# Disclosure for Asset-Backed Securities Required by Section 943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2011-1504

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** January 26, 2011
- **Citation:** 76 FR 4489

## Text

SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 229, 232, 240 and 249
[Release Nos. 33-9175; 34-63741; File No. S7-24-10]
RIN 3235-AK75
Disclosure for Asset-Backed Securities Required by Section 943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act

AGENCY:

Securities and Exchange Commission.

ACTION:

Final rule.

SUMMARY:

Pursuant to Section 943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act,
1

we are adopting new rules related to representations and warranties in asset-backed securities offerings. The final rules require securitizers of asset-backed securities to disclose fulfilled and unfulfilled repurchase requests. Our rules also require nationally recognized statistical rating organizations to include information regarding the representations, warranties and enforcement mechanisms available to investors in an asset-backed securities offering in any report accompanying a credit rating issued in connection with such offering, including a preliminary credit rating.

1
Pub. L. 111-203 (July 21, 2010).

DATES:

Effective Date: March 28, 2011.

Compliance Dates:

Rule 15Ga-1:
The initial filing required by Rule 15Ga-1(c)(1) for the three years ended December 31, 2011 is required to be filed on February 14, 2012, except that a securitizer that is any State or Territory of the United States, the District of Columbia, any political subdivision of any State, Territory or the District of Columbia, or any public instrumentality of one or more States, Territories or the District of Columbia, shall provide the initial filing required by Rule 15Ga-1(c)(1) for the three years ended December 31, 2014 and file on February 14, 2015.

Regulation AB:
Any registered offering of asset-backed securities commencing with an initial bona fide offer on or after February 14, 2012 must comply with the information requirements of new Item 1104(e) of Regulation AB. For any such offering that relies on Securities Act Rule 415(a)(1)(x), a Securities Act registration statement filed after December 31, 2011 relating to such offering must be pre-effectively or post-effectively amended, as applicable, to make the prospectus included in Part I of the registration statement compliant. The information required by Item of 1121 of Regulation AB is required for all Form 10-Ds required to be filed after December 31, 2011.

Rule 17g-7:
NRSROs will be required to provide the information required by the rule to be included in a report accompanying a credit rating for an offering of asset-backed securities for any such report issued on or after September 26, 2011.

FOR FURTHER INFORMATION CONTACT:

Rolaine Bancroft, Attorney-Advisor, in the Office of Rulemaking, at (202) 551-3430, Division of Corporation Finance, U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-3628 or, with respect to Rule 17g-7, Joseph I. Levinson, Special Counsel, at (202) 551-5598, Division of Trading and Markets, U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION:

We are adopting amendments to Items 1104 and 1121
2

of Regulation AB
3

(a subpart of Regulation S-K) under the Securities Act of 1933 (“Securities Act”)
4

and Rules 101 and 314
5

of Regulation S-T.
6

We also are adding Rules 15Ga-1
7

and 17g-7
8

and Form ABS-15G
9

under the Securities Exchange Act of 1934 (“Exchange Act”)
10

and the Act.

2
17 CFR 229.1104 and 17 CFR 229.1121.

3
17 CFR 229.1100 through 17 CFR 229.1123.

4
15 U.S.C. 77a
et seq.

5
17 CFR 232.101 and 17 CFR 232.314.

6
17 CFR 232.10
et seq.

7
17 CFR 240.15Ga-1.

8
17 CFR 240.17g-7.

9
17 CFR 249.1400.

10
15 U.S.C. 78a
et seq.

Table of Contents

I. Background

II. Discussion of Amendments

A. Disclosure Requirements for Securitizers

1. Definition of Exchange Act-ABS for Purposes of Rule 15Ga-1

2. Definition of Securitizer for Purposes of Rule 15Ga-1

3. Application to Municipal Securitizers

4. Disclosures Required by Rule 15Ga-1

(a) Proposed New Rule 15Ga-1

(b) Comments on the Proposed Rule

(c) Final Rule

5. Form ABS-15G

(a) Proposed Form ABS-15G

(b) Comments on the Proposed Rule

(c) Final Form ABS-15G

B. Disclosure Requirements in Regulation AB Transactions

1. Proposed Amendments to Regulation AB

2. Comments on the Proposed Amendments

3. Final Rule

C. Disclosure Requirements for NRSROs

1. Proposed New Rule 17g-7

2. Comments on the Proposed Rule

3. Final Rule

III. Transition Period

IV. Paperwork Reduction Act

A. Background

B. Summary of the Final Rules

C. Summary of Comment Letters on the PRA Analysis and Revisions to Proposals

D. PRA Reporting and Cost Burden Estimates

1. Form ABS-15G

2. Forms S-1, S-3 and 10-D

3. Regulation S-K

4. Rule 17g-7

5. Summary of Changes to Annual Burden Compliance in Collection of Information

V. Benefit-Cost Analysis

A. Benefits

B. Costs

VI. Consideration of Burden on Competition and Promotion of Efficiency, Competition and Capital Formation

VII. Regulatory Flexibility Act Certification

VIII. Statutory Authority and Text of Rule and Form Amendments

I. Background

On October 4, 2010, we proposed rules to implement Section 943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) related to asset-backed securities (“ABS”).
11

Section 943 of the Act requires the Commission to prescribe regulations on the use of representations

and warranties in the market for asset-backed securities:

11

See
Release No. 33-9148 (Oct. 4, 2010) [75 FR 6278] (the “Proposing Release”).

(1) To require any securitizer to disclose fulfilled and unfulfilled repurchase requests across all trusts aggregated by securitizer, so that investors may identify asset originators with clear underwriting deficiencies; and

(2) to require each nationally recognized statistical rating organization (“NRSRO”) to include, in any report accompanying a credit rating for an asset-backed securities offering, a description of (A) the representations, warranties and enforcement mechanisms available to investors; and (B) how they differ from the representations, warranties and enforcement mechanisms in issuances of similar securities.
12

12

See
Section 943 of the Act.

In addition to the rules required by the Act, we also re-proposed disclosure requirements in Regulation AB in order to conform disclosures about repurchase request activity to those required by Section 943 of the Act.
13

13
In April of 2010, we proposed rules that would revise the disclosure, reporting and offering process for asset-backed securities.
See Asset Backed Securities,
SEC Release No. 33-9117 (April 7, 2010) [75 FR 23328] (the “2010 ABS Proposing Release”). Among other things, the 2010 ABS Proposing Release proposed new disclosure requirements with respect to repurchase requests. Specifically, we proposed that issuers disclose in prospectuses the repurchase demand and repurchase and replacement activity for the last three years of sponsors of asset-backed transactions or originators of underlying pool assets if they are obligated to repurchase assets pursuant to the transaction agreements. We also proposed that issuers disclose the repurchase demand and repurchase and replacement activity concerning the asset pool on an ongoing basis in periodic reports.

As we discussed in the Proposing Release, in the underlying transaction agreements for an asset securitization, sponsors or originators typically make representations and warranties relating to the pool assets and their origination, including about the quality of the pool assets. For instance, in the case of residential mortgage-backed securities, one typical representation and warranty is that each of the loans has complied with applicable federal, state and local laws, including truth-in-lending, consumer credit protection, predatory and abusive laws and disclosure laws. Another representation that may be included is that no fraud has taken place in connection with the origination of the assets on the part of the originator or any party involved in the origination of the assets. Upon discovery that a pool asset does not comply with the representation or warranty, under transaction covenants, an obligated party, typically the sponsor, must repurchase the asset or substitute a different asset that complies with the representations and warranties for the non-compliant asset. The effectiveness of the contractual provisions related to representations and warranties has been questioned and lack of responsiveness by sponsors to potential breaches of the representations and warranties relating to the pool assets has been the subject of investor complaint.
14

14
As we noted in the Proposing Release and the 2010 ABS Proposing Release, transaction agreements typically have not included specific mechanisms to identify breaches of representations and warranties or to resolve a question as to whether a breach of the representations and warranties has occurred. Thus, these contractual agreements have frequently been ineffective because, without access to documents relating to each pool asset, it can be difficult for the trustee, which typically notifies the sponsor of an alleged breach, to determine whether or not a representation or warranty relating to a pool asset has been breached. In the 2010 ABS Proposing Release, the Commission proposed a condition to shelf eligibility that would require a provision in the pooling and servicing agreement that would require the party obligated to repurchase the assets for breach of representations and warranties to periodically furnish an opinion of an independent third party regarding whether the obligated party acted consistently with the terms of the pooling and servicing agreement with respect to any loans that the trustee put back to the obligated party for violation of representations and warranties and which were not repurchased.
See
Section II.A.3.b. of the 2010 ABS Proposing Release.
See also
the Committee on Capital Markets Regulation,
The Global Financial Crisis: A Plan for Regulatory Reform,
May 2009, at 135 (noting that contractual provisions have proven to be of little practical value to investors during the crisis);
see also Investors Proceeding with Countrywide Lawsuit,
Mortgage Servicing News, Feb. 1, 2009 (describing class action investor suit against Countrywide in which investors claim that language in the pooling and servicing agreements requires the seller/servicer to repurchase loans that were originated with “predatory” or abusive lending practices) and American Securitization Forum,
ASF Releases Model Representations and Warranties to Bolster Risk Retention and Transparency in Mortgage Securitizations,
(Dec. 15, 2009), available at
http://www.americansecuritization.com.
It has been reported that only large ABS investors, such as Fannie Mae and Freddie Mac, have been able to effectively exercise repurchase demands.
See
Aparajita Saha-Bubna, “Repurchased Loans Putting Banks in Hole,”
Wall Street Journal
(Mar. 8, 2010) (noting that most mortgages put back to lenders are coming from Fannie Mae and Freddie Mac).
See also
Joe Adler, “Regulators See Growing Threat from Put-Backs,”
American Banker
(Dec. 6, 2010) (noting that investor put-back cases face procedural hurdles and that investors are trying to unionize around repurchasing). However, recent articles report that banks have begun settlement efforts.
See e.g.,
Dawn Kopecki and Hugh Son, “Bank of America Deal on Loan-Repurchase Demands Sets `Template' for Banks,” Bloomberg (Jan. 4, 2011) available at
http://www.bloomberg.com/news/2011-01-03/banks-stocks-rise-after-bank-of-america-settles-mortgage-putback-claims.html
(noting recent settlements of repurchase claims).

As discussed in more detail below, we have taken into consideration the comments received on the proposed rules and are adopting new Rules 15Ga-1 and 17g-7, new Form ABS-15G and amendments to Regulation AB. The rules and form that we are adopting today implement the requirements of Section 943 of the Act, and also conform disclosure requirements for prospectuses and ongoing reports for ABS sold in registered transactions. We received over forty comment letters in response to the proposed rules. These letters came from investors, securitizers, corporations, credit rating agencies, professional and trade associations, law firms, municipal entities, and other interested parties.
15

In general, commentators supported the manner in which we proposed to implement Section 943 of the Act. Some commentators opposed some aspects of the proposed rules and suggested modifications to the proposals.

15
The public comments we received are available on our Web site at
http://sec.gov/comments/s7-24-10/s72410.shtml.

The adopted rules reflect changes made in response to many of these comments. We discuss our revisions with respect to each proposed rule in more detail throughout this release. The rules we are adopting require:

• ABS securitizers to disclose demand, repurchase and replacement history in a tabular format for an initial three-year look back period ending December 31, 2011;

• ABS securitizers to disclose, subsequent to that date, demand, repurchase and replacement activity in a tabular format on a quarterly basis;

• ABS issuers to disclose demand, repurchase and replacement history for a three-year look back period, in the same tabular format as new Rule 15Ga-1, in the body of the prospectus;

• ABS issuers to disclose demand, repurchase and replacement activity for a specific ABS, in the same tabular format, in periodic reports filed on Form 10-D; and

• NRSROs to disclose, in any report accompanying a credit rating for an ABS transaction, the representations, warranties and enforcement mechanisms available to investors and how they differ from the representations, warranties and enforcement mechanisms in issuances of similar securities.

