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Boies's firm with that Fnma, Fmcc case is also joined with the others in the appeals court.
Just to be technical, defendant's response is due May 11th. I think Sweeney will give a response pretty quick too!
It means that the plaintiffs strongly believe there is information in that "protected" privilege log that supports their case. IMO
Response due 5/11, Ackman's bday, right? I think Sweeney will grant the motion very soon after that.
04/23/2015 **SEALED** MOTION to Remove the "Protected Information" Designation from Defendant's March 20 Privilege Log, filed by All Plaintiffs.Response due by 5/11/2015. (Attachments: # 1 Appendix)(Cooper, Charles)
Boies's firm has been one of the firms listening in on several of the Sweeney conference calls. His firm and another together had filed the fnma, fmcc junior preferred shareholder case in 2013. Interesting to see it all play out!!
"It’s notable that the new class action was filed by Boies Schiller, which innovated the technique of suing for lost shareholder value under the Takings Clause in litigation for former AIG chief Hank Greenberg, who claims that the government’s 2008 bailout of AIG wrongfully deprived shareholders of tens of billions of dollars in equity. Though the new Fannie Mae and Freddie Mac case involves alleged government overreaching four years after the economic crisis, said Boies partner Hamish Hume, it raises similar allegations that Treasury violated the Fifth Amendment and ran roughshod over shareholders."
http://blogs.reuters.com/alison-frankel/2013/07/10/fannie-freddie-shareholders-demand-lost-dividends-from-u-s-in-new-class-action/
Also looking forward to hearing Ackman at the Sohn Conference May 4th. Hopefully, he'll convince some other hedgies to jump on board again!
http://www.sohnconference.org/events/new-york/
I'm just hoping it's at least mid-week. I had to move a chunk to a different account, waiting for it to settle! Pershing Square investor meeting Tues, the 28th, annual meeting in London Wed, the 29th!
(below is a clip from)Testimony of Anne Elizabeth Wall, Nominee for Deputy Under Secretary (Designated Assistant Secretary for Legislative Affairs), before the Senate Finance Committee
4/23/2015
"If confirmed, I would look forward to ensuring that there is an honest dialogue between the Treasury Department and Congress. You can count on me to be responsive and respectful, to be candid and clear, and to do my best to accurately represent the views of the Department of the Treasury and the Administration before this Committee and others in Congress. And in turn, you can count on me to make sure that your views are shared and respected within the Department of the Treasury."
Which one? I've only heard Perlmutter speak up for the GSE's before.
I can pitch in that range anytime! :)
:) Have a great weekend Bostonsesco!
very low volume, that's all, waiting for the good news!
More wining and dining? :)
"Treasury hopes to keep that momentum going in the days ahead by hosting those participants who have helped develop the terms and standards in the benchmark transaction process that would underlie a potential future issuance for further discussion. These investors, issuers, servicers, and due diligence firms who have been coming to the table in good faith over the last four months and with a genuine interest in helping this market overcome its historical failures, will discuss their emerging areas of agreement. "
Remarks of Counselor to the Secretary for Housing Finance Policy Dr. Stegman before the Fitch Ratings 2015 House View Conference - RMBS
4/23/2015
As prepared for delivery
New York - Kevin, thank you so much for that kind introduction and for inviting me to speak at today’s conference. After all the conversations with you and your colleagues as part of the credit rating agency exercise we released in February, it is the least I could do. Fitch was a great pleasure to work with, and I urge those of you who are not familiar with the exercise to find it on the Treasury web site.
It has been almost a year now since Secretary Lew announced that Treasury would take an active role in helping to catalyze the development of a vibrant, responsible private label MBS channel. As part of these efforts, we have engaged with countless market participants including investors, issuers, servicers, due diligence firms, trustees, and the credit rating agencies to learn about the key obstacles facing the market and how to best address them.
And let me just say now that obstacles are many and consensus solutions hard to come by. But we have viewed Treasury’s role in helping re-start this market as a high priority, using our good offices and convening powers as important means of illuminating structural issues that need to be addressed and encouraging market participants to directly engage each other to resolve them.
One such obstacle we saw was the lack of clarity around how the credit rating agencies would evaluate more diverse pools of mortgage collateral that were being rated and brought to market and consequently, what the economics of originating and securitizing such collateral would be. The quality of loans that collateralize post-crisis non-agency securitizations has generally been exceptionally high, and as a result, subordination levels on these transactions have not been particularly informative in evaluating the viability of an expanded private label MBS channel.
