Re-Proposal of Shelf Eligibility Conditions for Asset-Backed Securities

Federal RegisterAug 5, 2011

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 230, 239 and 249

[Release Nos. 33-9244; 34-64968; File No. S7-08-10]

RIN 3235-AK37

Re-Proposal of Shelf Eligibility Conditions for Asset-Backed Securities

AGENCY:

Securities and Exchange Commission.

ACTION:

Re-proposed rule.

SUMMARY:

We are revising and re-proposing certain rules that were initially proposed in April 2010 related to asset-backed securities in light of the provisions added by the Dodd-Frank Wall Street Reform and Consumer Protection Act and comments received on our April 2010 proposals. Specifically, we are re-proposing registrant and transaction requirements related to shelf registration of asset-backed securities and changes to exhibit filing deadlines. In addition, we are requesting additional comment on our proposal to require asset-level information about the pool assets. We continue to consider the other matters in our April 2010 proposing release.

DATES:

Comments should be received on or before October 4, 2011.

ADDRESSES:

Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's Internet comment form (

http://www.sec.gov/rules/proposed.shtml

);

• Send an e-mail to

rule-comments@sec.gov

. Please include File Number S7-08-10 on the subject line; or

• Use the Federal Rulemaking Portal (

http://www.regulations.gov

). Follow the instructions for submitting comments.

Paper Comments

• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number S7-08-10. This file number should be included on the subject line if e-mail is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (

http://www.sec.gov/rules/proposed.shtml

). Comments are also available for Web site viewing and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT:

Rolaine Bancroft, Senior Special Counsel, Robert Errett, Special Counsel, or Jay Knight, Special Counsel, in the Office of Structured Finance, at (202) 551-3850, Division of Corporation Finance, U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION:

We are proposing amendments to Item 601

of Regulation S-K;

Items 1100, 1101, 1109, 1119, and 1121

of Regulation AB

(a subpart of Regulation S-K); Rules 401 and 415,

under the Securities Act of 1933 (“Securities Act”);

and Form 10-D

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

We also are proposing to add Form SF-3

under the Securities Act.

17 CFR 229.601.

17 CFR 229.10

et al.

17 CFR 229.1100, 17 CFR 229.1101, 17 CFR 229.1109, 17 CFR 229.1119, 17 CFR 229.1121.

17 CFR 229.1100 through 17 CFR 229.1123.

17 CFR 230.401 and 17 CFR 230.415.

15 U.S.C. 77a

et seq

17 CFR 249.312.

15 U.S.C. 78a

et seq

17 CFR 239.45.

Table of Contents

I. Background

II. Securities Act Shelf Registration

A. Proposed Form SF-3

B. Shelf Eligibility for Delayed Offerings

1. Revised and Re-Proposed Transaction Requirements

(a) Certification

(b) Credit Risk Manager and Repurchase Request Dispute Resolution Provisions

2. Revised and Re-Proposed Registrant Requirements

3. Annual Evaluation of Form SF-3 Eligibility in Lieu of Section 10(a)(3) Update

(a) Annual Compliance Check related to Timely Exchange Act Reporting

(b) Annual Compliance Check Related to the Fulfillment of the Transaction Requirements in Previous ABS Offerings

4. General Requests for Comment on Shelf Eligibility

III. Disclosure Requirements

A. Exhibits To Be Filed With Rule 424(h) Filing

B. Requests for Comment on Asset-Level Information

1. Section 7(c) of the Securities Act

2. Additional Requests for Comment on Asset-Level Data

3. Additional Requests for Comment on When to Require Schedule L

4. Additional Requests for Comment on Privately-Issued Structured Finance Products

C. Waterfall Computer Program

IV. Transition Period

V. General Request for Comment

VI. Paperwork Reduction Act

A. Background

B. Revisions to PRA Reporting and Cost Burden Estimates

1. Form S-3 and Form SF-3

2. Form 10-D

3. Regulation S-K

4. Summary of Proposed Changes to Annual Burden Compliance in Collection of Information

5. Solicitation of Comments

VII. Economic Analysis

A. Background

B. ABS Shelf Eligibility Proposals

1. Benefits

2. Costs

C. Disclosure Requirements

1. Benefits

2. Costs

D. Requests for Comment

VIII. Small Business Regulatory Enforcement Fairness Act

IX. Regulatory Flexibility Act Certification

X. Statutory Authority and Text of Proposed Rule and Form Amendments

I. Background

In April 2010, we proposed rules that would revise the disclosure, reporting and offering process for asset-backed securities (“ABS”).