II. Discussion of Amendments

A. Disclosure Requirements for Securitizers

We proposed and are adopting new Rule 15Ga-1 to implement Section 943(2) of the Act. This new rule would require any securitizer of asset-backed securities to disclose fulfilled and unfulfilled repurchase requests across all trusts aggregated by securitizer, so

that investors may identify asset originators with clear underwriting deficiencies. Under the new rule, a securitizer would provide the disclosure by filing new Form ABS-15G.
16

16

See also
Section II.B. for discussion of disclosures in prospectuses and periodic reports.

1. Definition of Exchange Act-ABS for Purposes of Rule 15Ga-1

As we discussed in the Proposing Release, the Act amended the Exchange Act to include a definition of an “asset-backed security” and Section 943 of the Act references that definition.
17

The statutory definition of an asset-backed security (“Exchange Act-ABS”) is much broader than the definition of an asset-backed security in Regulation AB (“Reg AB-ABS”).
18

The definition of an Exchange Act-ABS includes securities that are typically sold in transactions that are exempt from registration under the Securities Act, such as collateralized debt obligations (“CDOs”), as well as securities issued or guaranteed by a government sponsored entity (“GSE”), such as Fannie Mae and Freddie Mac and municipal securities that otherwise come within the definition.
19

Since Section 943 uses the broader Exchange Act-ABS definition, our new Rule 15Ga-1 would require a securitizer to provide disclosures relating to all asset-backed securities that fall within the statutory definition, whether or not sold in Securities Act registered transactions. However, as we discuss further below, even if a security meets the definition of an Exchange Act-ABS, the new disclosure requirement would only be triggered if the underlying transaction agreements contain a covenant to repurchase or replace an asset.

17
Section 3(a)(77) of the Exchange Act, as amended by the Act, provides that the term “asset-backed security” means a fixed-income or other security collateralized by any type of self-liquidating financial asset (including a loan, a lease, a mortgage, or a secured or unsecured receivable) that allows the holder of the security to receive payments that depend primarily on cash flow from the asset, including: A collateralized mortgage obligation; a collateralized debt obligation; a collateralized bond obligation; a collateralized debt obligation of asset-backed securities; a collateralized debt obligation of collateralized debt obligations; and a security that the Commission, by rule, determines to be an asset-backed security for purposes of this section; and does not include a security issued by a finance subsidiary held by the parent company or a company controlled by the parent company, if none of the securities issued by the finance subsidiary are held by an entity that is not controlled by the parent company.

18
In 2004, we adopted the definition of “asset-backed security” in Regulation AB. The definition and our interpretations of it are intended to establish parameters for the types of securities that are appropriate for the alternate disclosure and regulatory regime provided in Regulation AB and the related rules for Form S-3 registration of ABS. The definition does not mean that public offerings of securities outside of these parameters, such as synthetic securitizations, may not be registered with the Commission, but only that the alternate regulatory regime is not designed for those securities. The definition does mean that such securities must rely on non-ABS form eligibility for registration, including shelf registration.
See
Section III.A.2 of
Asset-Backed Securities,
SEC Release no. 33-8518 (January 7, 2005) [70 FR 1506] (the “2004 ABS Adopting Release”) and Item 1101(c) of Regulation AB [17 CFR 1101(c)].

19
Government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac purchase mortgage loans and issue or guarantee mortgage-backed securities (MBS). MBS issued or guaranteed by these GSEs have been and continue to be exempt from registration under the Securities Act and reporting under the Exchange Act. For more information regarding GSEs,
see
Task Force on Mortgage-Backed Securities Disclosure, “Staff Report: Enhancing Disclosure in the Mortgage-Backed Securities Markets” (Jan. 2003) available at
http://www.sec.gov/news/studies/mortgagebacked.htm.

2. Definition of Securitizer for Purposes of Rule 15Ga-1

Section 943 and new Rule 15Ga-1 impose the disclosure obligation on a “securitizer” as defined in the Exchange Act. The Act amended the Exchange Act to include the definition of a “securitizer.” Under the Exchange Act, a securitizer is either:

(A) An issuer of an asset-backed security; or

(B) A person who organizes and initiates an asset-backed securities transaction by selling or transferring assets, either directly or indirectly, including through an affiliate, to the issuer.
20

20

See
Section 15G(a)(3) of the Exchange Act, as amended by the Act.

The definition of securitizer is not specifically limited to entities that undertake transactions that are registered under the Securities Act or conducted in reliance upon any particular exemption.
21

Consequently, it applies to any entity or person that issues or organizes an Exchange Act-ABS as specified in Section 15G(a)(3) of the Exchange Act. Further, as noted above, Section 943 and Section 15G(a)(3) do not distinguish between securitizers of Exchange Act-ABS in registered or unregistered transactions, and our new Rule 15Ga-1 would apply equally to securitizers offering ABS in registered and unregistered transactions.

21
We received comment letters on the application of proposed Rule 15Ga-1 to ABS offered outside the United States and to ABS sold in the United States by foreign securitizers.
See e.g.,
letters from American Bar Association (ABA), Association for Financial Markets in Europe (AFME), Center for Responsible Lending (CFRL), U.S. Senator Carl Levin (Levin), Metropolitan Life Insurance Company (Metlife) and Securities Industry and Financial Markets Association (SIFMA). Section 943 of the Act does not expressly provide for Commission exemption for particular classes of securitizers from the requirements. If securitizers of Exchange Act-ABS are subject to our jurisdiction, then securitizers are required to provide the disclosures required by Rule 15Ga-1.

With respect to registered transactions and the definitions of transaction parties in Regulation AB, sponsors and depositors
22

both fall within the statutory definition of securitizer. A sponsor typically initiates a securitization transaction by selling or pledging to a specially created issuing entity a group of financial assets that the sponsor either has originated itself or has purchased in the secondary market.
23

In some instances, the transfer of assets is a two-step process: The financial assets are transferred by the sponsor first to an intermediate entity, often a limited purpose entity created by the sponsor for a securitization program and commonly called a depositor, and then the depositor will transfer the assets to the issuing entity for the particular asset-backed transaction.
24

Because both sponsors and depositors fit within the statutory definition of securitizers, both entities would have the disclosure responsibilities under new Rule 15Ga-1. However, if a sponsor filed all disclosures required under new Rule 15Ga-1, which would include disclosures of the activity of affiliated depositors, as described below, consistent with the proposal final Rule 15Ga-1 provides that those depositors affiliated with the sponsors would not have to separately provide and file the same disclosures. We believe this is appropriate for affiliated securitizers because otherwise such disclosure would be duplicative and would not provide any additional useful information, since as noted above, the depositor usually serves as an

intermediate entity of a transaction initiated by a sponsor.
25

In addition, investors would be able to find information “aggregated by securitizer” as required by Section 943 in this case because the table would be aggregated either by affiliated depositors or the sponsor the ABS.

22
We interpret the term “issuer” in Section 15G(a)(3)(A) to refer to the depositor of an asset-backed security. This treatment is consistent with our historical regulatory approach to that term, including the Securities Act and the rules promulgated under the Securities Act and the Exchange Act.
See, e.g.,
Securities Act Rule 191 (17 CFR 230.191) and Exchange Act Rule 3b-19 (17 CFR 240.3b-19).

23
A sponsor, as defined in Regulation AB, is the person who organizes and initiates an asset-backed securities transaction by selling or transferring assets, either directly or indirectly, including through an affiliate, to the issuing entity.
See
Item 1101(l) of Regulation AB [17 CFR 229.1101(l)]. Sponsors of asset-backed securities often include banks, mortgage companies, finance companies, investment banks and other entities that originate or acquire and package financial assets for resale as ABS.
See
Section II. of the 2004 ABS Adopting Release.

24
A depositor receives or purchases and transfers or sells the pool assets to the issuing entity.
See
Item 1101(e) of Regulation AB [17 CFR 229.1101(e)]. For asset-backed securities transactions where there is not an intermediate transfer of assets from the sponsor to the issuing entity, the term depositor refers to the sponsor. For asset-backed securities transactions where the person transferring or selling the pool assets is itself a trust, the depositor of the issuing entity is the depositor of that trust.

25
There may be other situations where multiple affiliated securitizers would have individual reporting obligations under Rule 15Ga-1 with respect to a particular transaction. Under our final rule, if one securitizer has filed all the disclosures required in order to meet the obligations under Rule 15Ga-1, which would include disclosures of the activity of affiliated securitizers, those securitizers would not be required to separately provide and file the same disclosures. Several commentators also requested that a securitizer be permitted to file separate reports for different asset classes, instead of including the activity for all asset classes in which the securitizer has issued ABS in a single report.
See
discussion below in Section II.A.4.b. and fn. 82.

We received two comment letters that urged us to consider two other situations related to a securitizer's filing requirement. One requested that either the Exchange Act reporting party or the party that contractually assumes a reporting duty would have the obligation to disclose repurchase request information and file Form ABS-15G, but not both.
26

The other requested we allow securitizers to reference and rely on originator disclosures to satisfy a securitizer's requirements if they have made contractual arrangements to do so.
27

Both of these commentators requested filing accommodations that related to unaffiliated parties, and we are concerned that the requested approach could make it more difficult for investors to locate the information “aggregated by securitizer” as is required by Section 943 because the relationship between unaffiliated transaction parties may not be readily understood. Therefore, we are requiring that all securitizers in a transaction file Form ABS-15G, unless they are affiliated securitizers as discussed above.

26

See
letter from SIFMA (noting, “for example, in a `rent-a-shelf' transaction, both the renter and the registrant could be deemed securitizers”).

27

See
letter from ABA (noting that the Commission has previously allowed ABS issuers to incorporate by reference information filed by third parties, such as credit enhancement providers or significant obligors).

One commentator explained that requiring disclosure of assets “originated and sold,” as proposed, could be construed to require the securitizer to report demand and repurchase activity on loans originated and sold by it but securitized by other securitizers which might lead to inconsistent and duplicative reporting.
28

In the case of Exchange Act-ABS issued by the GSE's, we received several comment letters noting that the term securitizer, for purposes of Rule 15Ga-1 should be applied solely to Fannie Mae or Freddie Mac and not the financial institution transferring loans for securitization by Fannie Mae or Freddie Mac.
29

We agree with commentators observations that “originated and sold” may be read to require disclosure about transfers of assets that were not securitized, and thus as discussed further below, we have revised the rule to require disclosure concerning assets “securitized” by securitizers.

28

See
letter from American Securitization Forum (ASF).

29

See e.g.,
letters from ASF, Bank of America (BOA), Fannie Mae and Freddie Mac (GSEs), Mortgage Bankers Association (MBA), and SIFMA.

3. Application to Municipal Securitizers

As stated earlier, Section 943 and the new rule apply to Exchange Act-ABS whether or not offered and sold in Securities Act registered transactions. In addition, Section 943 and the new rule impose the disclosure obligation on any securitizer, as defined in the Exchange Act. Thus, the new rule will apply to a municipal entity that is a securitizer of Exchange Act-ABS (“municipal securitizer”). We sought comment in the Proposing Release on whether we should provide further guidance regarding the application of proposed Rule 15Ga-1 to securities issued by municipal entities that would fall within the definition of Exchange-Act ABS. We also asked whether the types of municipal securities about which proposed Rule 15Ga-1 would require a municipal securitizer to provide representation and warranty repurchase disclosure was clear. Several commentators provided examples of municipal securities that could fall within the definition of Exchange-Act ABS such as student loan bonds, housing and mortgage bonds, bond-bank issuances, and revolving fund bonds.
30

30

See e.g.,
letters from Federated Investors, Inc., Investment Company Institute (ICI), National Association of Bond Lawyers (NABL), Kutak Rock (Kutak) and Moody's Investors Service (Moody's). We also received some comment letters that questioned whether municipal securities fall within the definition of Exchange Act-ABS. In particular, a few letters questioned whether a municipal security would meet the Exchange-Act ABS criteria of payments depending “primarily on the cash flow from the asset” if the security also is secured by a general obligation of the municipal issuer.
See e.g.,
letters from Kutak, Education Finance Council (EFC) and Minnesota Housing Finance Agency (MHFA).