To address this issue, we invited the credit rating agencies to evaluate the collateral underlying Freddie Mac’s STACR 2014-DN3 transaction, which referenced the most recently originated collateral at the time the exercise was initiated, as if it collateralized a non-agency securitization. The exercise resulted in some interesting insights as highlighted in an Urban Institute analysis.
The first is that greater diversification would potentially reduce the required subordination to within the range observed on securitizations of jumbo collateral. The characteristics of the loans underlying the referenced transaction are weaker than those of loans that have collateralized post-crisis non-agency securitizations. And loss severities are projected to be higher given the lower balances of the referenced loans.
However, the greater geographic diversification was found to potentially yield lower subordination requirements. Furthermore, the credit rating agencies found that super conforming higher down payment loans would potentially have rating cuts in line with post-crisis jumbo loan securitizations. Both of these outcomes should give market participants greater confidence in the ability of the non-agency market to support a broader spectrum of collateral.
But while this exercise provided valuable information about the potential subordination levels those bonds in a securitization would be required to have in order to achieve various ratings, it said little about the returns that institutional investors would demand in order to purchase these bonds. Subordination levels are an important part of the equation, but if the returns that investors demand to own bonds are too high – whether due to general risk aversion or particular to this asset class – the economics of private label securitization will not make sense.
Indeed, what we learned from our initial engagement with market participants is that demand for the senior-most bonds in new issue private label MBS has been severely diminished because investor confidence in transaction parties evaporated in the wake of the financial crisis. The risk premium that these investors assign to the sector today is prohibitively high, making securitization an unattractive financing channel and resulting in the retention of many newly originated loans in whole loan form in portfolio.
To address this crisis of confidence, Treasury has worked to create an open, neutral forum in which to discuss deficiencies in the legacy securitization model and develop creative structural solutions. As part of our benchmark transaction initiative, stakeholders including institutional investors, issuers, servicers, and due diligence firms have been participating in weekly conference calls devoted to issues including servicing oversight, contractual breach enforcement, investor communication, and transparency.
The participants in these work streams have dedicated substantial time and effort to preparing discussion materials, deliberating with colleagues internally, and sharing their expertise and viewpoints on these calls. To me, this is clear evidence that there is a strong interest among market participants to bring back a more vibrant private label MBS market.
The revitalization of this market is something the Administration supports, as well. A thriving non-government supported securitization channel has the potential to stimulate competition, expand consumer choice, and drive down borrowing costs. And last November, I first proposed the concept of a benchmark transaction as a means of catalyzing the resurgence of this market.
To refresh your memory, the rationale behind this idea is that a transaction of sufficient size that is the product of a collaborative effort between investors and transaction parties would, by definition, embrace the specific structural reforms necessary to bring back senior bond investors and thus become the de facto industry standard. Since then, Treasury has facilitated a frank dialogue with some of the largest institutional investors in the market to identify legacy failures and develop structural reforms that would give them sufficient confidence to return to the market.
And so today, I would like to share with you some of the progress that has been made in these discussions, focusing on the role and responsibilities of a transaction party we refer to as the Deal Agent. This is not an entirely new concept. In contrast to the legacy regime, most post-crisis RMBS transactions have entailed more robust mechanisms for identifying and enforcing contractual breaches.
For example, some transactions have explicitly relied on an independent evaluator to review loans for breaches of representations and warranties at the direction of a controlling certificate-holder or the trustee, while others have relied upon a Transaction Manager who automatically reviews loans using specific, predefined procedures and documents – the so-called “reps and tests model” – upon the occurrence of certain triggers such as serious delinquency or loan liquidation at a loss.
Relative to the legacy securitization regime in which potential breaches of representations and warranties were rarely investigated or enforced in a timely manner, the introduction of these new parties and procedures represents real progress. However, our engagement with some of the largest institutional investors who have fled this market led us to conclude that further improvement was needed before they would feel sufficiently comfortable and confident to return to the market.
The now-widely recognized structural deficiencies in legacy private label securitizations that came to light during the financial crisis shattered the trust of market participants, leaving a wake of painful losses and protracted litigation. Ineffective enforcement mechanisms, weak or no oversight of transaction parties, poor investor communication, and lack of transparency all contributed to a loss of confidence among the largest investors in the asset class.
