goldman Sachs 44,544 47 8.36 Deutsche Bank 43,319 59 8.17 Citi 33,217 46 6.28 Morgan Stanley 29,153 50 5.59 RBS 28,846 68 5.410 Nomura 22,280 40 4.2

Subtotal 409,921 533 76.8 Total 533,987 747 100.0

U.S. RMBSRank Bookrunner Value $m No. % share

1 Bank of America Merrill Lynch 53,522 67 13.22 Barclays Capital 48,602 56 12.03 Credit Suisse 47,687 71 11.84 Goldman Sachs 41,687 42 10.35 Deutsche Bank 37,409 42 9.36 JPMorgan 32,156 49 8.07 Citi 30,638 38 7.68 Morgan Stanley 20,639 36 5.19 RBS 20,256 55 5.010 Nomura 17,121 33 4.2

Subtotal 349,719 474 86.5 Total 404,366 623 100.0

Europe RMBSRank Bookrunner Value $m No. % share

1 JPMorgan 12,947 20 20.42 RBS 7,918 11 12.53 Barclays Capital 7,344 7 11.64 Lloyds Banking Group 6,641 7 10.55 Rabobank 4,694 9 7.46 Santander 3,225 4 5.17 Deutsche Bank 3,195 7 5.08 Morgan Stanley 2,926 5 4.69 SG Corporate & Investment 2,894 5 4.6 Banking10 Bank of America Merrill Lynch 2,146 3 3.4

Subtotal 53,929 35 85.1 Total 63,378 39 100.

Global ABS (ex CDO)Rank Bookrunner Value $m No. % share

1 Bank of America Merrill Lynch 15,768 71 9.82 JPMorgan 15,609 62 9.73 Citi 13,622 43 8.54 Barclays Capital 13,361 50 8.35 RBS 12,313 55 7.66 Deutsche Bank 9,935 48 6.27 Credit Suisse 8,501 33 5.38 RBC Capital Markets 7,561 25 4.79 Lloyds Banking Group 5,739 14 3.610 BNP Paribas 5,306 18 3.3

Subtotal 107,715 231 66.9 Total 161,082 382 100.0

U.S. ABS (ex CDO)Rank Bookrunner Value $m No. % share

1 Bank of America Merrill Lynch 14,766 67 14.92 JPMorgan 13,810 54 13.93 Citi 10,552 33 10.64 Barclays Capital 10,108 42 10.25 RBS 9,585 44 9.76 Credit Suisse 8,501 33 8.67 Deutsche Bank 7,940 41 8.08 RBC Capital Markets 4,784 18 4.89 Wells Fargo Securities 3,963 23 4.010 Morgan Stanley 3,153 11 3.2

Subtotal 87,164 191 87.9 Total 99,182 210 100.0

Europe ABS (ex CDO)Rank Bookrunner Value $m No. % share

1 Lloyds Banking Group 4,768 10 13.62 HSBC 4,043 18 11.53 Barclays Capital 3,136 7 9.04 Citi 2,944 9 8.45 SG Corporate & Investment 2,464 4 7.0 Banking 6 BNP Paribas 2,203 6 6.37 Santander 1,798 5 5.18 Deutsche Bank 1,701 6 4.99 RBS 1,530 6 4.410 Volkswagen Financial 1,444 4 4.1 Services AG

Subtotal 26,031 50 74.3 Total 35,031 58 100.0

Annual Bookrunners League Tables provided by Dealogic


Recently, the OCC, the Federal Reserve Board, the FDIC and the SEC (together

with the CFTC, the “Joint Agencies”) proposed regulations intended to implement the Volcker rule of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which seeks to restore safety and soundness to the US banking system. If these regulations are implemented as proposed, there could be serious implications for the ABS markets. Among other things, the proposed Volcker regulations would negatively impact the ability of banking entities to securitize their own assets, sponsor securitizations for others, lend or provide other credit support to ABS issuers and ABCP conduits, purchase assets from ABS issuers, invest in (or continue to own) ABS securities and act as third party service providers to ABS issuers. All of these are necessary for viable ABS markets to continue to provide credit to consumers and businesses.

Here is a closer look at some of the major unintended consequences of the proposed Volcker regulations.

WHAT’S IN A NAME? The Volcker rule generally prohibits banks and their affiliates (“banking entities”) from engaging in proprietary trading and from owning interests in hedge funds and private equity funds since Congress was concerned that ownership in such funds would permit banking entities to indirectly engage in prohibited proprietary trading. However, Congress did not define what a hedge fund or private equity fund is. Instead, Congress defined such funds (“covered funds”) by reference to the private investment company exceptions (Sections 3(c)(1) and 3(c)(7)) they typically rely on to avoid registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”). Many ABS issuers also rely on these exceptions. As a result, those ABS issuers who cannot rely on another Investment Company Act exception would be treated as covered funds subject to the Volcker rule.

RESTRICTIONS ON “OWNERSHIP INTERESTS”. The proposed Volcker regulations restrict banking entities to owning not more than a de minimis amount of ownership interests in the covered funds they sponsor for customers and the amount required to satisfy Dodd Frank credit risk retention requirements. The primary exception is for loan securitizations in which banking entities are permitted to invest (although if such securitizations are covered funds, they remain subject to the proposed Volcker Super 23A and material confl icts of interest restrictions). Although loan is broadly defi ned to include loans, leases and receivables, the loan securitization carve out does not include the ability to invest in temporary cash equivalent investments or in small buckets of other fi nancial assets. Municipal bond securitizations, certain ABCP conduits and securitizations of other types of fi nancial assets are not included in this exception.

ABS SENIOR DEBT MIGHT CONSTITUTE “OWNERSHIP INTERESTS”. Of particular concern is the suggestion in the release accompanying the proposed regulations that if a debt security provides its holder with voting rights, it may be viewed as an ownership interest subject to Volcker restrictions. If that is the case, given the substantial voting rights held by ABS senior debt holders (including the right to remove and replace ABS managers), banking entities may be expected by regulators to sell ABS senior debt as early as July 2012, when the Volcker rule becomes effective whether or not the implementing regulations have been adopted by such date. This could take a signifi cant number of senior debt investors out of the ABS markets.

“SUPER 23A” RESTRICTIONS AND CONFLICTS OF INTEREST RULES WILL MAKE IT EXTREMELY DIFFICULT TO OPERATE AN ABS ISSUER. “Super 23A” under the proposed Volcker regulations would dry up warehouse fi nancing for ABS issuers and the ABCP conduit market. “Super 23A” prohibits any “covered transaction” between a banking entity that is an investment adviser to, or sponsor of, a covered fund and such covered

fund including, among other things, any loan, extension of credit or guarantee, any purchase of assets, and any purchase of such covered fund’s securities (except as otherwise permitted by the Volcker rule). These types of covered transactions are commonly entered into by banking entities that sponsor ABS securitizations or ABCP conduits, neither of which typically can be done without them. Furthermore, the proposed confl ict of interest rules go far beyond the confl ict of interest rules for ABS securitizations recently proposed by the SEC. They prohibit any banking entity from relying on an exemption otherwise available under the Volcker rule to hold ownership interests in covered funds, to act as sponsors of covered funds, or to have certain relationships with covered funds, if the permitted activity or investment would result in the banking entity’s interests being materially adverse to the interests of its clients, customers or counterparties without either appropriate information barriers or signifi cant disclosure obligations beyond current confl icts of interest disclosure in ABS marketing materials or current registered investment adviser confl icts of interest disclosure.

SO WHAT’S THE SOLUTION? The Joint Agencies should exempt ABS transactions entirely from the Volcker rule. ABS transactions are structured fi nancing transactions that investors require be held by bankruptcy remote special purpose entities so that the cash fl ow from the entity’s fi nancial assets is available to pay its securities. Although many of these entities rely on the private investment company exceptions under the Investment Company Act, they are clearly not hedge funds or private equity funds and should not be subject to the Volcker rule.