With respect to proposed Rule 15Ga-1, a few commentators noted that it would not likely apply to most municipal securities because the underlying transaction documents typically would not contain a covenant to repurchase or replace an asset if it does not comply with representation and warranty provisions, if any.
31

Commentators also noted various reasons why proposed Rule 15Ga-1 should not apply to municipal securitizers, such as a belief that they have an express statutory exemption
32

or that there is a requirement under the Act to first make a rule determination about the status of the securities.
33

In addition, several commentators argued that the Commission has authority to exempt municipal securitizers from Rule15Ga-1, citing the overall structure of the Act's amendments and legislative history. These commentators questioned whether Congress intended to require Section 943 disclosures with respect to municipal securities at all.
34

31

See e.g.,
letters from NABL and Connecticut Housing Finance Authority (CHFA).

32
Several commentators noted that the Tower Amendment (Section 15B(d)(1) of the Exchange Act [15 U.S.C. 78o-4]) expressly prohibits the Securities and Exchange Commission and the Municipal Securities Rulemaking Board (“MSRB”) from requiring an issuer of municipal bonds (including housing bonds) to make any specific disclosure filing with the SEC or MSRB prior to the sale of these securities to investors.
See e.g.,
letters from Kutak, Group of 14 Municipal Organizations (Muni Group), NABL, National Association of Local Housing Finance Agencies (NALHFA), Treasurer of the State of Connecticut (Nappier), National Council of State Housing Agencies (NCHSA) and Robert W. Scott (Scott).

33
Commentators cited to the phrase “a security that the Commission, by rule, determines to be an asset-backed security” that appears after the description of examples of Exchange Act-ABS.
See
Section 3(a)(77) of the Exchange Act, as amended by the Act.
See e.g.,
letters received from NABL, Muni Group, and Scott.

34
In particular, one commentator noted that despite the broad definition of “asset-backed security,” it believes the SEC has the authority to exempt municipal securities from this rule, and doing so is necessary and appropriate in light of Section 3(a)(2) of the Securities Act and Section 3(a)(12) of the Exchange Act, which both treat municipal securities as exempted securities.
See
letter from NCHSA. Other commentators argued that the Commission has the authority to exempt municipal securities from risk retention in Section 941of the Act (Credit Risk Retention), and those same exemptions should apply to Section 943.
See e.g.,
letters from ICI, NABL, NALHFA, NCSHA, Muni Group, and Scott. Specifically, four commentators cited to language in the Joint Explanatory Statement of the Conference Committee suggesting the Commission has authority to grant total or partial exemptions from risk-retention and disclosure requirements for municipal securities.
See e.g.,
letters from ICI, NCSHA, Muni Group, and Scott.
But see
letter from Nappier (noting concerns from Senate staff that future transactions might be created and structured through municipal issuers specifically to avoid the asset-backed securities provisions).

Other commentators suggested that the Commission wait for the results of the municipal disclosure study required by Subtitle H of the Act
35

before

requiring compliance with the proposals
36

as well as for the results of the Commission's municipal field hearings, discussed below.
37

One investor group was concerned that a piecemeal approach to municipal securities disclosure would have the unintended effect of creating confusion for investors and issuers alike because different asset classes of municipal securities would be subject to different disclosure requirements.
38

35
Section 976 of the Act requires the Comptroller General of the United States to submit a report to Congress on the results of a study and review of the disclosure required to be made by issuers of municipal securities, including recommendations

for how to improve disclosure by issuers of municipal securities no later than 24 months after the date of enactment of the Act. In addition, pursuant to Section 977 of the Act, the Comptroller General of the United States is also required to conduct a study of the municipal securities markets and report no later than 18 months after the date of enactment of the Act.

36

See e.g.,
letters from CHFA, ICI, Muni Group, NABL, NALHFA, Nappier, and NCHSA.

37

See e.g.,
letters from ICI, Muni Group and Scott.

38

See
letter from ICI.

Moreover, many commentators argued that certain municipal ABS, such as housing bonds, only include assets originated under strict underwriting standards and are subject to legal and program requirements in order to obtain and maintain guarantees and tax-exempt status
39

and noted that issues regarding underwriting deficiencies and unfulfilled repurchase requests that the Act intends to address have not been an issue in the municipal securities market.
40

Furthermore, according to a few commentators, any repurchase obligations that do exist for municipal ABS have been enforced by the relevant municipal issuer in order to ensure the continual tax-exempt status of the municipal ABS.
41

39

See e.g.,
letters from Connecticut Higher Education Supplemental Loan Authority (CHESLA), CHFA, Hawkins, Delafield and Wood (Hawkins), Kutak, MHFA, NABL, and NCSHA.

40

See generally
letters from CHESLA CHFA, EFC, Hawkins, Kutak, MHFA, Muni Group, NABL, NCSHA, and City of New York (NYC) (noting generally that the policy concerns that led to adoption of the Act are not present in the case of municipal securities and the municipal securities markets did not experience the failures or defaults that led to the Act).
See also
Moody's Investors Service, Inc.,
Special Report: U.S. Municipal Bond Defaults and Recoveries, 1970-2009,
February, 2010 (noting that municipal issuers have a very limited default experience with only 54 defaults over the period 1970-2009).
See also
letter from NYC (noting that tax lien securitizations arise out of operation of law and are not originated pursuant to underwriting standards).

41

See e.g.,
letters from CHESLA, CHFA and NABL.

Commentators also noted that a significant difference between municipal ABS and more typical Exchange Act-ABS is that the Municipal Securities Rulemaking Board (MSRB)
42

collects and publicly disseminates market information and information about municipal securities issuers and offerings on its centralized public database, EMMA.
43

Thus, even though most municipal securities are sold in unregistered transactions in reliance on exemptions from registration, as commentators noted,
44

as a result of the applicability of Exchange Act Rule 15c2-12 to municipal securities offerings by underwriters, municipal issuers issuing municipal securities subject to that rule already provide disclosures in offering documents and disclosures to the secondary market pursuant to continuing disclosure agreements entered into for the benefit of bondholders. Under Rule 15c2-12, specified annual and event notices are required to be submitted to the MSRB's EMMA system.
45

However, Rule 15c2-12 does not specifically require representation and warranty repurchase disclosure.

42
The MSRB, a self-regulatory organization subject to oversight by the Commission, regulates securities firms and banks that underwrite, trade and sell municipal securities. The Act broadened the mission of the MSRB to include the protection of state and local governments and other municipal entities, in addition to investors and the public interest. The MSRB also regulates municipal advisors.
See
Section 975 of the Act.

43

See e.g.,
letters from EFC, Kutak, MHFA, NABL and NCSHA. The Web site address for EMMA is
http://www.emma.msrb.org.

44

See e.g.,
letters from EFC, Kutak, MHFA, NABL and NCSHA.

45
Pursuant to Exchange Act Rule 15c2-12 [17 CFR 240.15c2-12], municipal underwriters must submit final official statements, for municipal securities offerings subject to the rule, on EMMA, which must include, at a minimum, information on the terms of the securities, financial information or operating data concerning the issuer and other entities, enterprises, funds, accounts or other persons material to an evaluation of the offering, and a description of the continuing disclosure undertaking made in connection with the offering (including any indication of any failures to comply with such undertaking during the past five years). Official statements typically also include information regarding the purposes of the issuance, how the securities will be repaid, and the financial and economic characteristics of the obligor with respect to the offered securities. Several commentators stated that, if the final rules applied the Section 943 disclosure requirements to municipal securitizers, then these disclosures should be made on EMMA rather than on EDGAR because they argued that filing such disclosures on EDGAR would be confusing to issuers and to investors who have become accustomed to using EMMA as the repository of municipal-related disclosures.
See e.g.,
letters from EFC, Kutak, NABL and NCSHA.

Commentators noted other factors that distinguish securitizers of municipal ABS from other Exchange Act-ABS securitizers. For instance, commentators noted that municipal securitizers generally are state or local government entities and exist to serve a public purpose.
46

In addition, commentators also noted that municipal ABS in some cases are secured by a pledge of assets or are secured by a general obligation of the municipal issuer.
47

Finally, commentators stated that market participants do not identify or consider municipal securities as substantially similar to ABS.
48

46

See e.g.,
letters from CHESLA and CHFA (public purpose is to alleviate the shortage of quality affordable housing) and NALHFA (public purpose is to provide mortgage assistance to first-time home buyers, and multi-family below-market financing for the acquisition, construction and preservation of rental housing for lower-income households).

47

See e.g.,
letters from EFC, Kutak, MHFA, and NABL.

48

See e.g.,
letters from Muni Group and Scott.

Despite the distinguishing factors discussed above, we have determined that the final rules should apply to municipal securitizers. Section 943(2) of the Act requires the Commission to adopt rules mandating that “any securitizer” of an Exchange Act-ABS, including municipal ABS, provide the disclosures specified therein. The statute does not expressly provide the Commission the authority to provide exemptions for particular classes of securitizers, including municipal securitizers. We note that Section 943 is a stand-alone provision and is not included as an amendment to the Exchange Act or the Securities Act. As a result, our final rule applies to municipal ABS if they otherwise come within the definition of Exchange Act-ABS. Nonetheless, we recognize that municipal securitizers may have had less experience with developing and providing the types of information required by Section 943(2) and the new rule, and thus may have less developed infrastructures for providing the required disclosures.
49

We believe that a delayed compliance date for municipal securitizers should allow those securitizers to observe how the rule operates for other securitizers and to better prepare for implementation of the rules. We also believe that delayed compliance for municipal securitizers will allow us to evaluate the implementation of Rule 15Ga-1 by other securitizers and provide us with the opportunity to consider whether adjustments to the rule would be appropriate for municipal securitizers before the rule becomes applicable to them. As commentators also noted, we are currently undergoing a review of the municipal securities market, and as part of that review, we recently began a

series of field hearings to examine the municipal securities markets, including disclosure and transparency within the municipal securities markets.
50

At the conclusion of this process, the staff of the Commission expects to prepare a report containing information learned and any recommendations for regulatory changes, industry “best practices,” or legislative changes.
51

The results of our review and the studies required by the Act
52

could lead us to conclude that changes to the requirements of Rule 15Ga-1 would be appropriate for municipal securitizers.

49

See e.g.,
letters from CHESLA (noting that it operates with a staff of two and a part-time Executive Director); Kutak (noting that many municipal issuers rely on paper files and do not have the technology or staff to produce historical information); and NABL (noting that certain state agencies will need to obtain the necessary funds to meet the filing requirements, and certain state agencies determine their budgets on a biannual cycle).

50

See
SEC Press Release 2010-64, SEC Sets Field Hearings on State of Municipal Markets, Sept. 7, 2010 available on the “Spotlight on the State of the Municipal Securities Market” page of our Web site at
http://www.sec.gov/spotlight/municipalsecurities.shtml.

51
Id.

52
See fn. 35.

Therefore, we are delaying compliance for new Rule 15Ga-1 for municipal securitizers for a period of three years after the date applicable to securitizers other than municipal securitizers.
53

For purposes of the delayed compliance only, a municipal securitizer would be any securitizer that is a State or Territory of the United States, the District of Columbia, any political subdivision of any State, Territory or the District of Columbia, or any public instrumentality of one or more States, Territories or the District of Columbia.

53

See
discussion below regarding transition period in Section III.

In addition, as discussed below, in an effort to limit the cost and burden on municipal securitizers subject to the new rule, as well as provide the disclosures for investors in the same location as other disclosures regarding municipal securities, we will permit municipal securitizers to satisfy the rule's filing obligation by filing the information on EMMA.
54

54
Id.

4. Disclosures Required by Rule 15Ga-1

In accordance with Section 943 of the Act, we are adopting new Rule 15Ga-1
55

to require any securitizer of an Exchange Act-ABS to provide tabular disclosure of fulfilled and unfulfilled repurchase requests, so that investors may identify asset originators with clear underwriting deficiencies.

55
We are adopting this rule as an Exchange Act rule because of the relationship with other requirements under the Exchange Act and other statutory requirements we are implementing.