The poor governance of legacy securitizations only compounded the issues inherent to securitization arising from the misalignment of interests and asymmetries of information rather than working to correct it.
It is no surprise then that the principal precondition for investors to return to the market is a greater sense of accountability to their interests and rights. Initially, this led to support for trustee fiduciary duty, but as I have said on more than one occasion, we have concluded that the trustee is the wrong party to assume such a duty going forward.
The core competency of trustees is in carrying out administrative functions, not in investigating or making determinations about contractual breaches. These activities require subjectivity and judgment, which are ultimately qualities that a fiduciary must embody. In order for a trustee to execute its administrative functions to the satisfaction of investors, it should be sufficient to draft strong contracts with clearly defined duties. Investors made it clear to us, however, that something more was required.
Institutional investors consistently held to the view that there needed to be a transaction party whose role would extend beyond prescribed contractual duties like investigating and enforcing breaches of representations and warranties. Given the fragmentation of investors and their historical difficulties in effectuating actions by transaction parties, they argued for a new entity to oversee trust activities that would be independent and represent their interests, somewhat akin to a corporate board of directors.
Investors in private label MBS have grown all too familiar with unpleasant surprises and need someone empowered to address these unanticipated issues and circumstances as they arise on their behalf. The directors of a corporation do not always know how business conditions will evolve or what unforeseen developments will arise; they are expected to use their expertise and judgment to determine the most prudent course of action in any future scenario. Similarly, investors seek a more open-ended mandate for this third party, whom we refer to as the Deal Agent.
Under corporate law, directors must discharge two primary fiduciary duties: Duty of Care and Duty of Loyalty. In the context of private label securitizations, these duties seemed sensible and logical to us. Consistent with the Duty of Care, investors expect the Deal Agent to exercise expert judgment in its decision-making with an objective of maximizing the value of the assets to the trust as a whole.
In addition, consistent with the Duty of Loyalty, investors expect the Deal Agent to act in their best interests and be free from their own conflicts of interest. In this highly litigious environment, however, firms that take on the role of Deal Agent should also have some assurance that they will not be held liable for every judgment call that turns out to be wrong after the fact from the standpoint of not maximizing value of the trust.
It is reasonable to expect that, like a director of a corporation, a Deal Agent should not suffer legal action arising simply from a poor decision. Generally, corporate board members are protected by the business judgment rule, which shields them from liability as long as they acted in good faith with the best interests of the corporation in mind and on an informed basis.
Similarly, serious consideration should be given to developing a sustainable framework within MBS transactions that gives investors a comparable level of confidence that their interests are being protected without leaving Deal Agents exposed to unlimited legal risks that could once again leave the sector mired in costly litigation.
Beyond exercising expert judgment in unforeseen situations, the Deal Agent would also have more prescribed duties. As in recent securitizations, the Deal Agent would be responsible for the investigation of breaches of representations and warranties. In addition to initiating a review in the event of predefined triggers, the Deal Agent would also be expected to perform periodic sampling and would be empowered to perform additional reviews based on its discretion.
A key evolution of the Deal Agent’s role that is emerging from our market engagement that differs from third party investor representatives in some current PLS deals is in the realm of servicer oversight. Just as the directors of a corporation oversee a firm’s business activities as carried out by management, the Deal Agent would also oversee the activities of a securitization trust including importantly, servicer performance.
Servicers would be evaluated according to a set of transparent and objective key performance indicators that would be clearly identified in the deal documents. As you all know too well, market conditions evolve, and there should be scope for transaction parties to revisit these key performance indicators over the life of a securitization in order to ensure that they continue to properly capture the prevailing environment.
The Deal Agent would hold the servicer accountable for underperforming based upon these metrics, performing more active oversight, developing remediation plans, and ultimately, having authority to recommend servicer termination in the event of chronic and uncured failures. In order to improve transparency, the Deal Agent would also serve as an intermediary between investors and the servicer, facilitating the transmission of questions and answers regarding servicing activities and performance.
Finally, investors have been frustrated by mismanagement of trust assets that has been manifested in questionable expenses and erroneous cash flow allocations. To address this issue, the Deal Agent would also be expected to play a proactive role in vendor management and monthly cash flow reconciliation.