We recommend that interested parties comment on the proposed Volcker regulations prior to the end of the comment period on February 13, 2012.

This article was authored by Cynthia J. Williams, a Boston-based partner in Dechert LLP’s Finance and Real Estate practice. She can be reached at +1 617 654 8604 or [email protected].

VOLCKER RULE: UNINTENDED CONSEQUENCES FOR ABS

SPONSORED ARTICLE

Cynthia J. Williams, Partner, Dechert LLP

Dechert article.indd 1Dechert article.indd 1 1/6/12 11:40 AM1/6/12 11:40 AM

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mailto:[email protected]



While a number of factors beyond a servicer’s control -- including dips in the economy and various characteristics of the individual borrowers -- make it difficult to predict defaults and recoveries directly, Standard & Poor’s Rating Services’ Global Surveillance Analytics team has developed a method for assessing a servicer’s default management process. Investors can use these

methods to assess how effective servicers’ strategies are in limiting losses.

Our new method incorporates two key components: how quickly individual servicers have been able to liquidate nonperforming loans; and the success of their loan modification programs. We estimate the net effect of these aspects of servicers’ strategies on losses into a

single number that reflects the cost or benefit of the timing differences and the loss reductions and costs related to modifications. The results of our study suggest that servicers’ strategies can greatly affect losses resulting from nonperforming loans. They also reveal significant performance variations among the servicers in our sample.

This method is separate from that of Standard & Poor’s Servicer Evaluations group, which encompasses a much broader set of factors for assessing and ranking servicers. For this study, we used loan-level information on nonagency U.S.

residential mortgage-backed securities from CoreLogic’s LoanPerformance database, assigning each loan to its respective servicer where possible (many loans remain unassigned). The loans included are not limited to deals we rate, but include all securitized first-lien nonagency loans available through LoanPerformance. Although we believe we identified a substantial number of loans for many of the largest servicers, the data set is not complete. As such, we do not list the servicers by name (although we may do so in future reports) and limit the results to the ten servicers for which we could identify the largest number of loans

Metrics For Assessing Servicers’ Resolution Timelines We view the average amount of time to close a nonperforming loan -- which includes liquidations, as well as deeds-in-lieu of foreclosure and short sales -- as a particularly useful method for assessing servicers, for several reasons. Long foreclosure periods typically increase losses due to missed interest payments and incurred expenses. Moreover, because we can easily conduct our analysis to account for the most significant confounding factors -- the loan’s pool type and the location of the property -- the time to close a nonperforming loan provides a more accurate and less subjective measure, in our view.

To assess servicers’ efficiency, we looked at the average number of missed mortgage payments for each servicer’s nonperforming loans (including loans that are still open and those that closed after they defaulted), then subtracted any additional mortgage payments the borrower made while delinquent. This provided a rough measure of the relative cost to an investor of the servicer’s

Assessing Mortgage Servicers’ Foreclosure Speeds And The Success Of Loan ModificationsBy Diane Westerback and Jacques Alcabes, Standard & Poor’s

The continuing slump in the U.S. housing market has highlighted the crucial role of mortgage

servicers, which administer all aspects of these loans—from collecting payments, to modifying

troubled loans, to proceeding with foreclosures and property liquidations when borrowers default.

Ultimately, a mortgage servicer’s success from an investor perspective boils down to the extent

of defaults within its portfolio of mortgages and the speed and volume of any recoveries it can

achieve on those loans.

Servicer A, 20.2

Servicer A, 19.2

Servicer B, 17.2

Servicer B, 13.9

Servicer C, 16.8

Servicer C, 14.4

Servicer D, 19.9

Servicer D, 18.9

Servicer E, 18.9

Servicer E, 17.1

Servicer F, 18.0 Servicer F, 18.0Servicer G, 17.7

Servicer G, 16.3

Servicer H, 18.9

Servicer H, 18.8

Servicer I, 17.0

Servicer I, 18.9

Servicer J, 18.0

Servicer J, 22.0

Target Number of Missed Payments Actual Number of Missed Payments

Target (TMP) Versus Actual (AMP) Number Of Missed Payments For Closed Loans by Servicer

Source: CoreLogicSource: CoreLogic




resolution, as accrued interest is the largest controllable component of loss severity.

Average foreclosure timelines -- and, consequently, the number of missed mortgage payments before liquidation -- can vary significantly between states, primarily because of variations in their particular judicial foreclosure requirements. Some states, such as New York, require a lengthy mediation process that can add several months to liquidation timelines (previously discussed in our report, “New York Can’t Get No Liquidation,” 4/12/11).

For each servicer, we calculated the difference between the average actual number of missed payments (AMP) on its loans and a target number of missed payments (TMP). A servicer’s TMP is an overall average number of missed payments that accounts for the distribution of the servicer’s loans across states and loan types and variations in the average number of missed payments by state and pool type.

To calculate each servicer’s TMP, we first divided the mortgages from all servicers into 153 groups: 51 regions (50 states plus Washington, D.C.), with three loan types for each (prime jumbo, subprime, and Alternative-A). We then calculated the average number of missed payments for each of these 153 groups. Each servicer’s TMP is a weighted average of the average number of missed payments in each of the groups, weighted by the number of loans that servicer monitors in each group. This target, shown on the left-hand-side of chart 1, represents an approximation of what each servicer’s average number of missed payments would be if the servicer closed its nonperforming loans as quickly as the average in each of the 153 groups of loans. On the right side of chart 1, the AMPs show the actual average number of missed payments for each servicer’s closed loans. The difference between a servicer’s AMP and TMP, or the steepness of the line in chart 1, is a measure of how quickly a servicer closed its nonperforming loans relative to the average after accounting for the distribution of the servicer’s loans across regions and pool types. A servicer’s line going up in chart 1 (from left to right) means that the servicer resolves its nonperforming loans more slowly than expected, and vice versa.

We calculated an AMP and TMP for each servicer for two groups of loans: loans that were more than 90 days delinquent but still active as of November 2011 and defaulted loans that the servicer had closed between January 2009 and November 2011. As in chart 1, the higher the number, the longer the liquidation timeline relative to the peer average, and vice versa.

We found significant differences in servicers’ speeds relative to their targets. For instance, servicer B was, on average, able to close its nonperforming loans 3.4 months more quickly than its target, saving investors that many months of missed interest payments and preservation costs. On the other end of the spectrum, it took servicer J 3.9 months longer than its target to close its nonperforming loans. This means that just among the 10 servicers in our sample, investors might be able to save up to 7.3 months of interest payments (on loans that eventually default and close) by discriminating between servicers.

Metrics For Assessing Servicers’ Loan ModificationsServicers may also have the option to modify the terms of certain loans to make it easier for the borrower to pay and thus less likely to redefault. We consider a modification successful if it enables a delinquent borrower to start making payments again and the loan remains current for at least 12 months.

Since successful modifications can result in investors avoiding significant losses, both the magnitude and relative success rates of servicers’ loan modification programs are relevant in analyzing servicers’ strategies. We found that for the servicers in our sample, rates of successful modifications as a percentage of all nonperforming loans ranged from 3% to 18%.

Making Sense Of The NumbersAs a final step in our analysis, we combined the servicers’ relative resolution timelines with their modification success and failure rates. To do this, we came up with a method that converts each

factor into an estimated effect on investor losses. For this aggregate calculation, we assume that each month difference between a servicer’s AMP and TMP saves interest payments and preservation costs of about 1%.

For loans successfully modified, we assume servicers have avoided 75% of otherwise expected losses on those loans, reflecting the costs associated with modifying a loans and the fact that the loan may eventually redefault. Since loss severity averaged 60% for the pool of loans in our sample, a successful modification implies savings of 45% (75% times 60%) for investors. On the other hand, failed modifications can be costly as they generally restart the foreclosure process--when the loan redefaults, it will incur additional lost interest and other

expenses. We assume that this delay in ultimately resolving the loan, along with the direct costs of implementing the modification, result in additional losses of 9%.