In light of the problems exposed by the financial crisis, we had proposed significant revisions to our rules governing offers, sales and reporting with respect to asset-backed securities. These 2010 ABS Proposals were designed to improve investor protection and promote more efficient asset-backed markets.

See Asset-Backed Securities,

SEC Release No. 33-9117 (April 7, 2010) [75 FR 23328] (the “2010 ABS Proposing Release” or the “2010 ABS Proposals”).

Among other things, in the 2010 ABS Proposing Release we proposed eligibility requirements to replace the current credit rating references in shelf eligibility criteria for asset-backed security issuers. We also proposed to require that, with some exceptions, prospectuses for public offerings of asset-backed securities and ongoing Exchange Act reports contain specified asset-level information about each of the assets in the pool in a standardized tagged data format. Our proposal also included disclosure requirements as conditions to exemptions from offering registration. Further, we proposed to require asset-backed issuers to provide investors with more time to consider

transaction-specific information about the pool assets.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was enacted in July 2010.

The April 2010 ABS proposals sought to address a number of concerns about the ABS offering process and ABS disclosures that were subsequently addressed in the Act, while others were not referenced in the Act. Specifically, two of the proposed requirements—risk retention

and continued Exchange Act reporting

—will be required for most registered ABS offerings as a result of changes mandated by provisions of the Act. We are re-proposing some of the 2010 ABS Proposals at this time in light of the changes made by the Act and comments we received.

Public Law 111-203, 124 Stat. 1376 (July 21, 2010).

In the 2010 ABS Proposing Release, we proposed to require sponsors of ABS transactions retain a specified amount of each tranche of the securitization, net of hedging. Section 941 of the Act added new Section 15G of the Exchange Act. Section 15G generally requires the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Commission and in the case of the securitization of any “residential mortgage asset,” together with the Department of Housing and Urban Development and the Federal Housing Finance Agency, to jointly prescribe regulations relating to risk retention. In March 2011, the agencies proposed rules to implement Section 15G of the Exchange Act.

See Credit Risk Retention

, SEC Release No. 34-64148 (March 30, 2011) [76 FR 24090] (the “Risk Retention Proposing Release” or “Risk Retention Proposals”).

The Commission proposed in the 2010 ABS Proposals to require that an ABS issuer undertake to file Exchange Act reports with the Commission on an ongoing basis as a condition to shelf eligibility. The 2010 ABS Proposals also proposed to require an issuer to confirm, among other things, whether Exchange Act reports required pursuant to the undertaking were current as of the end of the quarter in order to be eligible to use the effective registration statement for takedowns. Section 942(a) of the Act eliminated the automatic suspension of the duty to file under Section 15(d) of the Exchange Act for ABS issuers, and granted authority to the Commission to issue rules providing for the suspension or termination of such duty. Due to the amendment to Section 15(d), the proposed shelf eligibility requirement to undertake to file Exchange Act reports is no longer necessary, including the quarterly evaluation by issuers of compliance with the undertaking. In January 2011, we proposed rules to provide for suspension of the reporting obligations for asset-backed securities issuers when there are no asset-backed securities of the class sold in a registered transaction held by non-affiliates of the depositor.

See Suspension of the Duty to File Reports for Classes of Asset-Backed Securities Under Section 15(d) of the Securities Exchange Act of 1934

, Release No. 34-63652 (Jan. 6, 2011) [76 FR 2049].