(a) Proposed New Rule 15Ga-1

We proposed that if the underlying transaction agreements include a covenant to repurchase or replace an underlying asset for breach of a representation or warranty, then a securitizer would be required to provide the information described below for all assets originated or sold by the securitizer that were the subject of a demand for repurchase or replacement with respect to all outstanding Exchange Act-ABS of the securitizer held by non-affiliates of the securitizer. As discussed further below, we proposed that a securitizer provide the repurchase history for the last five years by filing Form ABS-15G at the time a securitizer first offers an Exchange Act-ABS or organizes and initiates an offering of Exchange Act-ABS, registered or unregistered, after the effective date of the new rules, as adopted. In addition, we proposed that going forward, a securitizer would provide the disclosures for all outstanding Exchange Act-ABS on a monthly basis by filing Form ABS-15G.

Section 943(2) requires disclosure of fulfilled and unfulfilled repurchase requests. Therefore, we proposed to require tabular disclosure of assets subject to any and all demands for repurchase or replacement of the underlying pool assets as long as the transaction agreements provide a covenant to repurchase or replace an underlying asset, which would include demands that did not result in a repurchase under the transaction agreements and demands that were made by the investors upon the trustee. We also proposed that securitizers be permitted to footnote the table to provide additional explanatory disclosures to describe the data disclosed.

In the Proposing Release, we expressed concern that initially a securitizer may not be able to obtain complete information from a trustee about demands made by investors because it may not have tracked these demands. Because securitizers may not have access to historical information about investor demands made upon the trustee, (as opposed to trustee demands upon the securitizer, which presumably, would be known to the securitizer) prior to the effective date of the new rules, we proposed an instruction that a securitizer may disclose in a footnote, if true, that a securitizer requested and was able to obtain only partial information or was unable to obtain any information with respect to investor demands to a trustee that occurred prior to the effective date of the proposed rules and state that the disclosures do not contain all investor demands made to the trustee prior to the effective date.

In the Proposing Release, we acknowledged that a single securitizer (
i.e.,
sponsor) may have several securitization programs to securitize different types of asset classes. Because the Act requires information “aggregated by securitizer,” we proposed that a securitizer list the names of all the issuing entities
56

of Exchange Act-ABS outstanding, in order of the date of formation of the issuing entity, so that investors may identify the securities that contain the assets subject to the demands for repurchase and when the issuing entity was formed. We also proposed to require disclosure of the asset class and grouping of the information in the table by asset class. Additionally, if any of the Exchange Act-ABS of the issuing entity were registered under the Securities Act, we proposed that the Central Index Key (“CIK”) number of the issuing entity be disclosed and that the securitizer indicate by check mark whether any Exchange Act-ABS were registered. We noted that these items would provide important information that would enable an investor to locate additional publicly available disclosure for registered transactions, if applicable. Because the Act provided that disclosure is required “so that investors may identify asset originators with clear underwriting deficiencies,”
57

we proposed that securitizers further break out the information by originator of the underlying assets.

56
Issuing entity is defined in Item 1101(f) of Regulation AB [17 CFR 229.1101(f)] as the trust or other entity created at the direction of the sponsor or depositor that owns or holds the pool assets and in whose name the asset-backed securities supported or serviced by the pool assets are issued.

57

See
Section 943(2) of the Act.

We also proposed that the table provide information about the assets that were subject of a demand; the assets that were repurchased or replaced; the assets that were not repurchased or replaced; and the assets that are pending repurchase or replacement.
58

Additionally, we proposed an instruction to include footnote

disclosure about the reasons why repurchase or replacement is pending.
59

Lastly, we proposed that the table include totals by asset class for columns that require numbers of assets and principal amounts.
60

58
We noted that if the ABS were offered in a registered transaction, an investor may be able to locate additional detailed information. For instance, in the 2010 ABS Proposing Release, we proposed that issuers be required to provide loan-level disclosure of repurchase requests on an ongoing basis. If the proposal is adopted, then an issuer would be required to indicate whether a particular asset has been repurchased from the pool with each periodic report on a Form 10-D. If the asset has been repurchased, then the registrant would have to indicate whether a notice of repurchase has been received, the date the asset was repurchased, the name of the repurchaser and the reason for the repurchase. That proposal remains outstanding.
See
previously proposed Item 1(i) of Schedule L-D [Item 1121A of Regulation AB] in the 2010 ABS Proposing Release.

59
For example, the securitizer would indicate by footnote if pursuant to the terms of a transaction agreement, assets have not been repurchased or replaced pending the expiration of a cure period.

60

See
letter from Association of Mortgage Investors on the 2010 ABS Proposing Release (requesting that disclosure of information regarding claims made and satisfied under representation and warranties provisions of the transaction documents be broken down by securitization and then aggregated).

(b) Comments on the Proposed Rule

Comments on this aspect of the proposal were mixed. We received several comments on the form and the content of the table. Four commentators expressed general support that the proposed rule would implement the statutory requirements.
61

Some commentators suggested that we only require reporting where the repurchase obligation is tied to representations and warranties regarding the underwriting criteria.
62

Another commentator remarked that while repurchase requests occur for many reasons, they serve as a useful benchmark to identify loans with potential problems, such as early payment defaults, incorrect loan information, fraud problems, impermissible adverse selection procedures, or paperwork deficiencies.
63

61

See
letters from ICI, Levin, Metlife, and SIFMA (investor members).

62

See e.g.,
letters from ASF, BOA, GSEs, Kutak, NABL, MHFA, and NCHSA.

63

See
letter from Levin.

Several commentators also requested that demands be limited to those that comport with the procedures specified in the transaction documents.
64

One commentator noted that its investor members believe that existing transaction agreements include overly restrictive thresholds for recognizing bona fide repurchase demands, and noted that even where the data may be incomplete, demands that were not made in accordance with the relevant transaction documents would provide directional information as to the responsiveness of securitizers and originators of assets as well as identify originators with a history of underwriting deficiencies.
65

64

See e.g.,
letters from ABA, American Bankers Association and ABA Securities Association (ABASA), American Financial Services Association (AFSA), ASF, BOA, Commercial Real Estate Finance Council (CREFC), Financial Services Roundtable (Roundtable), SIFMA and Wells Fargo Bank (Wells) (effectively excluding investor demands upon a trustee if not provided for in the transaction agreements).
See also
fn. 14.

65

See
letter from SIFMA.

Comments regarding the proposal to provide repurchase history for an initial five-year look back period were mixed. Several commentators were generally supportive of an initial look back period.
66

Two commentators noted that the requirement should apply regardless of whether the ABS is outstanding at the end of the reporting period.
67

Several others did not support an initial look back period and requested prospective application only.
68

Several commentators noted issues with historical information, such as lack of systems to capture the data, the change in underwriting standards since the housing crisis, misperceptions that may arise from analyzing fragmented data, and the ability to obtain the data from other transaction parties including that certain transaction parties may no longer exist.
69

We also received comment letters suggesting that a three- or five-year look back period would be appropriate for ongoing periodic disclosures.
70

66

See e.g.,
letters from Association of Financial Guaranty Insurers (AFGI), CFRL, Metlife, MBIA Inc. (MBIA), and SIFMA.

67

See
letters from Metlife and SIFMA.

68

See e.g.,
letters from ABA, ABASA, AFSA, ASF, BOA, Community Mortgage Banking Project (CMBP), CREFC, GSEs, Kutak, MBA, NABL, Roundtable, and Wells. In addition, three commentators suggested that the statute did not clearly require historical information.
See
letters from ABA, ABASA and GSEs.

69

See e.g.,
letters from ABA, ABASA, BOA, CREFC, GSEs, Kutak, MBA, Roundtable and Wells.

70

See e.g.,
letters from AFSA, ASF, Metlife and SIFMA.

Several commentators requested that a securitizer should report activity for different asset classes in separate reports, instead of including the activity for all asset classes in which the securitizer has issued ABS in a single report, as proposed.
71

One commentator acknowledged that the result of this suggested change would be that some securitizers may be required to file more than one report, but its members believed reports by asset class would produce more consistent reports that are more useful to investors in evaluating particular offerings.
72

71

See e.g.,
letters from ABA, ABASA, AFSA, ASF, BOA, CREFC, Roundtable, and SIFMA.

72

See
letter from SIFMA.

Most commentators generally supported disclosure of the name of the asset originator.
73

A few commentators suggested that disclosure should only be required if the number of assets or amounts related to a particular originator exceeds a certain de minimis amount of the asset pool.
74

Another commentator requested that instead of listing all issuing entities, it be allowed to aggregate the data by seller of the loan and noted that the GSEs have hundreds of thousands of individual GSE securities outstanding; therefore, a listing by individual issuing entity would likely result in extremely unwieldy and disjointed disclosures.
75

73

See e.g.,
letters from AFGI, CFRL, CMBP, MBIA and Metlife.

74

See e.g.,
letters from GSEs, Kutak, and SIFMA. In addition, SIFMA noted that to the extent that an originator is no longer in existence, the securitizer should have the option of not providing the information related to such originator.

75

See
letter from GSEs.

We also received several comments regarding revisions to the columns in the table in order to provide more standardized disclosures. Generally, commentators requested more standardization regarding demands that were pending and not repurchased or replaced.
76

One commentator also strongly recommended that whether, and to what extent detail is provided, should be left to the judgment of each individual securitizer, rather than mandated.
77

Other commentators requested we specifically require more narrative disclosure about the information presented in the table.
78

76

See e.g.,
letters from ASF, CMBP, Metlife and SIFMA (suggesting that additional columns should be added to the table to make clear which demand requests have not been resolved and are subject of arbitration, litigation or negotiation).
See also
letters from ABA, BOA and Roundtable (suggesting that standardized categories of information would better reflect the repurchase request and resolution process so that investors may more easily compare information presented in the table than if it were presented in footnotes only).

77

See
letter from CREFC.

78

See e.g.,
letters from CFRL and Metlife.

(c) Final Rule

After considering the comments, we are adopting the table substantially as proposed, with some modifications to the format of the table. We are also adopting modifications to the filing requirement for the initial disclosures and to the filing requirements for periodic disclosures. We continue to believe that Section 943(2) requires historical disclosures about a securitizer's repurchase history, in order to give investors a clearer sense of potential problems with originators' underwriting practices, but as we recognized in the Proposing Release, and as commentators stated, securitizers may not have all of the information readily available. Therefore, we have tailored the final amendments to address many of the concerns expressed by the commentators that we believe are consistent with the purposes of Section 943.

As proposed, we are requiring disclosure in the table with respect to any Exchange Act-ABS where the underlying transaction agreements contain a covenant to repurchase or replace an underlying asset for breach of a representation or warranty. We are not limiting the disclosure requirement to representations and warranties concerning underwriting standards, as suggested by some commentators
79

because as discussed above, covenants may require repurchase if the underlying asset does not meet other types of representations and warranties, such as applicable laws or fraud, which could also be indicative of underwriting deficiencies.
80

We are also revising the text of the regulation to refer to assets “securitized” by a securitizer instead of “originated and transferred” as proposed to address commentators concerns as described above.
81

79

See e.g.,
letters from ABA, ABASA, AFSA, ASF, BOA, CREFC, Roundtable, SIFMA and Wells.

80

See
Section I.
See also
letter from Levin (noting repurchase requests may occur for early payment defaults, incorrect loan information, fraud, impermissible adverse selection procedures and paperwork deficiencies).

81

See e.g.,
letters from ASF, BOA, GSEs, MBA and SIFMA (generally noting that the requirement should apply solely to Fannie Mae or Freddie Mac and not the institution transferring loans for securitization by Fannie Mae or Freddie Mac.
See also
Section II.A.2. regarding the definition of securitizer for purposes of Rule 15Ga-1.

After considering the comments received, we are adopting additions to the table in order to provide better disclosures about the demand, repurchase and replacement history so that investors may identify asset originators with clear underwriting deficiencies.