The results of this calculation are shown in the last column of table 1. Using these assumptions, servicers can have a considerable effect on reducing the losses investors suffer from nonperforming loans. In our study sample, the effect ranged from additional losses of 3% (represented by servicer J’s -3%) to an 8% reduction in losses (represented by servicer A’s +8%). This range implies that servicers’ decisions can have significant impact on the amount of losses investors experience.

We believe the methods developed in this study provide a solid base for analyzing some key aspects of servicers’ success in reducing total losses to U.S. RMBS investors. The combined number we calculate allows investors to compare the various elements of servicers’ strategies in dealing with nonperforming loans to estimate the net effect on losses. In the coming year, we plan to use loan-specific information to refine our estimates of the effects of servicers’ resolution timelines and modification programs. In addition, we intend to create a model to grade servicers’ ability to prevent defaults from occurring in the first place.

We believe these metrics will be useful for investors looking to assess the relative performance of servicers’ strategies. Our approach captures significant differences between servicers that can have considerable impact on losses. Servicers that can close nonperforming loans more quickly save investors several months of missed interest payments, while extensive loan modifications, when successful, can prevent losses.

Number of Missed Payments and Successful Modification RatesBy Servicer

Difference between Actual (AMP) and

Target (TMP) Number of Missed Payments

(In Months)

Open Loans in Default

Closed Defaulted Loans

Servicer A 33,417 13,548 -4.4 -1.0 18% 6% 8%Servicer B 97,437 46,274 -3.6 -3.4 9% 6% 7%Servicer C 21,868 11,306 -4.1 -2.4 9% 3% 6%Servicer D 90,969 34,360 -5.3 -0.9 11% 9% 5%Servicer E 49,880 21,275 -3.3 -1.8 9% 8% 5%Servicer F 108,941 52,752 -1.5 0.0 10% 6% 4%Servicer G 52,009 24,668 -3.0 -1.4 7% 3% 4%Servicer H 55,817 23,457 0.1 -0.1 6% 3% 3%Servicer I 25,346 7,963 1.4 1.9 4% 2% 0%Servicer J 166,414 55,454 5.6 3.9 3% 3% -3%

The colors in each column reflect the relative success of each servicer in that area. Green represents relatively high success, and red relatively low.

* For the purposes of this analysis, we considered only those modifications that returned loans to "current" on their payments, at least initially. We considered a modification to be unsuccessful if the borrower fell 90 days behind onpayments within 12 months of the modification, and successful otherwise

Source: CoreLogic

% of Defaulted Loans that

Were Successfully Modified *

# of Loans that

Defaulted

# of Defaulted

Loans Closed

% of Defaulted Loans that

Were Unsuccessfully

Modified

Effect of Servicing Strategy

on Reducing

Losses




Market View

CMBS Special Servicer Behavior Regarding Subordinate Bond PositionsBy Darrell Wheeler, Vivek Tiwari and Joe Yu, Amherst Securities

Originally, these special servicers were staffed with workout specialists that had clear mandates to service the commercial mortgages and maximize recoveries for the CMBS trust, and this behavior was frequently reinforced by the special servicer’s ownership of the transaction’s noninvestment grade classes. However as the recession progressed, the capital structure of these CMBS transaction has experienced collateral write downs that has

started to eliminate the servicer’s interest (“B” Unrated Tranche in Exhibit 1). Post recession many of the special servicers have been sold to new owners that may have more aggressive real estate-like return targets or alternative investment motivations beyond

simply servicing the pool. In Exhibit 1, we show some of the major ownership transitions that have taken place over the past few years.

The table lists several major ownership changes that have transitioned many of these servicing operations from pension fund or insurance company to more opportunistic less institutional buyers. With these recent changes investor have become concerned that ownership of these servicers has changed hands over to a more real estate related firms that may potentially take advantage of the fair value option special servicers retain on asset dispositions. This option enables special servicers and controlling class holders (which in turn could be special servicers themselves) to buy a defaulted but not foreclosed loan at fair value. Generally, the trustees have to verify the purchase price established by the buyer but the fair value determination can be based on a recent appraisal. This leaves investors concerned that the new owners of special servicers

may be more inclined to liquidate assets at undervalued price levels rather than fully marketing the assets.

Several investors have also highlighted that some special servicers now seemed to have ownership relationships with various commercial real estate brokers. This fee business was likely considered to be a natural progression as liquidation portfolios swelled during the recession and the servicer saw how much money they were potentially leaving on the table. These real estate brokerage fees can typically run from .5% up to as much as 6% when the buyer is not represented and could also potentially help the servicer to direct which investor gets to buy a

In the past year, ownership of several commercial mortgage-backed securities special servicers

has changed hands to opportunistic investors or funds. We consider whether this ownership

change has altered CMBS servicer behavior in this article and look at the post-2009 troubled loan

experience with a focus on the resulting appraisals, note sales, modifications or liquidations. The

article considers the servicer’s economic position within the CMBS transaction at the time the

action was taken and we do find that so far special servicers have been inclined to liquidate the

loans once the BB+ balance was written down to less than 25% of the original balance (when the

controlling right is transferred). We would caution that this result is based on a limited sample

of 52 loan resolutions, but it does suggest that CMBS investors could anticipate an increase in

liquidations as subordinate classes get extinguished. The article also compares liquidation and

modification rates among the major CMBS special servicers and finds some interesting nuances

about their different behaviors.

Darrell Wheeler

Vivek Tiwari


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Market View

loan. In fact, C-III Capital Partners has acquired NAI Global (which through its affiliates completes over $45 billion in real estate transactions a year). While Island Capital directly owns ICG Realty LLC which is another commercial real estate broker and in October announced a strategic relationship/investment with Grubb & Ellis, a commercial real estate broker. Exhibit 1 which lists the consolidation that has happened within special servicing industry also provides the related commercial real estate brokerage connections that we currently know. The potential for fees to drive a propensity to liquidation is a servicer conflict that should require servicer disclosure of related real estate commissions earned on loan dispositions.

Investors are particularly concerned over mid sized loans( between $10 to 50 million), which are not in the public spotlight. October’s remittance report for BACM 2002-2 provides a good cautionary example in two loans that were quickly liquidated at very high severities. The loans in question are 20555 and 20255 Victor Parkway in Livonia, MI, which were a $24.17 million and $22.59 million office loans fully occupied by Quicken Loans which was vacating in August, 2011. The defaulted loans were transferred to C-III, the special servicer, in March and quickly had a new appraisal in June for $3.9 million on the 20555 Victor property and $4.5 million for the 20255 Victor property. At that time the loan caught our attention (as we reunderwrote the loan in our CMBS ALIAS system), but based on our ALIAS comparable sales data we could not really determine that the large potential appraisal reduction was unjustified for an empty property. The required appraisal reduction was implemented in August when Quicken vacated and stopped paying rent, and now in this month’s remittance we see that 20555 and 20255 have suffered 85.5% and 89.3% losses, respectively from a discounted pay

off from the borrower. The speed and severity of this resolution catches our attention as a servicer typically allows some time for reletting a property and improving income before disposing of an empty property. The servicer would typically weigh the properties’ carry cost versus a quick dark value disposition with their consideration that a tenant is unlikely to be found. But in this case the evaluation of leasing options seems to have been cut short by the deeply discounted October payoff by the owner, who is listed in the prospectus as Michael Kojaian, who is chairman of Grubb & Ellis a commercial real estate broker. On October 17th, C-III announced a strategic investment in Grubb & Ellis, so there appears to be a clear relationship1 between the borrower and the servicer, which hopefully did not play any role in the loan workout.