Taken together, this expanded suite of duties and responsibilities of the Deal Agent with respect to investors as a whole should improve trust governance and counteract the inherent misalignment of interests among transaction parties. By acting with Duty of Care and Loyalty to investors, the Deal Agent can help overcome their natural fragmentation and better protect their interests.
Accordingly, credit rating agencies can consider whether these enhanced investor protections through the activities of a Deal Agent might help reduce losses sustained by investors and consequently, merit reduced subordination requirements.
If performed by an independent party with sufficient expertise and accountability, the role of the Deal Agent may yield economic benefits similar to qualitative considerations in use today. Similarly, with enhanced protection of their interests, investors should reconsider the risk premium they currently assign to the asset class, which is one key reason why the economics do not favor private label securitization today.
As important as the negotiation of transaction terms – of which I have provided a brief glimpse – the benchmark transaction process has reset relationships among transaction parties and is fostering productive dialogue among market actors that have been largely estranged since the financial crisis. It is through these renewed lines of communication that the slow task of rebuilding trust is progressing.
Treasury hopes to keep that momentum going in the days ahead by hosting those participants who have helped develop the terms and standards in the benchmark transaction process that would underlie a potential future issuance for further discussion. These investors, issuers, servicers, and due diligence firms who have been coming to the table in good faith over the last four months and with a genuine interest in helping this market overcome its historical failures, will discuss their emerging areas of agreement.
While a broad consensus around the role and duties of the Deal Agent is evidence that this effort is bearing fruit, much work remains to be done before a live transaction can be consummated.
Substantial issues remain outstanding such as the selection and compensation of the Deal Agent and the development of standardized representations and warranties, and we will use the Treasury meeting to develop a consensus on the next steps that need to be taken in the industry’s efforts to bring to market a benchmark transaction, thereby helping to revive a non-government guaranteed mortgage-backed securitization channel.
Again, I would like to thank Fitch for having me here today, and I look forward to taking a few of your questions.
###
? Bookmark and Share
Rating Action: Moody's confirms Aaa on Orange County Housing Finance Authority's (FL) Multi-Family Housing Revenue Bonds (Palm Grove Gardens), Series 2002; removes from review
Global Credit Research - 24 Apr 2015
Approximately $2.56M of outstanding debt affected
New York, April 24, 2015 -- Moody's Investors Service, ("Moody's") has confirmed the Aaa rating on Orange County Housing Finance Authority's (FL) Multi-Family Housing Revenue Bonds (Palm Grove Gardens), Series 2002. $2,560,000 of outstanding debt is affected.
This rating action concludes the review for downgrade initiated on February 5, 2015 and removes the bonds from review for downgrade.
SUMMARY RATING RATIONALE
The rating confirmation at Aaa is based on cash flow projections that demonstrate sufficiency through bond maturity. The cash flow projections are based on further clarification provided by the Trustee regarding fees and the flow of funds.
The rating reflects the high quality of the credit-enhanced mortgage provided by Fannie Mae, a strong legal structure, and oversight from an actively managed housing finance authority.
What Could Change the Rating Up
n/a
What Could Change the Rating Down
- Projected revenue insufficiency under a 0% reinvestment rate assumption
METHODOLOGY
The principal methodology used in this rating was Us Stand-Alone Housing Bond Programs Secured by Credit Enhanced Mortgages published in December 2012 Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Thomas Song
Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Ping Hsieh
Vice President - Senior Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
I had to move some of my Fannie Funds to a different account. So I'm trying to wait until Tuesday to repurchase. Don't let the ship leave the dock without me, Zeph! :)
An original copy is quite a bit more. Crazy, eh? :)
Remarks of Counselor to the Secretary for Housing Finance Policy Dr. Stegman before the Fitch Ratings 2015 House View Conference - RMBS
4/23/2015
As prepared for delivery
New York - Kevin, thank you so much for that kind introduction and for inviting me to speak at today’s conference. After all the conversations with you and your colleagues as part of the credit rating agency exercise we released in February, it is the least I could do. Fitch was a great pleasure to work with, and I urge those of you who are not familiar with the exercise to find it on the Treasury web site.
It has been almost a year now since Secretary Lew announced that Treasury would take an active role in helping to catalyze the development of a vibrant, responsible private label MBS channel. As part of these efforts, we have engaged with countless market participants including investors, issuers, servicers, due diligence firms, trustees, and the credit rating agencies to learn about the key obstacles facing the market and how to best address them.