BILLING CODE 8011-01-P

ER26JA11.004

BILLING CODE 8011-01-C

First, the final rule requires, as proposed, that a securitizer disclose the asset class and group the information in the table by asset class (column (a)).
82

82
Rule 15Ga-1(a)(1)(i). As noted earlier, some commentators requested that a securitizer should report activity for different asset classes in separate reports, instead of including the activity for all asset classes in a single report.
See e.g.,
letters from ABA, ASF, BOA, CMBP, Metlife, Roundtable and SIFMA. As discussed in Section II.A.2., both sponsor and depositors fall within the definition of securitizer and thus are obligated under Section 943 and the new rule to provide the disclosures. The final rule addresses commentators' requests because sponsors typically securitize assets of different classes through separate affiliated depositors for each asset class. For example, if a sponsor has two different affiliated depositors, one that securitizes auto loans and the other credit cards, the sponsor's reporting obligation would be satisfied if each of the depositors filed the required disclosures with respect to all of their respective trusts. Thus, a sponsor would not have to separately provide and file the same disclosures, if they were filed by an affiliated depositor of the same transaction. We expect users will find reports disclosing the information by asset class useful in making comparisons regarding originators of the same asset class.

Second, the final rule requires, as proposed, that the securitizer disclose the names of the issuing entities
83

of the ABS and list the issuing entities in order of the date of formation (column (a)).
84

In addition, we are adding an instruction to clarify that the activity should include all issuing entities that had securities outstanding during the reporting period in order to provide investors with complete and comparable disclosure for the entire reporting period.
85

83
17 CFR 229.1101(f).

84
Rule 15Ga-1(a)(1)(ii). In a stand-alone trust structure, usually backed by a pool of amortizing loans, a separate issuing entity is created for each issuance of ABS backed by a specific pool of assets. The date of formation of the issuing entity would most likely be at the same time of the issuance of the ABS. In a securitization using a master trust structure, the ABS transaction contemplates future issuances of ABS by the same issuing entity, backed by the same, but expanded, asset pool. Master trusts would organize the data using the date the issuing entity was formed, which would most likely be earlier than the date of the most recent issuance of securities.

85

See e.g.,
letters from Metlife and SIFMA (suggesting that disclosure should include any deals that were outstanding at any point in time during a reporting period).

Third, the final rule requires, as proposed, that the securitizer indicate by check mark whether the transaction was registered under the Securities Act of 1933 (column (b)) and provide the CIK number of the issuing entity (column (a)).
86

86
Rule 15Ga-1(a)(1)(iii).

Fourth, the final rule requires, as proposed, that securitizers disclose the name of the originator of the underlying assets. In addition, we are adopting an instruction to clarify that all originators must be disclosed.
87

As noted earlier, some commentators requested that we require only disclosure of originators that originated more than a de minimis amount of the assets within an issuing entity, or that were responsible for more than a de minimis number of repurchase requests.
88

We, however, believe that in order for the disclosures to meet the purpose of the statute to “identify asset originators with clear underwriting deficiencies,” it must be comparable, and even de minimis amounts may in the aggregate over time create information gaps about an originators' repurchase history. In addition, originators with no repurchase request activity should be listed in the table also to provide comparable disclosures.

87
Rule 15Ga-S1(a)(1)(iv). We are adding the instruction to clarify that all originators are required to be included.
See generally,
letters from AFGI, CFRL, CMBP, MBIA and Metlife (noting that without the disclosure requirement of the originator, it may be more difficult for investors to make fair comparisons regarding the repurchase history, including which originators are most likely to be subject to repurchase or replacement requests and which are most likely to honor such requests when made).

88

See e.g.,
letters from Kutak, GSEs and SIFMA.

Fifth, the final rule requires new columns to disclose the number, outstanding principal balance and percentage by principal balance of the assets originated by each originator in the pool at the time of securitization for each issuing entity (columns (d) through (f)).
89

We were persuaded by one commentator's suggestion that the columns should be added in order to assist investors in placing the information on repurchase demands in the proper context.
90

This way, investors may be able to determine the concentration of each originators' assets in each securitized asset pool.

89
Rule 15Ga-1(a)(1)(v).

90

See
letter from CMBP.

Sixth, we are adopting, as proposed, a requirement to disclose the number, outstanding principal balance and percentage by principal balance of assets that were subject of a demand to repurchase or replace for breach of representations and warranties (columns (g) through (i)), including investor demands upon a trustee.
91

As stated earlier, Section 943(2) requires disclosure of fulfilled and unfulfilled repurchase requests. We continue to believe that disclosure should not be limited to only those demands, repurchases and replacements made pursuant to the transaction agreement alone. Investors have demanded that trustees enforce repurchase covenants because transaction agreements do not typically contain a provision for an investor to directly make a repurchase demand.
92

Since Section 943(2) does not limit the required disclosures to those demands successfully made by the trustee, under our final rule, investor demands upon a trustee are required to be included in the table, irrespective of the trustee's determination to make a repurchase demand on a securitizer based on the investor request. As we discussed above, we recognize that initially a securitizer may not be able to obtain complete information from a trustee because it may not have established systems to track investor demands. To address this concern, we are adopting, substantially as proposed, a provision in Rule 15Ga-1 that a securitizer may include a footnote if the securitizer was unable to obtain all information with respect to investor demands upon a trustee that occurred prior to July 22, 2010 (the effective date of the Act) and state that the disclosure does not contain investor demands upon a trustee made prior to July 22, 2010.
93

91
Rule 15Ga-1(a)(1)(vi).

92

See
Jody Shenn, “BNY Won't Investigate Countrywide Mortgage Securities,”
Bloomberg Business Week
(Sep. 13, 2010) available at
http://www.businessweek.com/news/2010-09-13/bny-won-t-investigate-countrywide-mortgage-securities.html
(noting the difficulties that investors are facing to enforce contracts with respect to repurchase demands) and Al Yoon, “NY Fed joins other investors on loan repurchase bid,” Reuters (Aug. 4, 2010) available at
http://www.reuters.com/article/idUSTRE6736DZ20100804
(noting that investors have been frustrated with trustees and servicers and are banding together to force trustees to act on repurchase requests).
See also
Kevin J. Buckley, “Securitization Trustee Issues,” The Journal of Structured Finance (Summer 2010) (discussing investors demands upon trustees to enforce sellers' repurchase obligations).

93
Rule 15Ga-1(a)(2).
See also
Section 4 of the Act.

The Act does not specify when the disclosure should first be provided, or the frequency with which it should be updated. We are adopting a three-year look back period for the initial disclosures, instead of a five-year look back period, as proposed. We believe a three-year look back period for the initial disclosures strikes the right balance between the disclosure benefits to investors, availability of historical information and compliance costs to securitizers.
94

Commentators suggested that periods from three to five years would provide a sufficient period of data for investors to make comparisons in order to identify underwriting deficiencies.
95

However, we also recognize other commentators' suggestions that the rule apply only prospectively because of concerns regarding the availability and

comparability of historical information relating to repurchase demands (including investor demands upon a trustee).
96

In particular, older data may be very hard or impossible for securitizers to obtain if they have not had systems in place to track the data required for the required disclosures, which may lead to less comparable data. In order to balance the goals of the Act with commentators' concerns that all securitizers may not be able to provide complete information, we are also adopting a provision in Rule 15Ga-1
97

to permit a securitizer to omit information that is unknown or not reasonably available to the securitizer without unreasonable effort or expense similar to Exchange Act Rule 12b-21.
98

Under the final rule, a securitizer must provide the information it possesses or it can acquire without unreasonable effort or expense, and the securitizer must include a statement describing why unreasonable effort or expense would be involved in obtaining the omitted information.

94

See also
discussion in Section II.A.5.c.

95

See e.g.,
letters from AFSA, ASF, Metlife and SIFMA.

96

See e.g.,
letters from ABA, ABASA, AFSA, ASF, BOA, CMBP, CREFC, GSEs, Kutak, MBA, NABL, Roundtable, and Wells.

97
Rule 15Ga-1(a)(2).
See e.g.,
letters from AFSA, ASF, BOA, CREFC, Roundtable, and SIFMA.

98
17 CFR 240.12b-21.

Seventh, we are adopting, as proposed, a requirement to disclose the number, outstanding principal balance and percentage by principal balance of assets that were repurchased or replaced for breach of representation and warranties (columns (j) through (l)).
99

99
Rule 15Ga-1(a)(1)(vii).

Eighth, we are persuaded by commentators' suggestions that we should clarify our proposal for disclosures related to pending purchase requests in order to better reflect the repurchase request and resolution process in a comparable format, as opposed to if the information were presented in footnotes.
100

As a result, we are adopting requirements to present more specific information about the pending nature of the demand. We are requiring disclosure of the number, outstanding principal balance and percentage by principal balance of assets that are pending repurchase or replacement specifically due to the expiration of a cure period (columns (m) through (o))
101

and where the demand is currently in dispute (columns (p) through (r)).
102

If the cure period has expired, and the demand is not in dispute, the asset should be reflected in the “demand rejected” columns described below.
103

100

See e.g.,
letters from ABA, ASF, BOA, CMBP, Metlife, Roundtable, and SIFMA.

101
Rule 15Ga-1(a)(1)(viii).
See e.g.,
letters from BOA, Roundtable, and SIFMA.

102
Rule 15Ga-1(a)(1)(ix).
See e.g.,
letters from ASF, CMBP, Metlife, and SIFMA.

103

See e.g.,
letter from SIFMA.

Ninth, we are also persuaded by commentator's suggestions that we should clarify our proposal for disclosures related to unfulfilled repurchase requests.
104

As a result, we are adopting requirements to present the number, outstanding principal balance and percentage by principal balance of assets that were not repurchased or replaced because the demand was withdrawn (columns (s) through (u))
105

and because the demand was rejected (columns (v) through(x)).
106

104

See
fn. 100.

105
Rule 15Ga-1(a)(1)(x).
See e.g.,
letters from CMBP, Roundtable and SIFMA.

106
Rule 15Ga-1(a)(1)(xi).
See e.g.,
letters from BOA, Roundtable and SIFMA.

Tenth, we are addressing commentators' requests
107

that we clarify the disclosures required for the amount of outstanding principal balance and percentage by principal balance by adopting an instruction to specify that outstanding principal balance shall be the principal balance as of the reporting period end date and the percentage by principal balance shall be the outstanding principal balance of the asset(s) subject to the repurchase request(s) divided by the outstanding principal balance of the asset pool as of the reporting period end date.

107

See e.g.,
letters from AFSA (suggesting that a method of calculation should be prescribed or disclosed in order to provide comparable data) and Roundtable (noting that the percentage by principal balance is not straightforward, given that the pool size will vary over time).

Eleventh, we are adopting, with slight modification from our proposal, a requirement that the securitizer provide totals by each issuing entity reported, and for all issuing entities for columns that require number of assets and principal balance amounts.
108

108
Rule 15Ga-1(a)(1)(xii). We had proposed to require totals by asset class only.

Finally, the rule requires securitizers to include narrative disclosure in order to further explain the information presented in the table, if applicable. We are revising the proposed instruction to clarify that securitizers should indicate by footnote and provide narrative disclosure in order to further explain information presented in all columns of the table, as appropriate.
109

As noted above, we received several comments requesting that we expressly require certain disclosures to be provided by footnote or accompanying narrative disclosure.
110

Some commentators also requested confirmation that providing narrative information would not jeopardize an issuer's reliance upon a private offering exemptions or safe harbors.
111

As we noted in the Proposing Release, filing proposed Form ABS-15G would not foreclose the reliance of an issuer on the private offering exemption in the Securities Act of 1933 and the safe harbor for offshore transactions from the registration provisions in Section 5.
112

109
We had urged footnote disclosure for the entire table; however, we had specifically proposed an instruction with respect to repurchase requests that were pending.

110

See e.g.,
letters from SIFMA (requesting disclosure of the party responsible for the breach, exclusion of originator no longer in existence, and notation of assets subject to multiple repurchase requests); Metlife (requesting disclosure of specific violations of representations and warranties, status of the claims and the reason for denial); and ABA (requesting disclosure of whether a demand was resolved through an indemnity payment or purchase price adjustment but not a repurchase).

111

See e.g.,
letters from ABA, ASF, BOA and SIFMA.

112
15 U.S.C. 77e.

