Action Line Update
July 02, 2007
Highlights
- Fixed Income Operations Conference Planning Committee
- OCC Releases Report on Servicers and Foreclosure Prevention
- Senate Committee Holds Hearing on Mortgage Abuse
- Congress Unveils National Affordable Housing Trust Fund
- OFHEO Releases Paper on Primary and Secondary Mortgage Markets
- House Committee Holds Hearing with SEC on Market Oversight
- IOSCO Publishes Responses to Consultation on Review of Rating Agency Code of Conduct
- Charlie McCreevy Speaks on Capital Market Integration
- FSA Publishes First Paper from the Retail Distribution Review
- CEIOPS Meeting Approves Organisational Changes for Solvency II Work and Documents for Publication
- CESR Assesses Equivalence of Supervisory Powers under MAD and PD
- CEBS Publishes Third Progress Report on Fulfilment of Francq Report Recommendations
- CEBS Issues Second Part of Technical
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Indicates a new item. Items that are solely informational are generally removed after two weeks. New items normally will be posted to the website weekly.
CROSS MARKET ISSUES
Fixed Income Operations Conference Planning Committee: The Fixed Income Operations Conference Planning Committee has scheduled a meeting for Wednesday, June 13, 2007 at 4:00 p.m. The purpose of the meeting is to begin discussions regarding the development of the program agenda. If you have any questions or comments please contact Brian MacWilliams at 646.637.9227.
CORPORATE CREDIT MARKETS
No updates.
FUNDING
Specials Working Group Meeting: A meeting of the Specials Working Group is scheduled for Tuesday, June 26, 2007 at 4:00 p.m. at SIFMA'S 360 Madison Avenue, New York offices. If you have any questions regarding the meeting please contact Robert Toomey at 646.637.9224.
GOVERNMENT AND FEDERAL AGENCY MARKETS
No updates.
MBS AND SECURITIZED PRODUCTS
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OCC Releases Report on Servicers and Foreclosure Prevention: On June 26, 2007, the Office of the Comptroller of the Currency (OCC) released a report entitled, “Foreclosure Prevention: Improving Contact with Borrowers,” which reviews strategies that banks are using to prevent foreclosures to mitigate credit losses and reports on best practices loan servicers are using to improve their contact rate with delinquent mortgage borrowers. The report indicates that many loan servicers are relying more on partnerships with interested third parties, and as a result, a growing number of nonprofit agencies are providing counseling services to at-risk homeowners. The report notes that once a servicer has made contact with a delinquent borrower, either directly or indirectly, there are a variety of options that allow borrowers to retain possession of their homes, or in situations where foreclosure is unavoidable, to reduce the financial hardship on the borrower and losses to the lender by selling the house. Please click here for the report and here for more information.
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Senate Committee Holds Hearing on Mortgage Abuse: On June 26, 2007, the Senate Committee on Banking, Housing and Urban Affairs, chaired by Senator Christopher Dodd (D-CT), held a hearing entitled, “Ending Mortgage Abuse: Safeguarding Homebuyers.” The hearing featured testimony from representatives of the Mortgage Bankers Association, the Center for Responsible Lending and the National Community Reinvestment Coalition, among others, and focused mainly on origination in the mortgage lending process and the role and duty of brokers. Please click here for more information, including a complete witness list and prepared testimony.
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Congress Unveils National Affordable Housing Trust Fund: Members of the House Financial Services Committee, including Chairman Barney Frank (D-MA), unveiled bipartisan legislation, H.R. 2895, to create a “National Affordable Housing Trust Fund.” The National Affordable Housing Trust Fund will be funded from amounts provided in the recently passed GSE Affordable Housing Fund (H.R. 1427), from savings from Federal Housing Administration reforms contained in H.R. 1852, the Expanding Americans Home Ownership Act, and from any other funding sources that may be subsequently identified. The fund can be used to build, rehabilitate, and preserve affordable rental housing and to provide down payment and closing cost assistance for first-time homebuyers. The Committee will hold a hearing to discuss H.R. 2895 on July 12, 2007. Please click here for more information.
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OFHEO Releases Paper on Primary and Secondary Mortgage Markets: On June 25, 2007, the Office of Federal Housing Enterprise Oversight (OFHEO) released a report entitled, “Mortgage Markets and the Enterprises in 2006,” an annual research paper that reviews developments in the primary and secondary mortgage markets and the financial performance of Fannie Mae and Freddie Mac in 2006. The report also provides updated historical data on the activities and performance of the GSEs, federally-established loan limits, mortgage interest rates, housing activity and information about home prices. Please click here for the report and here for more information.
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House Committee Holds Hearing with SEC on Market Oversight: On June 26, 2007, the House Financial Services Committee held a hearing entitled, “A Review of Investor Protection and Market Oversight with the Five Commissioners of the Securities and Exchange Commission.” The hearing featured testimony from SEC Chairman Christopher Cox and the commissioners of the SEC. Among other things, Chairman Cox indicated that the SEC has established a working group to focus on issues relating to the subprime mortgage market and that the SEC's enforcement division is monitoring the market to detect any securities fraud involved in securitized subprime mortgages. Please click here for more information, including links to prepared testimony.