Our re-proposals for ABS shelf registration eligibility are also part of several rule revisions we are considering in connection with Section 939A of the Act. Section 939A of the Act requires that we “review any regulation issued by [us] that requires the use of an assessment of the credit-worthiness of a security or money market instrument and any references to or requirements in such regulations regarding credit ratings.” Once we have completed that review, the statute provides that we modify any regulations identified in our review to “remove any reference to or requirement of reliance on credit ratings and to substitute in such regulations such standard of credit-worthiness” as we determine to be appropriate. In that connection, we take into account the context and purposes of the affected rules.

Our re-proposals today for shelf eligibility would require:

• A certification filed at the time of each offering off of a shelf registration statement, or takedown, by the chief executive officer of the depositor or executive officer in charge of securitization of the depositor concerning the disclosure contained in the prospectus and the design of the securitization.

• Provisions in the underlying transaction agreements requiring the appointment of a credit risk manager to review assets upon the occurrence of certain trigger events and provisions requiring repurchase request dispute resolution;

• A provision in an underlying transaction agreement to include in ongoing distribution reports on Form 10-D a request by an investor to communicate with other investors; and

• An annual evaluation of compliance with the registrant requirements.

We are also re-proposing revised filing deadlines for exhibits in shelf offerings to require that the underlying transaction agreements, in substantially final form, be filed and made part of a registration statement by the date the preliminary prospectus is required to be filed under the 2010 ABS Proposal.

See

discussion regarding proposed Rules 424(h) and 430D below in Section II.

We are requesting additional comment on our 2010 ABS Proposals relating to asset-level data in light of Section 942(b) of the Act and comments we received on the 2010 ABS Proposals. Section 942(b) of the Act adds Section 7(c) of the Securities Act to require the Commission to adopt regulations requiring an issuer of an asset-backed security to disclose, for each tranche or class of security, certain loan level information regarding the assets backing that security.

Lastly, we are requesting additional comment on our 2010 ABS Proposals relating to privately-offered structured finance products.

See

Section 7(c) of the Securities Act.

II. Securities Act Shelf Registration

Securities Act shelf registration provides important timing and flexibility benefits to issuers. An issuer with an effective shelf registration statement can conduct delayed offerings “off the shelf” under Securities Act Rule 415 without staff action.

Under our current rules, asset-backed securities may be registered on a Form S-3 registration statement and later offered “off the shelf” if, in addition to meeting other specified criteria,

the securities

are rated investment grade by a nationally recognized statistical rating organization (NRSRO). As we explained in the 2010 ABS Proposing Release, we recognize that asset-backed issuers have expressed the need to use shelf registration to access the capital markets quickly.

Our re-proposed shelf eligibility requirements are designed to help ensure a certain quality and character for asset-backed securities that are eligible for delayed shelf registrations given the speed of these offerings. We discuss our proposed revisions to the registrant and transaction requirements for shelf eligibility below.

As discussed in the 2010 ABS Proposing Release, contemporaneous with the enactment of Secondary Mortgage Market Enhancement Act of 1984 (SMMEA), which added the definition of “mortgage related security” to the Exchange Act, we amended Securities Act Rule 415 to permit mortgage related securities to be offered on a delayed basis, regardless of which form is utilized for registration of the offering (Public Law 98-440, 98 Stat. 1689). SMMEA was enacted by Congress to increase the flow of funds to the housing market by removing regulatory impediments to the creation and sale of private mortgage-backed securities. An early version of the legislation contained a provision that specifically would have required the Commission to create a permanent procedure for shelf registration of mortgage related securities. The provision was removed from the final version of the legislation, however, as a result of the Commission's decision to adopt Rule 415, implementing a shelf registration procedure for mortgage related securities.

See

H.R. Rep. No. 994, 98th Cong., 2d Sess. 14, reprinted in 1984 U.S. Code Cong. & Admin. News 2827;

See also

Testimony Concerning Implementation of the Sarbanes-Oxley Act of 2002 by William H. Donaldson, Chairman U.S. Securities and Exchange Commission Before the Senate Committee on Banking, Housing and Urban Affairs (September 9, 2003) (noting that a consequence of “the combination of the certification requirements and the requirement to establish and maintain disclosure controls and procedures has been to focus appropriate increased senior executive attention on disclosure responsibilities and has had a very significant impact to date in improving financial reporting and other disclosure”).