Then on October 19th, just five days after the discounted payoff, an article in Crain’s Detroit Business2 announces that Kojaian Management Co. has fully leased both buildings to Trinity Health under a ten year lease. Obviously, with a new quality long term tenant signed up within days of the discounted payoff the building is likely significantly worth more than the

discounted payoff value of the loans. We would hope that special servicer had no idea that potential tenant was in the wings when they went forward with the discounted payoff and this would not be the first time servicer has been hoodwinked by borrower looking for a modification or discounted payoff. But the chain of events is suspect, a relationship between borrower and servicer appears to exist, and servicer did not appear to allow significant time to evaluate leasing options, so we expect that investors in this transaction will be contacting the trustee and master servicer to investigate the special servicer’s decisions. Given the events on the BACM

transaction there are obviously valid investor concerns over any increased propensity to liquidate, especially if it affects severities and bond repayments. Also, opaque details on loan liquidation process further compound investors’ problem understanding servicer behavior. Analyzing these potential behaviors is difficult as servicer actions are being influenced by market refinancing conditions, property investment yields and value and expectations for the economy which have clearly been volatile over the past 36 months. While many times there is just limited information in order to determine what factors drove a particular servicing decision. As strategists we do try to predict future outcomes, and the CMBS ALIAS system has been established to box in potential liquidation/

Exhibit 1. Special Servicer Ownership Changes 2009 to To Date Source: Amherst Securities Group LP, Commercial Mortgage Alert

Outcome Loan Balance ($MM) Loan Count Average Size ($MM)

mod 13,687 361 38

liquidate 5,921 635 9 (Severity 66%)

still in Special Servicer 8,068 406 20

cured (out of SS) 2,092 138 15

Total 29,768 1,540 19


liquidation 32 3 11 (Severity 82%)

Total 32 3 11


mod 11 1 11

liquidate 136 14 10 (Severity 73%)

still in Special Servicer 201 22 9

cured (out of SS) 105 12 9

Total 453 49 9

Deals With Outstanding BB+ Class More Than 25% Of The Original Balance

Deals With Outstanding BB+ Class Less Than 25% Of The Original Balance

Deals With BB+ Tranche Completely Written-off At The Time of Resolution

Exhibit 5. Loan Resolutions Sorted by BB+Status Source: Amherst Securities Group LP, Intex Data Solutions




Market View

modification outcomes for troubled CMBS loans and the increased information that investors continue to request would be helpful to this process. But at this point we have the data servicers currently report which we will use in the remainder of this report to see if we can explain servicer actions with some level of greater precision.

CMBS Loan Resolution AnalysisTo consider if there is a detectable shift in servicer behavior we decided to look at servicer behavior while original B-piece first loss buyer may still have an economic interest and then as the BB+ class is eliminated or starts to take shortfall. To do this in Exhibit 2 we present resolutions results sorted by the status of the BB+ class.

Looking at the first table we see that “pre-write off state” servicer behavior seems to be best predicted by loan size: larger loans are more likely to be modified and smaller loans are more likely to be liquidated3. The average size of modified loans is $38 million while the average for liquidated loans is $9 million. We have suggested in the past that this trend indicates special servicer is modifying large loans, liquidating small ones and sitting on the fence about middle ones. This is why we designed our CMBS ALIAS system to underwrite specific potential loan modifications with additional third party data for all troubled loans over $10 million and consider potential modification outcomes for each.

However, looking at the two lower tables of loan resolutions where the BB+ class gets reduced or decreases below 25% of the its original balance we do see a disturbing propensity to liquidate loans and result in higher loan loss severities. In these cases the special servicers’ behavior does appear to be predictable, as they liquidated 17 loans and modified only 1 loan. This has us thinking that liquidations may pick up in later years as the BB+ class is eliminated, yet many of these liquidations are from some of the worst deals of 2006 and 2007 and appear to be smaller loans that were aggressively underwritten. So, further defaults in those deals are likely still being evaluated fairly and it may be too early for us to consider adjusting our current parameters for extensions. As we gather more resolution and workout data from recent vintage issuance and actually have time to see some modifications we will have to continue to evaluate the liquidation versus modification behavior.

But with this liquidation behavior we also wanted to see if there were any trends that could be detected by specific special servicer so we repeated the loan resolution table in Exhibit 5 below.

Initially, the numbers suggest behaviors are similar among all special servicers: larger loans get modified and smaller ones are liquidated.

However, there are also some significant difference that Clarion/Torchlight serviced deals have undertaken the most modifications at 66% while CW Capital, LNR, and Midland have only modified 45%, 35% and 47% of their troubled loans. LNR appears to be the quickest to liquidate loan with a 25% liquidation rate, but that figure is not significantly different than other servicers and the speed of liquidation may actually be proven to minimize loan loss severities. This is the classic fast liquidation versus patient servicer debate and we suspect that the final optimal outcome may likely still have more to do with the economic recovery than the servicer’s specific approach.

Conclusions – Still Need More Data on Special Servicer Behavior Overall, with only a 1,592 loan resolution sample we have to be cautious about our initial conclusions as the recent 24 months of experience could be very different than the experience in an unpredictable economy. While several recent

vintage deals demonstrate a high liquidation rate once they eliminate the BB+ class most of the deals have only reached that write down level for a few months and not really experienced sufficient time to demonstrate loan outcomes other than liquidations. In many of those quick liquidation instances the servicer may have simply decided to

liquidate what looked like hopeless situations on the few aggressively underwritten loans that were exposed by the recent recession. Yet, in the BACM 2002-2 transaction we did find one sample that suggests the servicer may have acted too quickly to take a loss, so we will have to continue to track data. If we see several more examples then we have to state that conflicts of interest in servicing are hurting investors and actions should be taken. But currently, we still have limited overall data set and would say that we still need additional data before making major changes to our expected loan resolution time frames.

In anticipation of changes in future activity we have now established this special servicer monitoring table format to follow their actions over the next twelve months and will evolve this approach to look at achieved severities versus Amherst anticipated severity on a servicer specific basis. So, while the initial results suggest the potential beginning of some suspect trends we expect to develop much more concrete conclusions in an additional twelve or twenty four months.

SS Name Loan Characteristics Mod LiqStill In Special

ServicingCured (Out Of Special Service)

Balance ($MM) 741 424 126 156 36

Loan Count 44 12 12 9 11

Average Loan Balance 17 35 10 17 3

As % Of Original Bal 100% 57% 17% 21% 5%

Liquidation Severity 68%

Balance ($MM) 6,378 3,461 1,030 1,738 150

Loan Count 332 80 145 87 20




Balance ($MM) 1,096 725 153 163 55

Loan Count 71 20 27 19 5




Balance ($MM) 6,999 3,154 1,260 2,173 411

Loan Count 330 69 126 107 28




Balance ($MM) 9,591 3,345 2,410 2,845 990

Loan Count 530 80 243 138 69




Balance ($MM) 5,199 2,421 1,040 1,183 555

Loan Count 273 94 95 67 17




Midland

Outcome

Berkadia

C-III

Clarion

CW Capital

LNR

In Special Servicing As Of 6/2009

Exhibit 5. Loan Resolutions Sorted by Special Servicer Source: Amherst Securities Group LP, Intex Data Solutions

1 “Grubb & Ellis Company enters Into Agreement with C-III Capital Partners and Colony Capital”, Press Release on PR Newswire, October 18th, 20112 “Trinity Health to move corporate headquarters, 1,400 employees to Quicken space in Livonia”, Crain’s Detroit Business, October 19th 2011, Jay Green and Daniel Duggan.3 We first reported the different in loans size between modification and liquidation resolution in January 2011. See page 13 of “2011 – The Year of ‘CMBS Mod’ ”, by Darrell Wheeler, Vivek Tiwari, Joe Yu, 1/5/2011




Renewable energy generation and distributed solar generation in particular has made considerable progress over the last few years. Firm like Solar City on the residential side and Tioga Energy on the commercial side have helped move distributed solar forward. While there has been considerable progress, the current estimates are that only about 30k solar leases have been implemented on the residential side and a much lower amount for commercial PPA. The potential is vast, with 44 million rooftops in the United States. While there are differences in the residential and commercial markets the potential for securitization exists in both markets. Though in this article we focus on the commercial sector in more detail then the residential, the core issues are similar in both markets.