5. Form ABS-15G

(a) Proposed Form ABS-15G

As we discussed in the Proposing Release, the disclosures required by Rule 15Ga-1 do not fit neatly within the framework of existing Securities Act and Exchange Act Forms because those forms relate to registered ABS transactions, and unregistered ABS transactions are not required to file those forms.
113

Therefore, we proposed new Form ABS-15G to be filed on EDGAR so that parties obligated to make disclosures related to Exchange Act-ABS under Rule 15Ga-1 could file the disclosures on EDGAR. We proposed that a securitizer provide the repurchase history for the last five years by filing Form ABS-15G at the time a securitizer first offers an Exchange Act-ABS or organizes and initiates an offering of Exchange Act-ABS, registered or unregistered, after the effective date of the new rules, as adopted. In addition, we proposed that going forward, a securitizer would provide the disclosures for all outstanding Exchange Act-ABS on a monthly basis by filing Form ABS-15G within 15 calendar days after the end of each calendar month. We proposed continued periodic reporting through and until the last payment on the last Exchange Act-ABS outstanding held by a non-affiliate that was issued by the securitizer or an affiliate. We also proposed that securitizers file Form ABS-15G to provide a notice to terminate the reporting obligation and disclose the

date the last payment was made. Consistent with current filing practices for other ABS forms,
114

for purposes of making the disclosures required by Rule 15Ga-1, we proposed that Form ABS-15G be signed by the senior officer of the securitizer in charge of the securitization.

113
However, a portion of the information required by Rule 15Ga-1 would be required in a registration statement and in periodic reports as we discuss further below.

114
The Form 10-K report for ABS issuers must be signed either on behalf of the depositor by the senior officer in charge of securitization of the depositor, or on behalf of the issuing entity by the senior officer in charge of the servicing.
See
General Instruction J.3. of Form 10-K [17 CFR 249.310]. In addition, the certifications for ABS issuers that are required under Section 302 of the Sarbanes-Oxley Act of 2002 [15 U.S.C. 7241] must be signed either on behalf of the depositor by the senior officer in charge of securitization of the depositor if the depositor is signing the Form 10-K report, or on behalf of the issuing entity by the senior officer in charge of the servicing function of the servicer if the servicer is signing the Form 10-K report. In our 2010 ABS Proposing Release, we also proposed to require that the senior officer in charge of securitization of the depositor sign the registration statement (either on Form SF-1 or Form SF-3) for ABS issuers.
See
Section II.F. of the 2010 ABS Proposing Release.

(b) Comments on the Proposed Rule

Comments received on new Form ABS-15G were mixed. Two commentators requested that disclosures be provided on currently available forms because Section 943 does not expressly require, nor create an obligation to file on a new form.
115

One commentator suggested that the disclosure requirements apply only to an initial offering of an Exchange Act-ABS, and not to ongoing reporting because they believe that ongoing information regarding repurchase activity will provide little benefit to investors who have already made the decision to purchase a particular ABS.
116

However, another commentator stated that filing Form ABS-15G on EDGAR would make the disclosures readily available to all investors and the public and would ensure that the data is maintained, easy to find, and cost free for investors as well as regulators and policymakers.
117

115

See
letters from AFSA (suggesting that securitizers be given a choice of providing the information either on new Form ABS-15G or by presenting the disclosure in related offering documents) and ASF (noting that disclosure would be more useful to investors in an offering document).

116

See
letter from AFSA (but also noting that frequent securitizers who sponsor multiple asset classes would find it easier to make a single filing on Form ABS-15G rather than in a series of prospectuses).

117

See
letter from Levin.

Several commentators suggested that the trigger for the initial filing not be tied to when a securitizer completes its first offering after the effective date of the new rule.
118

Of those, two commentators suggested that the Form ABS-15G filings be required on a certain date after the effective date of the new rules.
119

In support of the proposed trigger, one commentator noted that the prospect of a new issuance by many securitizers may be delayed for a long period following the effective date of the final rules. As a result, investors and insurers of outstanding ABS would be deprived of the information at a time when representation and warranty repurchase claims and disputes related to residential mortgages, in particular, are increasing.
120

Several commentators requested a long implementation period in order to set up systems and gather historical data.
121

Three commentators proposed alternative filing rules suggesting we require securitizers to file a single Form ABS-15G if no demands are received.
122

Three suggested that, thereafter, an annual confirmation could be filed to confirm that no demands have occurred since the filing of the previous Form ABS-15G.
123

118

See e.g.,
letters from AFGI, AFSA, ASF, MBIA, Metlife and SIFMA.

119

See
Metlife (suggesting 90 days after effective date), and ASF (suggesting no earlier than one year after effective date).

120

See
letter from AFGI. Metlife also requested that sponsors with significant outstanding securitizations should file Form ABS-15G in order to enable fair comparisons for investors.

121

See e.g.,
letters from ASF, BOA, GSEs, MBA and SIFMA.
See
further discussion about the transition period below in Section III.

122

See
letters from ABA, ASF and SIFMA. In addition, two other commentators suggested that only a statement or checkbox be provided to confirm no activity to report if periodic reporting would still be required.
See
letters from AFSA and NABL.

123

See
letters from ABA, ASF and SIFMA.

Comments received on reporting frequency of ongoing reporting were mixed, with some supporting monthly,
124

quarterly,
125

and annual
126

ongoing reporting. Several commentators suggested that reporting should only be required if any repurchase activity has occurred.
127

The preferred due date of the filing ranged from 30 days to 90 days after the end of the period.
128

In addition, some commentators requested that the table be presented in periodic intervals rather than on a cumulative basis.
129

124

See
letters from AFGI and ICI (generally supporting monthly reporting), and Metlife (noting that monthly reporting would be adequate and that a frequency longer than quarterly would fail to provide investors with information about underwriting deterioration).

125
Some commentators noted that the repurchase process may move slowly, and monthly reporting may not be a useful interval for investors. In particular, residential mortgage ABS typically provide for cure periods of 60-90 days. Further, commentators argued that monthly reporting of no change in activity would be burdensome.
See e.g.,
letters from ABA, ABASA, ASF, CREFC, Roundtable and SIFMA. Other commentators generally supported a quarterly reporting interval.
See
letters from BOA, CMBP, GSEs, MBA and NYC.

126

See
letters from AFSA, GSEs, Kutak, NABL and NYC (generally supporting an annual reporting interval).

127

See e.g.,
letters from ABA, AFSA, BOA, NABL, Roundtable and SIFMA.

128

See
letters from ABA and NABL (suggesting the Form ABS-15G be required 45 days after period end).
See also
letters from AFSA, CREFC, NYC and SIFMA.

129

See
letter from Metlife (noting that repurchase activity in more recent windows of time would provide useful information on trends in asset quality).
See also
letter from ABA (noting that cumulative reporting may make the information unwieldy and that information about earlier periods would be available on the SEC Web site).

(c) Final Form ABS-15G

We are adopting new Form ABS-15G so that securitizers may provide the disclosures required by new Rule 15Ga-1. As noted above, the Act does not specify when the disclosure should first be provided, or the frequency with which it should be updated. As discussed above in Section III.A.4.c., we are adopting a requirement to file initial disclosures required by new Rule 15Ga-1 for the last three years. However, we were persuaded by commentators' concerns that our proposal to trigger the filing requirement of Form ABS-15G at the time a securitizer first offers an Exchange Act-ABS or organizes and initiates an offering of Exchange Act-ABS, registered or unregistered, after the effective date of the new rules could deny market participants of information about demand, repurchase and replacement activity.
130

Further, delaying the required disclosure of information about originators could impair investors' ability to compare issuing entities and the originators of the underlying pools. Therefore, we are adopting a requirement that any securitizer that issued an Exchange Act-ABS during the three-year period ended December 31, 2011, that includes a covenant to repurchase or replace an underlying asset for breach of a representation or warranty, would be required to file on new Form ABS-15G the disclosures required by new Rule 15Ga-1, if the securitizer has Exchange Act-ABS that had such a covenant to repurchase or replace outstanding held by non-affiliates as of December 31, 2011.
131

If a securitizer has no activity to report for the three-year period, then it may indicate that by checking the appropriate box on Form ABS-15G. The initial Form ABS-15G will be required to be filed no later than 45 days after the end of the three-year period, or on February 14, 2012.

130

See e.g.,
letters from AFGI, MBIA, Metlife and SIFMA.

131
Rule 15Ga-1(c).

As we discussed in the Proposing Release, while we believe that Congress intended to provide investors with historical information about repurchase activity so that investors may identify asset originators with clear underwriting deficiencies, we also recognized that securitizers may not have historically collected the information required under the new rules. We are requiring that the initial disclosures be limited to the last three years of activity, rather than five years as proposed, in order to balance the requirements of Section 943 and the burden on securitizers to provide the historical disclosures. As we note above, we are also adopting certain provisions in new Rule 15Ga-1 in order to address commentators' concerns regarding the production of historical information.
132

On balance, we believe that the new rule addresses the Act's requirement and investors' need for historical disclosures in order to identify asset originators with clear underwriting deficiencies, while also addressing securitizers' concerns with the challenges of producing historical information and related liability.

132

See
Section II.A.4.c., Rule 15Ga-1(c)(1) and Item 1.01 of Form ABS-15G.

We are also persuaded by commentators' views regarding the frequency of reporting and, therefore, we are adopting a requirement for securitizers to provide periodic disclosures of demand, repurchase and replacement history on a quarterly basis
133

by filing Form ABS-15G on EDGAR within 45 days of the end of the calendar quarter.
134

In the Proposing Release, we noted that most transaction agreements provide for monthly distributions, and also provide for reporting on a monthly basis. We were persuaded, however, by commentators' suggestions that demand, repurchase and replacement history could be presented in less frequent intervals while still providing meaningful disclosure. For instance, as commentators noted, the repurchase process may move slowly, and monthly reporting may not be a useful interval for investors if no activity typically occurs during such periods.
135

We also had proposed that ongoing disclosures be presented on a cumulative basis, for each issuing entity. Instead, we are adopting, as suggested by commentators, a requirement for securitizers to present only the information for the quarter in their quarterly filing because cumulative data may be cumbersome to manipulate and not be as useful to identify recent trends as information presented on a quarter by quarter basis.
136

In addition, as noted in the Proposing Release, we recognize that demands may have been made prior to the beginning of the initial look back period and that resolution may have occurred after that date. We are also adopting two instructions to clarify that a securitizer would need to disclose activity during the reporting period, even if it relates to assets that were subject to demands made prior to the beginning of the reporting period,
137

including if they were made prior to the beginning of the three-year look back period. Securitizers should include footnote disclosure to clarify, if applicable.

133

See e.g.,
letters from ABA, ABASA, ASF, BOA, CMBP, CREFC, GSEs, MBA, Metlife, NYC, Roundtable and SIFMA.

134

See
Rule 15Ga-1(c)(2) and Item 1.02 of Form ABS-15G.
See e.g.,
letters from ABA and NABL.

135

See
fn. 125. Also, as we discuss further below, we are adopting amendments to Regulation AB that would require disclosure of demand, repurchase and replacement history with respect to a particular issuing entity to be provided in distribution reports, which may occur more frequently than quarterly. For example, if a Form 10-D is due to be filed monthly for a particular issuing entity, then demand, repurchase and replacement history of that particular ABS would have to be reported monthly.
See e.g.,
letter from SIFMA.

136
Rule 15Ga-1(c)(2).
See
letters from ABA (suggesting that only updated information be provided) and Metlife (noting that repurchase activity in more recent windows of time would provide useful information on trends in asset quality). In addition, investors may locate information about prior periods on our website and as we discuss below in Section II.B.3., we are amending Regulation AB to require cumulative repurchase history for a three-year look back period in prospectuses. We also highlight the instruction to Rule 15Ga-1(a)(1)(ii) which specifies that the table should include all issuing entities with activity during the quarterly reporting period, including those that are no longer outstanding at the end of the calendar quarter.

137

See
instructions to paragraph (a)(1) and (c)(1) of Rule 15Ga-1.