Fed Publishes Mortgage Calculator: The Federal Reserve Board has developed a tool that prospective borrowers can use to determine monthly payment obligations from a variety of mortgage products. “We have created a tool that will allow consumers to look ahead to see how much equity they will build and what their mortgage payments will be three, five, seven, or 10 years down the road with different mortgage products,” Governor Randall Kroszner said. The calculator can be used on 30-year and 15-year fixed-rate mortgages, interest-only fixed-rate mortgages, adjustable-rate mortgages (including 2/28s and 3/27s), interest-only ARMs, and option ARMs. The calculator is available here.
S&P Releases Request for Comment on Revised RMBS Guidelines: Standard and Poor’s has released a request for comment on revised RMBS guidelines for loan modifications and capitalization amounts. Key points in the guidelines include: modified loans should be included in delinquency trigger tests, forgiven principal amounts should be included in loss tests, a number of items that should be included in servicer reporting of modified loans, and a loan modification performance test. The document is available here, and S&P has asked for comments by July 1, 2007.
MUNICIPAL MARKETS
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EUROPEAN MARKETS
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IOSCO Publishes Responses to Consultation on Review of Rating Agency Code of Conduct: The International Organization of Securities Commissions (IOSCO) has published responses received to its Consultation Report entitled ‘Review of Implementation of The IOSCO Fundamentals of a Code of Conduct For Credit Rating Agencies’ by the Technical Committee of the IOSCO.
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Charlie McCreevy Speaks on Capital Market Integration: Charlie McCreevy, EU Commissioner for the Internal Market and Services, gave a speech on capital market integration at the Federation of European Stock Exchanges (FESE) Convention in Brussels on 26 June 2007. In his speech, Mr McCreevy discussed (i) recent developments in the post-trading area, (ii) MiFID implementation, and (iii) mutual recognition.
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FSA Publishes First Paper from the Retail Distribution Review: The Financial Services Authority (FSA) has published Discussion Paper 07/2, entitled “Platforms: the role of wraps and fund supermarkets” which forms part of the Retail Distribution Review (RDR) launched in June 2006 to identify market solutions to core problems within the retail investment market. The discussion paper, which considers the risks and opportunities that the developing platform market presents for retail intermediaries and their customers, seeks to: (i) improve the current standards of professionalism; (ii) find more cost effective ways of making advice available to a wider range of consumers; and (iii) improve consumer understanding of what they are getting for their money. The paper includes chapters looking at: (i) the different types of platform services available and the terms used to describe them; (ii) ways in which platforms come under regulation and are affected by FSA Handbook of rules and guidance; and (iii) standards the FSA expects of intermediary firms recommending and using platforms. Comments are invited by 26 October 2007.
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CEIOPS Meeting Approves Organisational Changes for Solvency II Work and Documents for Publication: The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) held its Members’ Meeting on 27 and 28 June 2007, at which it agreed to revise its operational structure by creating four working groups dedicated to Solvency II, which are the: (i) Financial Requirements Expert group; (ii) Internal Models Expert Group; (iii) Internal Governance, Supervisory Review and Reporting Expert Group; and (iv) Insurance Groups Supervision Committee. The working groups’ mandates were also approved by the meeting and will be published, together with amended CEIOPS working group guidelines at a later date.
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CESR Assesses Equivalence of Supervisory Powers under MAD and PD: The Committee of European Securities Supervisors (CESR) has produced a report on its findings relating to the equivalence of supervisory powers in the EU under the Market Abuse Directive (MAD) and the Prospectus Directive (PD). Amongst other things, the report finds that: (i) there is a 93 per cent degree of equivalence in the extent to which member states have granted national regulators the powers set out in MAD and the PD; and (ii) fewer issues appear to arise from the day-to-day application of the PD than that of MAD, due predominantly to the fact that, unlike MAD, the PD is a maximum harmonisation directive.
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CEBS Publishes Third Progress Report on Fulfilment of Francq Report Recommendations: The Committee of European Banking Supervisors (CEBS) has published its third progress report relating to the progress it has made, further to the February 2006 Francq Report, in meeting various recommendations of the Financial Services Committee (FSC) for fostering supervisory cooperation and convergence, enhancing the cost efficiency of the EU system and improving cross-border supervision. In the report, CEBS comments specifically on the outcome of its work in: (i) providing an assessment of existing tools for fostering a common European supervisory culture; (ii) exploring non-binding mechanisms, such as mediation, for resolving supervisory disputes; (iii) exploring the preconditions for the delegation of tasks and responsibilities between supervisors; and (iv) developing common supervisory reporting formats and data sharing arrangements.
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CEBS Issues Second Part of Technical Advice on Prudential Risks Arising from Commodities Business: CEBS has issued a report containing the second part of its technical advice to the EU Commission in response to the Commission's August 2006 Call for Advice on the prudential risks arising from the conduct of commodities business. Amongst other things, the technical advice observes that: (i) the risks arising in the commodities markets are generally the same as those in other financial markets; (ii) commodity risks exist across the range of products that underlie derivative instruments; and (iii) there is significant amount of counterparty risk, arising from the fact that most commodities derivatives business is conducted over-the-counter. As well as having an opportunity to discuss the technical advice in a public hearing on this topic, currently scheduled for July 9, 2007, interested parties are invited to provide comments to CEBS by July 27, 2007.