Solar Project Finance BasicsDepending on the project finance structure employed a solar transaction consists of numerous parties, including a developer, tax-equity investor, a strategic investor, EPC (Engineering Procurement Contract) firm, O&M (Operations and Maintenance) firm and financial and legal firms. The dominate model on the residential side has been the solar lease model and on the commercial end a PPA (Power Purchase

Agreement). A long-term agreement for sale of electricity is put in place with an off-taker counterparty and a SPV structure is created with a tax-motivated investor. Numerous variations of the financing structures exist which are beyond the scope of the article. Investors provide long-term financing and receive tax-benefits, environmental benefits if any, cash flows from operations (payments in a lease or PPA structures) and potentially residual interest in the assets.

Solar PPA BackgroundA solar PPA is an agreement between a developer/investor of solar energy and a customer/off-taker to purchase the solar power at an agreed upon price in a long-term contract. The developer/investor installs, maintains and retains

ownership of the solar facility on a customer facility – be it a rooftop or other property. The customer pays only for the power generated by the facility and not for the cost of the equipment and installation costs. On-going operation and maintenance is also the responsibility of the developer / investor. A solar PPA agreement reduces the risk and cost for the customer by eliminating out of pocket capital expenditure. The agreement also locks in energy costs for 15 to 25 years, thereby

reducing energy cost volatility for the off-taker.

The basics of a solar PPA cover:

Financing / Management

• Developer / Investor secures financing for the project

• Sells electricity at the contract price forthe term of the contract

• Construction of Construction / Modification of Design

• Warranty / Insurance / Sales Tax / Income Tax / Property Tax

• Contractor Responsibility and Status Reports

Regulation / Regulatory Issues

• Conforming to State and local codes• Permitting / Liens and Easement Rights• Hazardous Materials

Contract Timeline

• PPA term (5 to 25 years) and contract price• Escalation clause if any• Location of Facility• Extensions / Early Purchase Option /

Residual / Salvage Value• End of Term Purchase Option /

Transfer of Ownership

Operation and Metering

• Grid Connection and Initial Period / Operation Period

• Site Access Rights and Security• Standards for Operations and System Shut

Down / Decommissioning• Billing / Invoice Delivery / Payment /

Dispute Resolution• Net Metering & Utility Credits and

Interconnection

Sales of Electricity

• Metering and Delivery of Electricity / Limits on Obligation to Deliver

• Remote Monitoring / Meter Testing\Solar Incentive Programs / Ownership of Tax Attributes

The above outlines some of the key issues, though not by any means comprehensive, covering a solar PPA. Standardized PPA contracts for the solar and renewable energy sources will reduce costs for investors / developers and off-takers and allow for more efficient analysis by the rating agencies and capital market investors. Capital Markets stake holders – investors, deal

Why Solar Securitization Makes SenseBy John Joshi, CapitalFusion Par tners

Solar structured transactions within a capital markets securitization approach can

help increase the penetration of solar. In this article we will explore ideas for solar

securitization in more detail.

Investors provide long-term

financing and receive

tax-benefits, environmental

benefits if any, cash flows from

operations and potentially

residual interest in the assets.




arrangers and rating agencies prefer to have standard well defined structures that can be replicated and can be assessed using standardized risk assessment metrics. Standardization allows for economies of cost and allows for the development of standard models which can be used to develop a rating and risk criteria by all stakeholders.

Investment ThesisThe drivers supporting the growth of renewable energy are a combination of factors, including global climate change, higher energy prices, and resource security. Society is faced with numerous challenges as more countries are developing rapidly and competing for the same scarce natural resources. Global concern about climate change is a limiting factor for growing carbon based fuels as countries adopt tighter environmental laws and regulations. Additionally most industry observers feel that we’ve reached peak oil within the last ten years and would be hard pressed to increase production. Shale gas production is an interesting development, but is also challenged by concerns about environmental impact. Higher energy costs continue to dominate and concerns about economic and national security factors necessitate the development of clean local and distributed renewable resources. Renewable energy structures can be a viable new asset class employing securitization methodology for the development of solar, wind, and other energy sectors on a cost efficient basis.

Developing a New MarketDeveloping any new market is challenging and involves collaboration with numerous stakeholders. There is a need for document standardization; development of systems and analytics, education and development of the investor base. Rating agencies have to develop rating methodologies and legal and tax accounting guidelines need to be established. Does the sector

have sufficient history of performance data? Are there qualified servicers and credit-worthy issuers? Can securitization structures be cost-effective for the issuer and investor? These and other key issues need to be addressed and standards developed. Other central issues around Dodd-Frank and regulatory policy and its impact are a key source of concern for the sector as it is for the broader securitization sector.

ChallengesNew markets have always presented fundamental issues that need to be addressed by all stakeholders. From a lenders perspective the key drivers center on cost of capital, capital relief for off-balance sheet financing and cost effectiveness of accessing the capital markets. Investors similarly have to determine if the asset class is attractive and there is a long term opportunity with sufficient liquidity, well structured credit support and most importantly liquidity for trading and asset / liability management.

Securitization Basics

Benefits of Securitization

The capital markets can provide large efficient long-term and liquid sources of capital for renewable energy projects. Structured markets

can offer more flexible structures then the traditional project finance markers by offering longer tenors, fixed or indexed rates with third party credit enhancement and flexible covenants. Innovative strategies can be employed to develop “green” and sustainable financing structures allowing the various attributes of renewable energy to be monetized. Capital Markets can support larger public transactions incorporating a portfolio approach for diversification as well increased liquidity

Rational of Securitization

Securitization allows the development of resilient markets that can harness dependable technology and offer investors transparency, liquidity, an attractive yield without active management from the investors. Scalable deals can be developed that allow the utilization of all cash, tax and environmental inventive available through various regulatory schemes. Investors can earn a healthy

return on their investments with low variability based on a long-term observation of natural resources.

Credit Process

Any analysis of a solar transaction would include a review of the cash-flow waterfall, regulatory policy, portfolio correlation, diversity and historic loss profiles. The rating process and the investment evaluation process would include quantitative modeling using scenario and stochastic analysis on robust models designed to stress test the structures.

ConclusionSecuritization of renewable energy assets and specifically solar assets would provide a new asset class for investors that incorporate the key benefits of securitization—including portfolio diversification, credit enhancement, liquidity, time and risk-tranched securities, bankruptcy remote SPV with a delinking of credit risk and originator risk and a social dividend to society. Issuers would benefit from a more efficient use of the balance sheet, lower cost of capital then traditional project finance, and a wider investor base. Models and analytics can provide access to robust models for analysis, thereby increasing the number of investors who can participate in transactions. Liquidity is a key need of investors and deal arrangers so that a robust market for a new asset class can be developed. A liquid, transparent and standardized process for solar PPA securitization (and solar leases) will benefit all stakeholders by providing transparency, broader appeal to investors, lower cost and wider access to capital, resulting in broader adoption of solar energy by consumers and commercial customers.

Editor’s Note: This article is adapted from various articles and presentations by Mr. Joshi that were originally published in AOL Energy, Power Sparks and Renewable Energy Magazine or presented at various conferences. John Joshi is a managing director at CapitalFusion Partners LLC, an advisory firm focused on renewable energy and infrastructure projects. Mr. Joshi can be reached at [email protected]

New markets have always

presented fundamental issues

that need to be addressed by

all stakeholders.

The capital markets can

provide large efficient

long-term and liquid sources

of capital for renewable

energy projects.


2012 Annual MeetingMay 21- May 22, 2012Four Seasons I Washington, D.C.

BY AN D FO R TH E SE C UR IT I ZAT ION INDUSTRY

The Annual Meeting will include several substantive sessions on issues of broad interest to the industry, including very senior policymaker participation on the key issues affecting our industry.

2011 Annual Meeting speakers included several high-profi le policy makers, including Chairman Mary L. Schapiro of the SEC and U.S. Senator Mark Warner who provided views on key changes to our industry.