And let me just say now that obstacles are many and consensus solutions hard to come by. But we have viewed Treasury’s role in helping re-start this market as a high priority, using our good offices and convening powers as important means of illuminating structural issues that need to be addressed and encouraging market participants to directly engage each other to resolve them.
One such obstacle we saw was the lack of clarity around how the credit rating agencies would evaluate more diverse pools of mortgage collateral that were being rated and brought to market and consequently, what the economics of originating and securitizing such collateral would be. The quality of loans that collateralize post-crisis non-agency securitizations has generally been exceptionally high, and as a result, subordination levels on these transactions have not been particularly informative in evaluating the viability of an expanded private label MBS channel.
To address this issue, we invited the credit rating agencies to evaluate the collateral underlying Freddie Mac’s STACR 2014-DN3 transaction, which referenced the most recently originated collateral at the time the exercise was initiated, as if it collateralized a non-agency securitization. The exercise resulted in some interesting insights as highlighted in an Urban Institute analysis.
The first is that greater diversification would potentially reduce the required subordination to within the range observed on securitizations of jumbo collateral. The characteristics of the loans underlying the referenced transaction are weaker than those of loans that have collateralized post-crisis non-agency securitizations. And loss severities are projected to be higher given the lower balances of the referenced loans.
However, the greater geographic diversification was found to potentially yield lower subordination requirements. Furthermore, the credit rating agencies found that super conforming higher down payment loans would potentially have rating cuts in line with post-crisis jumbo loan securitizations. Both of these outcomes should give market participants greater confidence in the ability of the non-agency market to support a broader spectrum of collateral.
But while this exercise provided valuable information about the potential subordination levels those bonds in a securitization would be required to have in order to achieve various ratings, it said little about the returns that institutional investors would demand in order to purchase these bonds. Subordination levels are an important part of the equation, but if the returns that investors demand to own bonds are too high – whether due to general risk aversion or particular to this asset class – the economics of private label securitization will not make sense.
Indeed, what we learned from our initial engagement with market participants is that demand for the senior-most bonds in new issue private label MBS has been severely diminished because investor confidence in transaction parties evaporated in the wake of the financial crisis. The risk premium that these investors assign to the sector today is prohibitively high, making securitization an unattractive financing channel and resulting in the retention of many newly originated loans in whole loan form in portfolio.
To address this crisis of confidence, Treasury has worked to create an open, neutral forum in which to discuss deficiencies in the legacy securitization model and develop creative structural solutions. As part of our benchmark transaction initiative, stakeholders including institutional investors, issuers, servicers, and due diligence firms have been participating in weekly conference calls devoted to issues including servicing oversight, contractual breach enforcement, investor communication, and transparency.
The participants in these work streams have dedicated substantial time and effort to preparing discussion materials, deliberating with colleagues internally, and sharing their expertise and viewpoints on these calls. To me, this is clear evidence that there is a strong interest among market participants to bring back a more vibrant private label MBS market.
The revitalization of this market is something the Administration supports, as well. A thriving non-government supported securitization channel has the potential to stimulate competition, expand consumer choice, and drive down borrowing costs. And last November, I first proposed the concept of a benchmark transaction as a means of catalyzing the resurgence of this market.
To refresh your memory, the rationale behind this idea is that a transaction of sufficient size that is the product of a collaborative effort between investors and transaction parties would, by definition, embrace the specific structural reforms necessary to bring back senior bond investors and thus become the de facto industry standard. Since then, Treasury has facilitated a frank dialogue with some of the largest institutional investors in the market to identify legacy failures and develop structural reforms that would give them sufficient confidence to return to the market.
And so today, I would like to share with you some of the progress that has been made in these discussions, focusing on the role and responsibilities of a transaction party we refer to as the Deal Agent. This is not an entirely new concept. In contrast to the legacy regime, most post-crisis RMBS transactions have entailed more robust mechanisms for identifying and enforcing contractual breaches.
For example, some transactions have explicitly relied on an independent evaluator to review loans for breaches of representations and warranties at the direction of a controlling certificate-holder or the trustee, while others have relied upon a Transaction Manager who automatically reviews loans using specific, predefined procedures and documents – the so-called “reps and tests model” – upon the occurrence of certain triggers such as serious delinquency or loan liquidation at a loss.
