This issue of the AMG Weekly Report covers several advocacy items that are of particular relevance to the members of SIFMA’s Asset Management Group insofar as they have a bearing on buy side business activities and have relevance under the current market conditions. These items are being addressed in conjunction with SIFMA's Washington D.C. Office. For questions relating to any of the items below, please contact Joseph Sack, Managing Director at SIFMA and principal staff advisor to the AMG at 212.313.1165 or at jsack@sifma.org.
President’s Working Group Issues Policy Statement to Improve Future State of Financial Markets: SIFMA CEO Responds
On Thursday, March 13, 2008, U.S. Treasury Secretary Henry Paulson delivered remarks which outline recommendations from the President’s Working Group on Financial Markets. The group - which includes Treasury, the Fed, CFTC and SEC - issued a report yesterday on global financial markets with insights on the causes of the recent market turmoil and next steps for mitigating systemic risk, restoring investor confidence and facilitating stable economic growth.
Click here to read the report from the President's Working Group on Financial Markets
In response to the report issued yesterday, Tim Ryan, President & CEO of SIFMA said, "SIFMA welcomes Treasury's credit market recommendations. Combined with private sector efforts already underway, we expect Treasury's proposals will help steer the American economy back on course. At a time when there is so much concern in the marketplace, Secretary Paulson's leadership and institutional knowledge are vital."
FHA Housing Stabilization & Homeownership Retention Act
On Thursday, March 13, 2008, Rep. Barney Frank (D-MA), who serves as the Chairman of the House Financial Services Committee, announced new legislation designed to address the rise in mortgage foreclosures. The new legislation, known as the FHA Housing Stabilization & Homeownership Retention Act, would allow the Federal Housing Administration to insure and guarantee refinanced mortgages that have been significantly written down by mortgage holders and lenders. According to a summary of the bill, the “program would permit FHA to provide [up to $300 billion] in new guarantees that would help to refinance at-risk borrowers into viable mortgages. In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay. The existing lender or mortgage holder will have a cash payment and no further credit exposure to the borrower. This could potentially refinance between 1 and 2 million loans (and help these families stay in their homes), protect neighborhoods and help stabilize the housing market.”
Click here to read full summary of the bill on the House Financial Services Committee web site
Click here to read the text of the FHA Housing Stabilization & Homeownership Retention Act
Questions to be addressed regarding this proposed legislation relate to: 1) whether FHA LTV levels will be sufficient to have a positive impact on refinancings; and 2) whether insurance would be available in situations involving second liens. A new Working Group of SIFMA’s Asset Management Group will examine these questions and other issues and will report back to the AMG Steering Committee.
Emergency Mortgage Loan Modification Act of 2008
On Tuesday, March 11, 2008, Rep. Michael Castle (R-DE) and Rep. Paul Kanjorski (D-PA) introduced H.R. 5579, the Emergency Mortgage Loan Modification Act of 2008, a bill designed to address the current mortgage situation. The proposed legislation provides mortgage servicers with a legal safe harbor from investor lawsuits for modifying or renegotiating mortgage loans. H.R. 5579 requires mortgage servicers to maximize returns for mortgage investors in the aggregate. If the servicers modify loans, they must show that they “reasonably believe” the change will benefit the investors in the pool of mortgages as a whole.
Click here to read H.R. 5579 Emergency Mortgage Loan Modification Act of 2008
The new AMG Working Group has met with other SIFMA members to discuss this legislation generally and its potential impact on investors. Buy side members initially expressed concern that this legislation could lead to loan modifications inconsistent with contractual obligations.
Congress Examines Municipal Bond Industry; SEC to Issue Guidance on Auction Rate Debt
On Wednesday, March 12, 2008, the House Financial Services Committee held a hearing to examine the impact of the current market situation on municipal bond issuers and the role of credit agencies. During the hearing, congressional leaders heard testimony from Erik Sirri, Director of the SEC’s Division of Trading and Markets. In his testimony, Erik Sirri stated that the SEC is developing guidance on auction-rate securities, which is debt commonly issued by state and local governments and other municipalities. The guidance would permit municipal issuers (under certain conditions) to provide liquidity to investors by buying their own debt without being suspected of market manipulation. Mr. Sirri stressed that transparency is a key component of the guidance.
Click here to read Erik Sirri’s full testimony
SEC and CFTC Formalize Coordination (Video Replay)
On March 11, 2008, SEC Chairman Christopher Cox and Commodity Futures and Trading Commission Acting Chairman Walter L. Lukken signed a Memorandum of Understanding that is designed to codify how the two agencies might coordinate and cooperate on areas of mutual regulatory interest. The Memorandum of Understanding sets a framework for sharing information and establishes principles for reviewing new products that could trade as a security, commodity or both.
Click here to read SEC Press Release with the option to view a video replay
Click here to read the SEC / CFTC Memorandum of Understanding
SIFMA Supports SEC Efforts to Reform U.S. Regulation
In a letter to SEC Chairman Christopher Cox last month, SIFMA stated its support for the Commission’s efforts to reform U.S. regulations governing cross border activities of securities firms. In its letter, SIFMA supports revisions to Rule 15a-6 which exempts (in some instances) foreign broker/dealers from registration requirements. In a response letter, Chairman Cox stated that the SEC will consider cross-border proposals early this year. The Asset Management Group will monitor developments as they relate to mutual recognition of regulatory agencies initiatives.
Important Publications:
SIFMA Update
Washington Weekly
Weekly Report of the American Securitization Forum
SIFMA SmartBrief (past five issues)