The 2012 Annual Meeting will provide excellent networking and supporter opportunities. Additional details will be posted shortly after the conclusionof ASF 2012.

www.ASFAnnualMeeting.com

SAVE THE DATE




MBS

There wasn’t much happening in the mortgage-backed securities market in 201 1. The following is a chronological list of the MBS deals completed in Europe and the U.S. in 2011. Deal sizes are in U.S. dollars. The list was provided to Securitization Intelligence by Thomson Reuters.

The Year In MBS Deals (Such As It Was)

TotalIssuer Date Amount Manager(s)

TotalIssuer Date Amount Manager(s)

Royal Bank of Canada 1/12/11 1,147.90 RBC-CAP-MKTSFreddie Mac 1/3/11 143,521.40 UBS-INV-BANKREAT 2011-1 1/13/11 92.10 BOA-MERRILLNGN 2011-R1 1/18/11 1,511.00 BARCLAYS-CAPGovernment National Mortgage 1/20/11 86,665.70 BNP-PARIBASArena 2011-I 1/21/11 967.70 NOT-AVAILABLEJapan Housing Finance Agency 1/21/11 29,808.30 MUFJ-MSFannie Mae 1/24/11 91,393.20 BOA-MERRILLIMSCI 1/27/11 205.60 TD-SECURITIESDBUBS 2011-LC1 1/28/11 2,074.80 DEUTSCHE-BK-SEC/UBS-INV-BANK(JB)MSC 2011-C1 2/1/11 1,461.20 MS/BOA-MERRILL(JB)NCUA 2011-R2 2/1/11 1,253.00 BARCLAYS-CAPGreen Lion I BV 2/2/11 14,003.60 NOT-AVAILABLEHolmes 2011-1 2/2/11 3,313.90 BNP-PARIBAS/DEUTSCHE-BK-SEC(JB)/JPM(JB)/SANTANDER-SP(JB)Tesco Property Finance 4 Plc 2/2/11 1,108.80 HSBC/GS-I(JB)/JPM(JB)WVMT 2011-SBC2 2/2/11 82.00 CITI/BOA-MERRILL(JB)CSMC 2011-3 2/3/11 281.60 CREDIT-SUISSEDolphin 2011-I 2/3/11 681.30 ABN-AMRO-BK/RBS(JB)/RABOBANK(JB)/JPM(JB)WFRBS 2011-C2 2/7/11 1,244.40 WELLS-FARGO/RBS(JB)Holmes Master Issuer PLC 2/9/11 4,427.30 NOT-AVAILABLEToronto-Dominion Bank 2/10/11 1,112.50 TD-SECURITIESSequoia Mortgage Trust 2011-1 2/16/11 290.40 CSNGN 2011-C1 2/17/11 840.00 BARCLAYS-CAPSeries 2011-1 WST Trust 2/18/11 1,013.80 NOT-AVAILABLENGN 2011-R3 2/23/11 1,096.00 BARCLAYS-CAPBTMU RMBS 7 (JHF Guarantee) 2/28/11 73.70 BNPPAR-TOKYOJPMCC 2011-C3 3/1/11 1,430.00 JPMClimax 5 3/4/11 188.30 DEUTSCHE-TOKYOStorm 2011-I BV 3/5/11 1,049.00 RABOBANK-INTL/SOC-GEN(JB)Storm 2011-II BV 3/5/11 1,103.60 NOT-AVAILABLEClaris RMBS 2011 3/7/11 782.40 JPM/NATIXIS(JB)GSMS 2011-ALF 3/10/11 325.00 GSSumitomo T&B RMBS 6 3/11/11 520.40 SUM-TRFreedom Trust 2011-1 3/16/11 106.10 AMHERSTSTRONG 2011-1 3/16/11 888.40 RABOBANK/SOC-GEN(JB)DARROWBY 1 3/17/11 564.90 JPM/RBS(JB)SMHL 2011-1 3/17/11 1,654.80 COMM-BK-AUST/ANZ(JB)/NATL-AUST-BK(JB)/WESTPAC(JB)HOLMES 2011-2 3/18/11 403.80 SANTANDER-SP/JPM(JB)GSMS 2011-GC3 3/23/11 1,327.10 GS/CITI(JB)Headingley RMBS 2011-1 Plc 3/24/11 1,715.80 LTSBG/NATIXIS(JB)Puma Masterfund S-9 3/24/11 510.30 MAC-SECURINGN 2011-R4 3/25/11 1,525.00 BARCLAYS-CAPDOUBLE DIAMOND FDG III LLC 3/28/11 90.50 FIRST-SW/RIVIERE-SEC(JB)Korea Housing Finance Corp 3/29/11 754.00 HI-INV-SECSaecure 10 3/31/11 2,125.20 BNP-PARIBAS/JPM(JB)/RABOBANK(JB)Arran 2011-1 PLC 4/6/11 3,532.20 RBSGosforth Funding 2011-1 PLC 4/6/11 1,857.90 DEUTSCHE-BANK/JPM(JB)/RBS(JB)Medallion Trust Series 2011-1 4/6/11 3,127.00 COMM-BK-AUSTBarton Series 2011-1 Trust 4/7/11 314.20 NOT-AVAILABLELiberty Prime Series 2011-1 4/8/11 264.00 NOT-AVAILABLEStorm 2011-III 4/13/11 1,011.20 RABOBANK/SOC-GEN(JB)PERMM 2011-1 4/14/11 5,174.00 LLOYDS-BANK/JPM(JB)/RBS(JB)REAT 2011-2 4/14/11 40.00 BOA-MERRILL/WELLS-FARGO(JB)Berica 9 MBS 4/15/11 678.40 JPM/UBS-INV-BANK(JB)/RBS(JB)/UNICREDIT-GROUP(JB)PUMA Masterfund P-17 Series A 4/15/11 721.10 DBTRAL/RBS(JB)/MACQUARIE(JB)Vendee Mortgage Trust 2011-1 4/15/11 186.40 JPM/BOA-MERRILL(JB)/FURTHER-LANE(JB)Cantor Fitzgerald CRE 2011-C1 4/19/11 606.00 BARCLAYS-CAP/CANTOR(JB)Securitised Australian 2011-1 4/19/11 800.00 CITIGROUPALE Fin Co Pty Ltd-Series 1 4/27/11 173.70 MACQUARIERCS 2011-1 5/10/11 58.70 BOA-MERRILLRESIMAC Premier Series 2011-1 5/13/11 422.70 NATL-AUST-BK/DBTRAL(JB)/WESTPAC(JB)Fosse Master Issuer 2011-1 5/18/11 6,092.30 BARCLAYS-CAP/JPM(JB)/MS(JB)/SANTUS(JB)Guercino Solutions Srl 5/18/11 247.90 CREDIT-SUISSEProgress 2011-1 Trust 5/23/11 987.50 DBTRAL/WESTPAC(JB)BARS 2011-SBA1 Trust 5/24/11 55.70 BOA-MERRILLBA Fdg 2011-SD1 5/25/11 43.60 BOA-MERRILLJPMCC 2011-C4 5/25/11 1,385.30 JPMNational RMBS Trust 2011-1 5/25/11 1,052.40 NOT-AVAILABLEREAT 2011-3 5/26/11 70.00 WELLS-FARGO/BOA-MERRILL(JB)/CS(JB)WFRBS 2011-C3 5/26/11 1,378.20 WELLS-FARGO/RBS(JB)ALBA 2011-RP1 PLC 5/27/11 448.10 CREDIT-SUISSEBrass No. 1 5/27/11 660.20 BARCCG/JPM(JB)BTMU RMBS 8 (JHF Guarantee) 5/31/11 62.20 BNPPAR-TOKYODutch MBS XVI BV 6/1/11 1,011.10 DEUTSCHE-BANK/MORGAN-STANLEY(JB)/NIB-CAPITAL(JB)NCUA Guaranteed Notes 2011-M1 6/8/11 2,207.50 BARCLAYS-CAPDeco 2011-CSPK 6/9/11 494.60 DEUTSCHE-BANKMSC 2011-C2 6/9/11 1,139.30 MS/BOA-MERRILL(JB)CSFB Mortgage Securities Corp 6/10/11 1,758.40 CSIDOL Trust Series 2011-1 6/10/11 842.30 MACQUARIEJP Morgan Tax-Exempt 2011-1 6/15/11 43.40 JPM