Relative to the legacy securitization regime in which potential breaches of representations and warranties were rarely investigated or enforced in a timely manner, the introduction of these new parties and procedures represents real progress. However, our engagement with some of the largest institutional investors who have fled this market led us to conclude that further improvement was needed before they would feel sufficiently comfortable and confident to return to the market.
The now-widely recognized structural deficiencies in legacy private label securitizations that came to light during the financial crisis shattered the trust of market participants, leaving a wake of painful losses and protracted litigation. Ineffective enforcement mechanisms, weak or no oversight of transaction parties, poor investor communication, and lack of transparency all contributed to a loss of confidence among the largest investors in the asset class.
The poor governance of legacy securitizations only compounded the issues inherent to securitization arising from the misalignment of interests and asymmetries of information rather than working to correct it.
It is no surprise then that the principal precondition for investors to return to the market is a greater sense of accountability to their interests and rights. Initially, this led to support for trustee fiduciary duty, but as I have said on more than one occasion, we have concluded that the trustee is the wrong party to assume such a duty going forward.
The core competency of trustees is in carrying out administrative functions, not in investigating or making determinations about contractual breaches. These activities require subjectivity and judgment, which are ultimately qualities that a fiduciary must embody. In order for a trustee to execute its administrative functions to the satisfaction of investors, it should be sufficient to draft strong contracts with clearly defined duties. Investors made it clear to us, however, that something more was required.
Institutional investors consistently held to the view that there needed to be a transaction party whose role would extend beyond prescribed contractual duties like investigating and enforcing breaches of representations and warranties. Given the fragmentation of investors and their historical difficulties in effectuating actions by transaction parties, they argued for a new entity to oversee trust activities that would be independent and represent their interests, somewhat akin to a corporate board of directors.
Investors in private label MBS have grown all too familiar with unpleasant surprises and need someone empowered to address these unanticipated issues and circumstances as they arise on their behalf. The directors of a corporation do not always know how business conditions will evolve or what unforeseen developments will arise; they are expected to use their expertise and judgment to determine the most prudent course of action in any future scenario. Similarly, investors seek a more open-ended mandate for this third party, whom we refer to as the Deal Agent.
Under corporate law, directors must discharge two primary fiduciary duties: Duty of Care and Duty of Loyalty. In the context of private label securitizations, these duties seemed sensible and logical to us. Consistent with the Duty of Care, investors expect the Deal Agent to exercise expert judgment in its decision-making with an objective of maximizing the value of the assets to the trust as a whole.
In addition, consistent with the Duty of Loyalty, investors expect the Deal Agent to act in their best interests and be free from their own conflicts of interest. In this highly litigious environment, however, firms that take on the role of Deal Agent should also have some assurance that they will not be held liable for every judgment call that turns out to be wrong after the fact from the standpoint of not maximizing value of the trust.
It is reasonable to expect that, like a director of a corporation, a Deal Agent should not suffer legal action arising simply from a poor decision. Generally, corporate board members are protected by the business judgment rule, which shields them from liability as long as they acted in good faith with the best interests of the corporation in mind and on an informed basis.
Similarly, serious consideration should be given to developing a sustainable framework within MBS transactions that gives investors a comparable level of confidence that their interests are being protected without leaving Deal Agents exposed to unlimited legal risks that could once again leave the sector mired in costly litigation.
Beyond exercising expert judgment in unforeseen situations, the Deal Agent would also have more prescribed duties. As in recent securitizations, the Deal Agent would be responsible for the investigation of breaches of representations and warranties. In addition to initiating a review in the event of predefined triggers, the Deal Agent would also be expected to perform periodic sampling and would be empowered to perform additional reviews based on its discretion.
A key evolution of the Deal Agent’s role that is emerging from our market engagement that differs from third party investor representatives in some current PLS deals is in the realm of servicer oversight. Just as the directors of a corporation oversee a firm’s business activities as carried out by management, the Deal Agent would also oversee the activities of a securitization trust including importantly, servicer performance.
Servicers would be evaluated according to a set of transparent and objective key performance indicators that would be clearly identified in the deal documents. As you all know too well, market conditions evolve, and there should be scope for transaction parties to revisit these key performance indicators over the life of a securitization in order to ensure that they continue to properly capture the prevailing environment.
The Deal Agent would hold the servicer accountable for underperforming based upon these metrics, performing more active oversight, developing remediation plans, and ultimately, having authority to recommend servicer termination in the event of chronic and uncured failures. In order to improve transparency, the Deal Agent would also serve as an intermediary between investors and the servicer, facilitating the transmission of questions and answers regarding servicing activities and performance.