Further, to address commentators' concerns that certain issuers who include a covenant to repurchase or replace pool assets in their transaction agreements, but who are never presented with a repurchase demand would be required to make disclosure, we are adopting a provision, suggested by commentators,
138

that in lieu of providing the table, a securitizer may check a box indicating that it had no demands during the quarter.
139

Thereafter, a securitizer would have suspended its obligation to report on a quarterly basis, until the time when a demand occurs during the quarterly reporting period.
140

However, the securitizer would be required to file an annual Form ABS-15G to confirm that no demands were made during the entire year.
141

If demands were made during a calendar quarter, the securitizer would have to report that activity for the calendar quarter by filing Form ABS-15G within 45 days of the end of the calendar quarter. The new rule would also apply to new securitizers where the new securitizer would have to file Form ABS-15G for the calendar quarter in which it issued Exchange Act-ABS.
142

If no demand activity occurred, it could check the box indicating that no activity occurred and thereafter, would not have to file Form ABS-15G on a quarterly basis until it had demand history to report. A new securitizer would still be required to file an annual Form ABS-15G to indicate it had no demand activity if true.

138

See e.g.,
letters from ABA and ASF.

139
Rule 15Ga-1(c)(2)(i).

140
If a securitizer had no activity during the initial three-year period, and indicated that by checking the box on the initial filing, then its obligation to file periodic filings would be suspended.
See
Rule 15Ga-1(c)(2)(i).

141
Rule 15Ga-1(c)(2)(ii).

142
Rule 15Ga-1(c)(2)(i). We had proposed that the disclosure requirements would be triggered with an offering of Exchange Act-ABS. Under the final rule, a new securitizer would not be required to make the initial three-year look back filing because it would not have any Exchange Act-ABS outstanding as of December 31, 2011 and thus, would not have any historical repurchase activity to report. Thus, a new securitizer is only required to provide information on a prospective basis.

We are also adopting, as proposed, the ability to terminate the reporting obligation. The new rule allows a securitizer to terminate its reporting obligation when the last payment is made on the last Exchange Act-ABS outstanding held by a non-affiliate that was issued by the securitizer or an affiliate.

Lastly, as discussed above, in an effort to limit the cost and burden on municipal securitizers subject to the new rule as well as allow issuers to provide the Rule 15Ga-1 disclosures for investors in the same location as other disclosures regarding municipal securities, we will permit municipal securitizers to satisfy the filing obligation by filing the information required by new Rule 15Ga-1 on EMMA.
143

143
Rule 314 of Regulation S-T.

B. Disclosure Requirements in Regulation AB Transactions

1. Proposed Amendments to Regulation AB

We re-proposed some of our 2010 ABS proposals for Regulation AB with respect to disclosures regarding sponsors in prospectuses and with respect to disclosures about the asset pool in periodic reports, so that issuers would be required to include the disclosures in the same format as

required by proposed Rule 15Ga-1(a).
144

We proposed that issuers of Reg AB-ABS provide disclosures in the same format as proposed Rule 15Ga-1(a) within a prospectus and within ongoing reports on Form 10-D. For prospectuses, we proposed that if the underlying transaction agreements provide a covenant to repurchase or replace an underlying asset for breach of a representation or warranty, then issuers would be required to provide in the body of the prospectus disclosure of a sponsor's repurchase demand and repurchase and replacement history for the last three years, pursuant to the format proscribed in Rule 15Ga-1(a). In addition, we proposed to limit the disclosure required in the prospectus to repurchase history for the same asset class as the securities being registered. Our proposal did not include a materiality threshold, as Section 943 includes no such standard. We proposed that a reference be included in the prospectus to the Form ABS-15G filings made by the securitizer (i.e., sponsor) of the transaction and disclose the CIK number of the securitizer so that investors may easily locate Form ABS-15G filings on EDGAR.

144
In the 2010 ABS Proposing Release, we also proposed to amend Item 1110(c) of Regulation AB to require originators (of greater than 20% of the assets underlying the pool) to disclose the amount, if material, of publicly securitized assets originated or sold by the sponsor that were the subject of a demand to repurchase or replace for breach of the representations and warranties concerning the pool assets that has been made in the prior three years pursuant to the transaction agreements on a pool by pool basis as well as the percentage of that amount that were not then repurchased or replaced by the sponsor. That proposal remains outstanding.

We also proposed to amend Item 1121 of Regulation AB so that issuers would be required to disclose the demand, repurchase and replacement history regarding the assets in the pool in the format prescribed by new Rule 15Ga-1(a) in Form 10-D. In order to conform the requirements to proposed Rule 15Ga-1, we also did not include a materiality threshold. We proposed that the Form 10-D include a reference to the Form ABS-15G filings made by the securitizer of the transaction and disclose the CIK number of the securitizer so that investors may easily locate Form ABS-15G filings on EDGAR. As we noted in the Proposing Release, providing repurchase history disclosure in prospectuses and in Form 10-D would be independent from and would not alleviate a securitizer's obligation to disclose ongoing information for all of their transactions as required by new Rule 15Ga-1.

2. Comments Received on the Proposal

Commentators generally supported our proposal to have Regulation AB disclosures in the same format as required under proposed Rule 15Ga-1 to lessen the burden on securitizers and permit investors to more readily review and compare the data.
145

However, we also received three comment letters suggesting that Regulation AB should be subject to a materiality threshold.
146

145

See
letters from Metlife and SIFMA.

146

See
letters from ASF, BOA and SIFMA.

One commentator suggested that the information presented in the prospectus should be presented as of a date not later than 135 days prior to the date of first use of the prospectus.
147

We received one comment letter which stated that monthly reporting is appropriate at the issuing entity level where most ABS are making distributions to investors on a monthly basis and monthly reporting is tied directly to that schedule.
148

147

See
letter from BOA.

148

See
letter from SIFMA.

Five commentators supported a different liability standard for historical data
149

and some suggested that we adopt implementation in a fashion similar as we had provided for static pool implementation.
150

149

See
letters from AFSA, ASF, BOA, Roundtable and SIFMA.

150

See
letters from AFSA, ABA, BOA and SIFMA (suggesting that information related to periods prior to the effective date or ABS issued prior to the effective date not be considered part of the prospectus or registration statement).
See also
Section III.B.4. of the 2004 ABS Adopting Release.

3. Final Rule

We are adopting the amendment to Item 1104 substantially as proposed with a few modifications in response to comments received.
151

We are revising the text of the regulation to refer to assets “securitized” by a securitizer instead of “originated and transferred”, as proposed, to address commentators concerns and to conform to Rule 15Ga-1 as described above in Section II.A.2. Also, as proposed, tabular disclosure is required in prospectuses in the format required by new Rule 15Ga-1 for the last three years.
152

We are also adopting, as proposed, a requirement that issuers include a reference to the CIK number of the securitizer. In addition, and as suggested by a commentator,
153

we are adopting a requirement that the information presented in the prospectus shall not be more than 135 days old.
154

This provision should reduce the burdens on securitizers because it is consistent with the disclosure conventions for static pool and interim financial information as well as the quarterly filing deadlines we are adopting today for Form ABS-15G.
155

It also should not diminish the quality of the information provided to investors because, as we discuss above, commentators stated that the repurchase process is typically slow and quarterly reporting is an appropriate interval to provide useful information about demand and repurchase activity.
156

In addition, information subsequent to the last quarterly reporting period may be available for a particular Exchange Act-ABS if it is required to report on Form 10-D on a more frequent basis than quarterly, such as monthly.

151
Item 1104(e) of Regulation AB.

152
Item 1104(e)(1) of Regulation AB. As we noted in the Proposing Release, we proposed that prospectuses include disclosure about the same asset class for a three-year look back period because information about other asset classes and information older than three years may make the size of the prospectus unwieldy and investors should have ready access to more current information.
See
fn. 57 of the Proposing Release.

153

See
letter from BOA.

154
Item 1104(e)(3). For example, a prospectus dated May 12, 2012 could include information as of December 31, 2011 (the information would be 133 days old); however, because a quarterly report on Form ABS-15G for the period ending March 31, 2012, would be due on May 15, 2012 (45 days after quarter end), then a prospectus dated May 17, 2012 would need to provide disclosures as of March 31, 2012.

155

See, e.g.,
Item 1105 of Regulation AB (17 CFR 229.1105), Rule 3-01 of Regulation S-X (17 CFR 210.3-01) and Rule 3-12 of Regulation S-X (17 CFR 210.3-12).

156

See
fn. 125 and 135.

Finally, as we discuss above, commentators expressed significant concern about the ability to produce historical data to meet the requirements of Item 1104 and requested specific relief from liability for historical information.
157

We recognize that issuers may not have been collecting the necessary data for periods before the compliance date of the new rules and even if they had been collecting the necessary information, the information may not have been collected under processes and controls with a view toward disclosure in a prospectus. However, we believe that concerns regarding the availability of data on a going forward basis will not be applicable. Therefore, we are addressing commentators' concerns by phasing in the disclosure requirement. A prospectus filed in the first year after the compliance date, will be permitted to include a one-year look back period, and in the second year after the compliance date, a two-year look back period.
158

Prospectuses filed in the third

year after the compliance date and thereafter must include the full three-year look back period.

157

See e.g.
letters from AFSA, ASF, BOA, Roundtable and SIFMA.

158
Therefore, prospectuses filed between February 14, 2012 and February 13, 2013 would be

permitted to include only one year of repurchase activity; prospectuses filed between February 14, 2013 and February 13, 2014 would be permitted to include only two years of repurchase activity. All prospectuses filed on or after February 14, 2014 would be required to include three years of repurchase activity. Investors may locate information for prior periods on Form ABS-15G.

We are also adopting the amendment to Item 1121, as proposed, so that investors will receive disclosures with their reports on Form 10-D about the demand, repurchase and replacement history with respect to a particular issuing entity.

C. Disclosure Requirements for NRSROs

1. Proposed New Rule 17g-7

We proposed to add new Exchange Act Rule 17g-7, which would implement Section 943(1) of the Act by requiring an NRSRO to make certain disclosures in any report accompanying a credit rating relating to an asset-backed security.
159

Specifically, in accordance with Section 943(1), Rule 17g-7 as proposed would require an NRSRO
160

to include, in such reports, a description of the representations, warranties and enforcement mechanisms available to investors and a description of how they differ from the representations, warranties and enforcement mechanisms in issuances of similar securities.
161

As discussed above, the Act also amended the Exchange Act to include the definition of an “asset-backed security” and Section 943 of the Act references that definition.
162

Therefore, we proposed that under Rule 17g-7 an NRSRO must provide the disclosures with respect to any Exchange Act-ABS, whether or not the security is offered in a transaction registered with the Commission.

159
In June 2008, we proposed a new Rule 17g-7 that would have required an NRSRO to publish a report containing certain information each time the NRSRO published a credit rating for a structured finance product or, as an alternative, use ratings symbols for structured finance products that differentiated them from the credit ratings for other types of debt securities.
See Exchange Act Release No. 57967
(June 16, 2008), [73 FR 36212]. In November 2009, we announced that we were deferring consideration of action on that proposal and separately proposed a new Rule 17g-7 to require annual disclosure by NRSROs of certain information.
See Proposed Rules for Nationally Recognized Statistical Rating Organizations,
SEC Release 34-61051 (November 23, 2009), [74 FR 63866]. Although we are adopting a new rule with the same rule number, that proposal remains outstanding.

160
Current Item 1111(e) of Regulation AB [17 CFR 1111(e)] already requires issuers to disclose the representations and warranties related to the transaction in prospectuses. Additionally, in the 2010 ABS Proposing Release, the Commission proposed changes to this item to require a description of any representation and warranty relating to fraud in the origination of the assets, and a statement if there is no such representation or warranty.

161
As discussed in the Proposing Release, we anticipate that one way an NRSRO could fulfill the requirement to describe how representations, warranties and enforcement mechanisms differ from those provided in similar securities would be to review previous issuances both on an initial and an ongoing basis in order to establish “benchmarks” for various types of securities and revise them as appropriate.

162

See
Section 3(a)(77) of the Exchange Act, as amended by the Act.