Silver Oak Ltd 6/15/11 645.00 DBS-BANK/HSBC(JB)/SC(JB)Series 2011-2 WST Trust 6/16/11 2,321.90 NOT-AVAILABLEPhedina 2011-1 6/21/11 2,059.60 BIMOB/BNP-PARIBAS(JB)/ING(JB)/LTSBG(JB)DBUBS 2011-LC2 6/22/11 2,037.90 DEUTSCHE-BK-SEC/UBS-INV-BANK(JB)LSTAR 2011-1 6/23/11 218.40 JPM/WELLS-FARGO(JB)BAMLL 2011-FSHN 6/24/11 419.20 BOA-MERRILL/MS(JB)SMBC’s 22nd RMBS 6/28/11 869.80 SMBC-NIKKOSMBC 22nd RMBS SPC 6/28/11 431.80 SMBC-NIKKODMPL IX 6/29/11 1,105.60 DEUTSCHE-BANK/NATIXIS(JB)Silk Road 2 7/1/11 1,168.40 MORGAN-STANLEY/BARCCG(JB)/JPM(JB)HBS Trust 2011-1 7/11/11 852.50 ANZ/NATL-AUST-BK(JB)/WESTPAC(JB)Candide Financing 2011-1 BV 7/13/11 1,751.60 NOT-AVAILABLECOMM 2011-THL 7/14/11 682.80 DEUTSCHE-BK-SECRESIMAC Bastille 2011-1NC 7/14/11 268.00 NATL-AUST-BKTorrens 2011-1 (E) Trust 7/14/11 1,078.20 DEUTSCHE-BANK/NATL-AUST-BK(JB)/WESTPAC(JB)FTA Santander Hipotecario 7 7/19/11 3,056.50 NOT-AVAILABLEVOLT 2011-NPL1 7/19/11 167.00 WELLS-FARGO/BOA-MERRILL(JB)Shinsei TB Fund 7976001 7/20/11 140.70 SHINSEI/SHINSEI-SEC(JB)Arkle Master Issuer PLC 2011-1 7/21/11 3,534.30 LTSBG/JPM(JB)Liberty Series 2011-1 SME 7/21/11 260.10 NOT-AVAILABLEWFRBS 2011-C4 7/21/11 1,326.30 WELLS-FARGO/RBS(JB)GSMS 2011-GC4 7/22/11 1,406.60 GS/CITI(JB)B-CAP2 Trust 7/25/11 51.20 BARCLAYS-CAP-JPDedalo Finance Srl 7/25/11 288.60 ADVISORY-FINCity Center Trust 2011-CCHP 7/26/11 423.90 JPMMecenate 4 7/26/11 144.30 NOT-AVAILABLEFDIC 2011-R1 7/27/11 362.20 RBSLangton Securities 2011-2 Plc 7/28/11 2,667.40 CITIWFDB 2011-BXR 7/28/11 909.40 WELLS-FARGO/DEUTSCHE-BK-SEC(JB)/BARCLAYS-CAP(JB)CSMC Trust 2011-11 7/29/11 361.70 CREDIT-SUISSEIm Unnim Rmbs 1 7/29/11 1,439.60 ESPANOLFriary No.1 8/4/11 447.40 RBS/UBS-INV-BANK(JB)Toshiba Housing Loan Service10 8/4/11 108.70 SMBC-NIKKOChelsea Asset TMK and Trust 8/10/11 136.70 MIZUHO-SECDBUBS 2011-LC3 8/11/11 1,291.00 DEUTSCHE-BK-SEC/UBS-INV-BANK(JB)Castle Peak 2011-1 Loan Trust 8/12/11 71.10 JEFFERIESFHB Mortgage Bank Co PLC 8/17/11 101.00 CITI-GLOBMKT-UKIllawarra Series 2011-1 CMBS 8/23/11 213.00 NOT-AVAILABLEFreddie Mac SPCS K-703 8/24/11 1,057.90 WELLS-FARGO/CS(JB)FREMF 2011-K703 8/31/11 80.10 WELLS-FARGO/CS(JB)SLFMT 2011-1 8/31/11 242.50 BOA-MERRILL/RBS(JB)Holmes 2011-3 9/14/11 3,785.10 DEUTSCHE-BANKTrident Trust 9/14/11 114.70 MUFJ-MSMSC 2011-C3 9/15/11 1,054.90 MS/BOA-MERRILL(JB)JPMCC 2011-C5 9/16/11 727.50 JPMTrust Fontana 9/20/11 762.20 SUM-TRNational RMBS Trust 2011-2 9/21/11 1,516.70 NATL-AUST-BKGSMS 2011-GC5 9/22/11 384.50 GS/CITI(JB)Sequoia Mortgage Trust 2011-2 9/23/11 368.10 CS/WELLS-FARGO(JB)J-REAL1 9/26/11 155.20 MS-MUFG-SECNautilus Trust Series 2008-1 9/28/11 107.40 COLU-CAPVOLT 2011-NPL2 9/29/11 155.00 BOA-MERRILL/WELLS-FARGO(JB)Series 2011-3 WST Trust 10/5/11 1,545.30 NOT-AVAILABLEArena 2011-II BV 10/6/11 957.80 RABOBANK/RBS(JB)COMM 2011-FL1 10/7/11 590.20 DEUTSCHE-BK-SECARRAN PLC 2011-2 10/10/11 2,539.70 RBS/BOA-MERRILL(JB)/CITI(JB)/JPM(JB)Silverstone 2011-1 10/13/11 3,517.90 BOA-MERRILL/BARCLAYS-CAP(JB)/JPM(JB)/UBS-INV-BANK(JB)Series 2011-1 SWAN Trust 10/21/11 518.40 NOT-AVAILABLEJP Morgan Tax-Exempt 2011-2 10/26/11 67.60 JPMPERMM 2011-2 10/26/11 2,950.00 LTSBG/JPM(JB)/BARCLAYS-CAP(JB)/MS(JB)TORRENS Series 2011-2 Trust 10/28/11 802.40 NOT-AVAILABLEWFRBS 2011-C5 11/1/11 1,620.40 WELLS-FARGO/RBS(JB)Jaguar Invest Purpose 2011 11/2/11 211.40 DEUTSCHE-TOKYO/MUFJ-MS(JB)Paragon Mortgages 16 PLC 11/3/11 211.10 MORGAN-STANLEY/LTSBG(JB)/MACQUARIE(JB)Storm 2011-IV 11/4/11 965.90 RABOBANK/SOC-GEN(JB)GMF 2011-1 11/10/11 3,794.80 BARCLAYS-CAP/LLOYDS(JB)IDOL Trust Series 2011-2 11/11/11 761.20 WESTPAC/COMM-BK-AUST(JB)/MACQUARIE(JB)Arsenal Trust 11/15/11 46.00 MIZUHO-SECJPMCC 2011-FL1 11/16/11 607.80 JPMBayview 2011-A 11/21/11 576.50 JPMApollo Series 2011-1 Trust 11/24/11 1,216.00 MACQUARIE/NATL-AUST-BK(JB)/RBS(JB)Fosse Master Issuer 2011-2 11/29/11 1,783.30 BARCLAYS-CAP/JPM(JB)/SANTANDER-SP(JB)Orange Lion 2011-6 RMBS BV 11/29/11 1,706.40 ING/JPM(JB)BTMU RMBS 9 (JHF Guarantee) 11/30/11 78.40 BNPPAR-TOKYOJPMCC 2011-PLSD 12/2/11 375.50 JPMCFCRE Coml Mtg Tr 2011-C2 12/6/11 549.10 CANTOR/BARCLAYS-CAP(JB)/DEUTSCHE-BK-SEC(JB)RedZed Trust Series 2011-1 12/6/11 81.00 NOT-AVAILABLEUBSC 2011-C1 12/9/11 588.20 UBS-INV-BANK/CITI(JB)FirstMac Trust Series 2-2011 12/20/11 296.80 NOT-AVAILABLESwan Funding 2 Ltd 12/20/11 500.00 LTSBG


ASF Daily Tuesday, January 24, 2012 Exhibit Hall & Exhibitors


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on the panel were not those of the Federal Reserve.The ultimate solution is less than clear, but

what does seem certain from the tenor of pending regulatory reform is that ratings agencies will have a front-and-center role in governing issuer behavior. The ratings process, however, has a bevy of kinks to work out. “Regulators have put the ratings agencies in a very difficult position,” said Christian Moor, policy advisor at the European Banking Authority. The for-profit agencies are being asked to behave like nonprofit organizations. “There is a difference between [providing] an independent comparison and making a profit,” he said. Moor also noted that his views were not meant to represent the EBA’s stance.