Finally, investors have been frustrated by mismanagement of trust assets that has been manifested in questionable expenses and erroneous cash flow allocations. To address this issue, the Deal Agent would also be expected to play a proactive role in vendor management and monthly cash flow reconciliation.
Taken together, this expanded suite of duties and responsibilities of the Deal Agent with respect to investors as a whole should improve trust governance and counteract the inherent misalignment of interests among transaction parties. By acting with Duty of Care and Loyalty to investors, the Deal Agent can help overcome their natural fragmentation and better protect their interests.
Accordingly, credit rating agencies can consider whether these enhanced investor protections through the activities of a Deal Agent might help reduce losses sustained by investors and consequently, merit reduced subordination requirements.
If performed by an independent party with sufficient expertise and accountability, the role of the Deal Agent may yield economic benefits similar to qualitative considerations in use today. Similarly, with enhanced protection of their interests, investors should reconsider the risk premium they currently assign to the asset class, which is one key reason why the economics do not favor private label securitization today.
As important as the negotiation of transaction terms – of which I have provided a brief glimpse – the benchmark transaction process has reset relationships among transaction parties and is fostering productive dialogue among market actors that have been largely estranged since the financial crisis. It is through these renewed lines of communication that the slow task of rebuilding trust is progressing.
Treasury hopes to keep that momentum going in the days ahead by hosting those participants who have helped develop the terms and standards in the benchmark transaction process that would underlie a potential future issuance for further discussion. These investors, issuers, servicers, and due diligence firms who have been coming to the table in good faith over the last four months and with a genuine interest in helping this market overcome its historical failures, will discuss their emerging areas of agreement.
While a broad consensus around the role and duties of the Deal Agent is evidence that this effort is bearing fruit, much work remains to be done before a live transaction can be consummated.
Substantial issues remain outstanding such as the selection and compensation of the Deal Agent and the development of standardized representations and warranties, and we will use the Treasury meeting to develop a consensus on the next steps that need to be taken in the industry’s efforts to bring to market a benchmark transaction, thereby helping to revive a non-government guaranteed mortgage-backed securitization channel.
Again, I would like to thank Fitch for having me here today, and I look forward to taking a few of your questions.
###
? Bookmark and Share
I'm sure someone, somewhere has ordered it. Hopefully, they'll share it with us on ihub! :) I posted the plaintiff (Boies) response from last month, and the judge's questions in previous posts. Those were interesting. :)
It's $480 for one day delivery, $407 for delivery maybe next Tues or Wed. That's the lowest price for a copy.
That's true! They are very helpful. Good customer service!
OK, I think they charge like $10000 now or something. :)
If no one has by Tues or Wed, I will. I need to keep my cash for the weekend. :)
Good point Hvpatel!
I've only done the certified copy before. :)
It should be. Did you send in the form?
it's sealed
beautiful day, isn't it? You can go yell from the mountain top, "Let go of my Fannie!"
You can send a check, or I will order mid week, next week. I don't want to tarnish my image. I must stay good on all promises. :)
Yes, I almost did, but I restrained myself. :)
Ha! Thanks H, I at least have to pay my pacer account. It can ride up next week!!!
Starr, Greenberg case is monumental!! Looking forward to the details!!
but when will Wheeler make his decision?
Chess game, except it's not a game. It would be nice if there was some leadership that could come to the table, do the right thing.
Rocco, before you were asking who Orlando was? Interesting too that he was the CFO of Luecadia. WMAC, a subsidiary of Luecadia was the largest backer of Pershing Square.
I agree, keep it moving!
That was the only new update showing.
04/23/2015 **SEALED** MOTION to Remove the "Protected Information" Designation from Defendant's March 20 Privilege Log, filed by All Plaintiffs.Response due by 5/11/2015. (Attachments: # 1 Appendix)(Cooper, Charles)
What about if you had a conservator sign you up for a gov student "investment," terms 79.9% warrants on your assets, 10% dividends indefinitely. Would you want someone defending you later, saying government shouldn't be in investment business, picking and choosing, and setting such high terms? Is that what a conservator is for? To get the gov a great deal? And then if you are successful, start taking 100% profits?
or 79.9% :) a lot of questions need to be answered whether they like it or not!