In the Proposing Release we noted that Section 943, by its terms, applies to any report accompanying a credit rating for an ABS transaction, regardless of when or in what context such reports and credit ratings are issued. Proposed Rule 17g-7 was intended to reflect the broad scope of this congressional mandate. In addition, we proposed a note to the new rule which would clarify that for the purposes of the proposed rule, a “credit rating” would include any expected or preliminary credit rating issued by an NRSRO.
163

We noted in the Proposing Release that in ABS transactions, pre-sale reports are typically issued by an NRSRO at the time the issuer commences the offering and typically include an expected or preliminary credit rating and a summary of the important features of a transaction. We also noted that disclosure at the time pre-sale reports are issued is particularly important to investors, since such reports provide them with important information prior to the point at which they make an investment decision.
164

163
As explained in the Proposing Release, we intend the term “preliminary credit rating” to include any rating, any range of ratings, or any other indications of a rating used prior to the assignment of an initial credit rating for a new issuance.
See generally

Credit Ratings Disclosure,
SEC Release No. 33-9070 (October 7, 2009) [74 FR 53086].

164
We further noted that Section 932 of the Act amends Section 15E of the Exchange Act to require the Commission to adopt rules requiring NRSROs to prescribe and use a form to accompany the publication of each credit rating that discloses certain information.
See
Section 932 of the Act. For the purposes of Section 943 and new Rule 17g-7, such a form would clearly be a “report” and, as such, if published in connection with a rating relating to an asset-backed security, would therefore require the necessary disclosures regarding the representations, warranties and enforcement mechanisms available to investors and how they differ from the representations, warranties and enforcement mechanisms in issuances of similar securities.

2. Comments Received on Proposed Rule

We received two comment letters expressing general support for the enhanced disclosure that the proposed Rule 17g-7 would require.
165

One commentator noted that it should facilitate an investor's understanding of available remedies for a breach and that the additional requirement for NRSROs to produce information regarding the representations, warranties and enforcement mechanisms available to investors in issuances of similar securities would further enhance the value of this information for investors by allowing them to readily compare various transactions involving the same asset class or similar asset class.
166

165

See
letters from ICI and Levin.

166

See
letter from ICI.

Two commentators requested that the rule text be revised to refer exclusively to representations and warranties regarding the pool assets.
167

One commentator expressed its belief that Congress intended Section 943(1) to include those representations and warranties that an issuer makes about the underlying assets, not those concerning other aspects of the transaction, e.g., corporate or governance representations.
168

167

See
letters from ABA and Moody's.

168

See
letter from Moody's.

We received several comments regarding the term “similar securities.” Several commentators requested that we clarify or expressly define the term,
169

while one commentator suggested that we require all NRSROs (in collaboration with investors and other market participants) to agree on concepts of “similar securities.”
170

On the other hand, one commentator argued that deciding whether one security is similar to another, and therefore deciding whether their terms are comparable, is ultimately a question of analytic judgment that should be left in the hands of the NRSRO.
171

169

See e.g.,
letters from ASF, CREFC, Fitch, Levin, MBA, Realpoint and SIFMA.

170

See
letter from Metlife.

171

See
letter from S&P.

Some commentators urged us to allow NRSROs to provide the required disclosures by reference to a transaction's offering documents or other materials disclosed by the issuer or underwriter, primarily due to the anticipated length of the disclosures.
172

One commentator suggested as an alternative limiting the disclosure requirement to a summary of the provisions.
173

However, another commentator opposed allowing NRSROs to satisfy the proposed disclosure requirement by referring to prospectus disclosure, noting the enhanced utility to investors that would arise from placing the relevant disclosure in a ratings report alongside information about the representations,

warranties and enforcement mechanisms available to investors in issuances of similar securities.
174

172

See
letters from ASF, Moody's, Realpoint and S&P.

173

See
letter from ASF.

174

See
letter from ICI.

Commentators were also divided on the issue of utilizing, for the purpose of the required disclosure, industry standards for the representations, warranties and enforcement mechanisms available to investors. Several commentators voiced support for allowing comparisons to industry standards for the representations, warranties and enforcement mechanisms available to investors as an alternative to comparisons to the representations, warranties and enforcement mechanisms available to investors in issuances of similar securities,
175

while others suggested that the rule should eliminate the comparison to standard securities altogether and replace it with a requirement to provide comparisons to industry standards.
176

One commentator suggested instead that the rule itself establish or reference mechanisms “to encourage the development and standardization of effective ABS representations and warranties to increase the ability to make meaningful comparisons among ABS securities and to strengthen investor confidence that promises made to investors can be enforced.”
177

Other commentators, however, opposed the use of industry standards for comparative purposes.
178

Finally, some commentators suggested that the rule should expressly state that comparisons to either an NRSRO's internal benchmarks for representations, warranties and enforcement mechanisms or to any applicable industry standards would meet the requirement.
179

175

See
letters from ASF, CREFC, Moody's and S&P.

176

See
letters from Realpoint and Metlife. The latter commentator suggested comparisons to industry standards as an alternative to its preferred basis of comparison, a uniform set of representations, warranties and enforcement mechanisms within each underlying asset class agreed upon by all NRSROs in collaboration with investors and other market participants.

177

See
letter from Levin.

178

See
letters from MBA and SIFMA.

179

See
letters from ASF and S&P. The ASF noted that its NRSRO members have broad-based internal measures for representations and warranties in ABS transactions, and believe that these measures could act as benchmarks, or as a starting point for developing benchmarks, to meet the required comparison.

We received two comment letters expressing conditional support for the note to the proposed rule clarifying that for the purposes of the proposed rule, a “credit rating” would include any expected or preliminary credit rating issued by an NRSRO.
180

One of these commentators expressed its belief that the required disclosure should be limited only to pre-sale reports,
181

while the second stated that its support was contingent on our allowing all required disclosure under the rule to be done by reference to issuer or underwriter materials.
182

Another commentator, noting that under existing market practice, the timing of pre-sale reports is often unpredictable and there may have been instances where rating agencies have not provided pre-sale reports for rated transactions, expressed its belief that the required disclosure should be part of the offering memorandum.
183

180

See
letters from Realpoint and S&P.

181

See
letter from Realpoint (also arguing for the exclusion of surveillance reports from the rule's scope).

182

See
letter from S&P.

183

See
letter from Metlife.

Two commentators expressed their belief that the rule's requirements should apply to issuer paid ratings only.
184

Another commentator, however, argued against exempting non-issuer paid ratings from the scope of the rule, noting that Section 943(1) does not discriminate between NRSRO business models.
185

Finally, one commentator argued that the rule should not apply to ratings of ABS issuances by foreign issuers that are not issuing securities into the U.S. market.
186

184

See
letters from ABA and Realpoint.

185

See
letter from S&P.

186

See
letter from Moody's.

3. Final Rule

We are adopting new Rule 17g-7 as proposed, including the proposed note to the rule indicating that for the purposes of the rule's requirement, a “credit rating” includes any expected or preliminary credit rating issued by an NRSRO. As explained in the Proposing Release, we intend the term “preliminary credit rating” to include any rating, any range of ratings, or any other indications of a rating used prior to the assignment of an initial credit rating for a new issuance.

We acknowledge commentators' concerns about the interpretation of the term “similar securities,” as well as some commentators' requests that NRSROs be allowed to utilize comparisons to industry standards as an alternative to, or instead of, comparisons to the representations, warranties and enforcement mechanisms available to investors in issuances of similar securities. While we recognize these views, we are concerned that defining similar securities or allowing reliance exclusively on industry standards for the purpose of the required comparisons could create unintentional gaps in disclosure. We expect, however, that in making its own determinations as to what constitutes a “similar security” for the purposes of the required comparisons, an NRSRO would draw upon its knowledge of industry standards, along with its own experience with previously rated deals and its knowledge of the market in general. As discussed in the Proposing Release, we anticipate that one way an NRSRO could fulfill the requirement to describe how representations, warranties and enforcement mechanisms differ from those provided in similar securities would be to review previous issuances both on an initial and an ongoing basis in order to establish, and periodically revise as appropriate, “benchmarks” for various types of securities.

As noted above, several commentators suggested we allow NRSROs to satisfy the requirements of new Rule 17g-7 by incorporating the required disclosures by reference to the transaction's offering documents. We were not persuaded, however, by these comments and believe that Congress intended, by including clear and specific language in Section 943(1), that investors receive the disclosures within the ratings report itself. Similarly, in response to commentators' suggestions that the rule should apply only to representations and warranties regarding the pool assets, as well as to the suggestion that the rule should not apply to foreign issuers that are not issuing securities into the U.S. market, we note that nothing in the text of Section 943(1) would support drawing any such distinctions in connection with reports issued by NRSROs subject to Commission oversight.

We also acknowledge commentators' concerns regarding the application of the rule to unsolicited ratings. We note that this concern can be addressed directly by NRSROs themselves through disclosure in their reports accompanying credit ratings. For example, an NRSRO could disclose whether it was hired by the arranger and therefore received information on the representations, warranties and enforcement mechanisms directly; was issuing an unsolicited rating using access to arranger information provided under Rule 17g-5(a)(3),
187

in which case

it obtained that information indirectly; or was issuing an unsolicited rating without relying on Rule 17g-5(a)(3), in which case it may not have had access to the information at all. The rule as adopted does not include any limitation on the application of the disclosure requirement to “any report accompanying a credit rating.” As such, the requirements of the rule will apply to reports issued in conjunction with both solicited and unsolicited ratings.

187
17 CFR 240.17g-5(a)(3). This provision requires an NRSRO that is hired by an arranger to determine an initial credit rating for a structured finance product to take certain steps designed to allow an NRSRO that is not hired by the arranger to nonetheless determine an initial credit rating—and subsequently monitor that credit rating—for the structured finance product.

See Amendments to

Rules for Nationally Recognized Statistical Rating Organizations,

SEC Release No. 34-61050 (November 23, 2009) [74 FR 63832].

III. Transition Period

The new rules will be effective 60 days after publication in the
Federal Register
; however, securitizers, issuers and NRSROs will be required to comply with the new rules as described below.

With regard to Rule 15Ga-1, we received several comments suggesting a compliance date of six months,
188

one year,
189

18 months
190

and two years
191

from the effective date of the new rule. Some commentators noted that securitizers need a longer time to implement the systems for tracking and recording repurchase requests necessary to comply with the rule.
192

However, other commentators believed that many securitization sponsors and servicers have systems in place and have collected the information.
193

188

See
letter from Roundtable (but noting a six month period would only be appropriate if the final rule would only require prospective information).

189

See
letter from ASF (suggesting a compliance date of no earlier than one year from the date of publication of the final rule if the rule would only require prospective information).

190

See
letters from BOA and SIFMA.

191

See
letter from GSEs.
See also
letter from Roundtable suggesting an alternative of 24 months if securitizers are required to re-create data that was not maintained.

192

See
letters from BOA, MBA and SIFMA.

193

See
letters from AFGI and Metlife.

We have considered the comments and as noted earlier, for those securitizers other than municipal securitizers, who have issued ABS during the three-year period ended December 31, 2011, the rule will require that the initial filing pursuant to new Rule 15Ga-1 be filed on EDGAR by February 14, 2012. We are providing this transition period so that securitizers and other transaction participants may set up systems and gather historical data and to track the data.

In addition, as discussed above, we are delaying compliance for a period of three years for municipal securitizers. Therefore, municipal securitizers will be required to make the initial filing required by Rule 15Ga-1(c)(1) for the three years ended December 31, 2014 and file on February 14, 2015. Also, as discussed above, we will permit municipal securitizers to satisfy the rule's filing obligation by filing the information on EMMA.

We are also providing the same transition period with respect to demand, repurchase and replacement history disclosure in registration statements and prospectuses in accordance with Regulation AB; therefore, Item 1104 disclosures would be required with the first bona fide offering of registered ABS on or after February, 14, 2012. The information in prospectuses should be as of date no older than 135 days. However, as we describe above, we are phasing in the look back period in the first two years of compliance.
194

194
In the first year after the compliance date issuers may limit the disclosures to the prior year of activity and in the second year after the compliance date, disclosures may be limited to the prior two years of activity.

With respect to Form 10-Ds, the information shoul

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2011-1504. Public record. Not legal advice.