Ashcraft, who helped engineer and implement the Federal Reserve’s Term Asset-Backed Loan Facility program, said his experience underwriting deals for inclusion in the TALF program left him with doubts about ratings agencies’ ability to keep from sparing the rod. “At the end of the day, if

ratings agencies are going to be an important part of how we form securitization, we’re going to need to do a lot better,” he said.

Ratings shopping by issuers is built into the process, he said, drawing on the TALF experience. “Underwriting banks are really focused on best execution, not just on some transactions but on every transaction.” And making the agencies compete against each other on specific deals actually made the problem worse, giving issuers more leverage to pit the firms against each other.

Additionally, the agencies may not always have enough information themselves to do the job right. “[Sometimes] the ratings agencies don’t even have cash flows, they rely on the sponsors to provide those for them,” he said.

In the end, Ashcraft said, the best thing may be to give investors and ratings agencies the same amount of information. But there’s a long way to go. “It’s very clear that until we get Regulation AB in place, investors generally lack adequate information to do their own due diligence on transactions,” he said. “There’s limited granularity and depth of data to actually build the credit risk models that we need …to actually do real analysis on transactions.”

card asset-backed securities since 2008.Sweeney and other panelists said that more

regular primary issuance would kick off riskier plays and bring infrequent issuers back to market. Some issuers have been sitting on the sidelines since the double whammy of the credit crisis and new accounting rules have buffeted the sector.

Much of the outstanding card volume is set to mature over the next few years, noted moderator Ellen Marks, partner at Latham & Watkins. If new issue deals don’t start to make up for the maturities, it could make the sector much less liquid. But panelists said they aren’t losing any

sleep over that scenario. “There needs to be more use of ABS as a funding tool, or else there could be a liquidity problem,” agreed Steven Moffit, v.p. at Goldman Sachs. “But that’s far off.” He added the dearth of new deals seen in recent years wasn’t holding issuers back today. “Primary issuance volume is a function of what other funding tools are available and what they cost,” he said.

Investor panelist Steven Juszczyszyn, v.p. at Delaware Investments, said he wasn’t troubled by the sector’s shrinking size either. “We watch decline in the secondary market supply, but it hasn’t had a significant effect on how we trade,” he said. “You ask the question, how relevant is the asset class going to be three or four years down the road? But it’s not an issue now. The technicals of the sector are strong.”

Credit Card(Continued from page 1)

upgrading 2,867 CLO tranches between June and November of 2011 due to changes in its ratings methodology, and Standard & Poor’s similarly upgrading hundreds of CLO classes on performance improvements.

“The bottom of the capital structure is where a significant amount of value lies now, as the world starts to come back online to a risk-on posture,” Morgan Stanley’s Zaidi said. He referenced BBBs pricing in the range of LIBOR plus 650-675 basis points and selling at prices in the high 80s, and BBs pricing 5-7 bps richer now than they were just two months ago.

To get the CLO space to grow apace of healthy performance statistics, it’s all about earning back the trust of the buyer, the panelists said. “For one we need to see a broader investor base, and we’re certainly seeing that today,” Pauley said, gesturing to the audience for the conference break-out session, which was standing room only.

Moderator Sara Bonesteel, managing director, head of alternative investments at Prudential Fixed Income, pointed out that with many existing CLOs running into the end of their reinvestment periods, total outstanding CLOs will begin to run off in fairly short order, and that collateral doesn’t always get reloaded or redeployed back into CLOs.

But increasingly, those investors aren’t simply walking away, according to Zaidi. “We’ve seen a lot of propensity from certain investors—Japanese banks being one of them—wanting to be involved in the deal that’s replacing [the deals rolling off]. On the equity front, we’re seeing a number of U.S. and European pension accounts, and I expect them to be a much bigger player going forward in 2012,” according to Zaidi.

Lawrence Beller, director at PNC, told the group that an uptick in third-party equity investors can pick up the slack for some of the typical investors who are not in a position to participate in a large slice of the transaction.

EDITOR Steve Murray

MANAGING EDITOR Graham Bippart

REPORTERS Marissa Capodanno, Hugh Leask, Amelia Granger

PRODUCTION Dany Peña, Michelle Tom

PHOTOGRAPHER Edyta Sokolowska

GROUP PUBLISHER Allison Adams

BUSINESS DIRECTOR Gauri Goyal

SENIOR MARKETING MANAGER Ismeala Best

MARKETING MANAGER Laura Pagliaro

ASSOCIATE PUBLISHER Pat Bertucci

CEO Jane Wilkinson

CHIEF OPERATING OFFICER Steve Kurtz

Agenda Changes

Allen Sampson, v.p., Wells Fargo Securities, will replace Dash Robinson as a panelist on REO Disposition Strategies & Outlook, 1:30-2:30 PM, Pinyon Ballrooms 1 & 2.

Mark Ginsberg, Risk Expert, Capital Policy, Office of the Comptroller of the Currency, has been added as a panelist to Alternatives to Credit Ratings for Risk-Based Capital, 1:30-2:30 PM, Pinyon Ballrooms 6 & 7.

Gregory Reiter, v.p. of Security Strategy & Outreach,

Freddie Mac, will replace Mark Hanson as a panelist on Government-Backed Securitization Programs, 2:35-3:35 PM, Pinyon Ballrooms 1 & 2.

Diane Wold will no longer be a panelist on REITs – Past, Present & Future, 3:55-4:55 PM, Pinyon Ballroom 3.

Timothy Kviz, v.p., Accounting Policy, Freddie Mac, has been added as a panelist to Accounting Standards and Practices, 5:00-6:00 PM, Pinyon Ballroom 3.

Tuesday, Jan. 24, 2012

Disclosure, Ratings(Continued from page 1)

CLOs To(Continued from page 1)



The Mortgage Underwriting Breakout Session: Ryan Stark, Jasraj Vaidya, Laurence Platt, Karen Gelernt and Michael Malloy

ASF Executive Director Tom Deutsch delivering the welcome address

Johanna Benussi and Kathryn Sargent of DBRS

Christian Degenhardt of Interactive Data alongside Lydia Owens and Owen Simpson of 1010Data

John Falb and Paul Wozniak of College Loan Corp.Jayan Krishnan of DZ

Bank AG and Eric Williams of The Bank of Tokyo—

Mitsubishi UFJ, Ltd.

Tim Martin of Transunion, Jon Nelson

of Back Bay Advisors and Jonathan Hogan of Back

Bay Group, LLC

Ellen Hayes of Freshfields Bruckhaus

Deringer, US LLP

Tammy Schiff and Molly Bash of Allonhill

Darach O’Braonain of Sapient Global

Markets

Attorney Advertising © 2012 Bingham McCutchen LLP One Federal Street, Boston MA 02110 T. 617.951.8000 Prior results do not guarantee a similar outcome.

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