CESR Publishes Responses to Consultation on Non-Equity Transparency: The Committee of European Securities Regulators (CESR) has published the answers received to its May 2007 consultation paper on draft guidance on transparency in bond and other non-equity markets.
CEBS Consults on Large Exposures: The Committee of European Banking Supervisors (CEBS) has issued a consultation paper, seeking public comment as part of the process of providing the first part of its advice to the EU Commission on large exposures, pursuant to the Commission's January 2007 Call for Evidence on this topic. The consultation paper sets out CEBS' initial views on some of the key concepts underpinning the regulation of large exposures regime, including: (i) the prudential objectives that underpin the regulation of large exposures; (ii) the question of whether counterparty credit quality should be recognised in large exposures limits; and (iii) the nature and purpose of the 800% aggregate large exposures limit. Comments are invited by August 15, 2007. Furthermore, CEBS has announced that it intends to hold a public hearing on the matter at its premises in London on July 11, 2007.
EU Commission Publishes Responses to Call for Evidence on Commodity Derivatives: The EU Commission has published the non-confidential responses received to its December 2006 Call for Evidence on commodity and exotic derivatives and related business.
EU Commission Updates League Table on Implementation of FSAP Directives: The EU Commission has updated the league table which records the success of member states in meeting deadlines for the implementation of a series of Directives adopted as part of the Financial Services Action Plan (FSAP). The table shows, amongst other things, that all member states have now implemented the Prospectus Directive, and that implementation of the Transparency Directive is still to occur in most member states.
FSA Email to CEO’s on CRD Requirements: The Financial Services Authority (FSA) has published on its website an email, sent from Michael Ainley, Head of Wholesale Firms, to the Chief Executive Officers of firms which conduct both corporate finance and venture capital activity, on the need to consider whether they may be subject to the requirements of the Capital Requirements Directive (CRD), if they fall within the scope of the Markets in Financial Instruments Directive (MiFID). Amongst other things, the email contains: (i) information designed to help a firm decide whether or not it is subject to MiFID and the CRD; and (ii) details of the action which the FSA requires firms to take in either situation. The email requests addressees to complete an online form confirming the relevant firm's MiFID (and if relevant) CRD categorisation by June 21, 2007. The email stresses the urgency for senior management to determine the applicable regulatory requirements and ensure compliance with those requirements.
FSA Provides Feedback on Private Equity Discussion Paper: The Financial Services Authority (FSA) has published Feedback Statement FSO7/3 in relation to Discussion Paper 06/6 (“Private Equity: A discussion of risk and regulatory engagement”) in which it examined the impact of growth and development in the private equity market on the regulation of the UK’s wholesale markets. The feedback statement notes that respondents to Discussion Paper 06/6 broadly agreed with the FSA’s perception of the risks to its statutory objectives posed by the growth in private equity, and sets out, for each of the risks identified, a summary of the FSA’s intended course of action. The FSA has indicated that the risks posed by market abuse and conflicts of interest will continue to be key areas of its regulatory focus and also that, in order to strengthen its oversight of the potential impact of the private equity market, it will, amongst other things, improve data collection through: (i) bi-annual surveys of banks’ exposures to leveraged buyouts; and (ii) enhanced regulatory reporting requirements for private equity firms. Furthermore, the FSA will be engaging in a targeted fact-finding exercise to understand the issues and risks inherent in dealing with financial distress and default in a heavily traded corporate name.
EU Commission Publishes Replies to Consultation on Reform of Auditor Liability Rules: The EU Commission has published a summary of replies to its January 2007 consultation on the possible reform of auditors' liability regimes in the EU. The consultation was based on an independent study on the economic impact of current auditors' liability regimes and on insurance conditions in member states.
CESR Publishes Survey on Communications of Auditors in Listed Company Accounts: The Committee of European Securities Regulators (CESR) has published a survey on the nature and amount of communication by auditors with shareholders and investors in the statutory audit of annual or consolidated accounts of listed companies. The survey, which highlights the lack of information contained in the standard auditor's report, as prescribed by the International Auditing and Assurance Standards Board (IAASB), poses questions under two headings, namely: (i) the actual forms of reporting and communication by the auditor on the statutory audit of listed companies; and (ii) desired forms of reporting and communication by the auditor. The survey concludes that the subject should be further explored, but that CESR is not equipped to study it in-depth.
CEIOPS Requests Submission of QIS3 Reports to Centralised Database: The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has issued a document reminding its members of the June 29, 2007 deadline for responses to its third quantitative impact study (QIS3), and also requesting its members to ensure that insurance groups submit their results not only to their lead supervisor, but also to a centralised database set up specifically for this purpose. CEIOPS has also produced a methodological note with details of the submission procedure, as well as the rationale for a centralised database.