See

letter from Securities Industry Financial Markets Association (SIFMA) (investors) on the 2010 ABS Proposing Release.

Several commentators offered, as an alternative, that the CEO of the depositor certify to the adequacy and accuracy of the disclosure in the offering documents.

See

letters from American Bar Assosciation (ABA); American Bankers Association and ABA Securities Association (ABASA); American Securitization Forum (ASF); Australian Securitisation Forum (AusSF); Bank of America (BOA); CNH Capital America (CNH); Financial Services Roundtable (FSR); J.P. Morgan Chase & Co. (JP Morgan); Mortgage Bankers Association (MBA); SIFMA (dealers and sponsors); Sallie Mae; and Wells Fargo on the 2010 ABS Proposing Release.

Although integrally related to the disclosure about the structure, assets and securities, we preliminarily believe the certification should not be limited to

disclosure. An asset-backed security is the product of multiple and varied contracts. The certification is designed to encourage better oversight by an executive officer of the securitization process. The certification also is proposed as a partial substitute for the investment grade rating. As such, we believe it is appropriate to require that the depositor have some belief that the securities being offered and sold pursuant to a shelf registration are of a certain quality. The proposed certification is not a condition for selling or registering asset-backed securities and, in fact, as is the case today, securities that are part of the same transaction may be privately offered and sold and thus would not be subject to the certification. For these reasons, we are not limiting the proposed certification to disclosure as suggested by some commentators. However, we agree that having the certification address disclosure more directly may also improve the oversight and therefore the quality of the securities. Consequently, we are proposing to revise the certification to explicitly address disclosure matters, as described below.

We anticipate that in order to provide the proposed certification, a certifier could rely, in part, on the review that would already be required in order for an issuer to comply with recently adopted Rule 193.

Rule 193 implements Section 945 of the Act by requiring that any issuer registering the offer and sale of an ABS perform a review of the assets underlying the ABS. Under the rule, at a minimum, such review must be designed and effected to provide reasonable assurance that the disclosure regarding the pool assets in the prospectus is accurate in all material respects. In addition to a review of the assets, the proposed certification, however, would require a review of the structure of the securitization.

17 CFR 230.193. In that rulemaking, we also added new Item 1111(a)(7) to Regulation AB [17 CFR 229.1111(a)(7)] to require disclosure in prospectuses of the nature of the review of the assets performed by an issuer, including whether the issuer of any ABS engaged a third party for purposes of performing the review of the pool assets underlying an ABS and the findings and conclusions of the review of the assets.

See Issuer Review of Assets in Offerings of Asset-Backed Securities,

Release No. 33-9176 (Jan. 20, 2011) [76 FR 4231] the “January 2011 ABS Issuer Review Release”).

Several commentators on the 2010 ABS Proposing Release opposed the certification requirement because they argued, in general, that the depositor's chief executive officer could not be expected to have the knowledge necessary to certify the performance of the securities.

We understand that an executive officer of the depositor may rely on the work of other parties to assist him or her with structuring an ABS transaction. We do believe however, that the chief executive officer of a depositor should provide appropriate oversight so that he or she would be able to make the certification.

See

letters from ABA; ABASA; Association of Mortgage Investors (AMI); ASF; BOA; CNH; Discover Financil Services (Discover); FSR; JP Morgan; Sallie Mae; SIFMA (dealers and sponsors); and Wells Fargo on the 2010 ABS Proposing Release.

In the 2010 ABS Proposing Release, we also explained that the certification would be a statement of what is known by the signatory at the time of the offering and would not serve as a guarantee of payment of the securities. However, we received comment letters expressing general concern that the text of the proposed certification could be viewed as a guarantee of the future performance of the assets underlying the ABS.

In contrast, one investor commentator noted that the certification would not serve as a guarantee, but instead would serve to create accountability and align interests, much like other certification requirements that already exist in the securities regulation and accounting practices.

To address commentators' concerns, we are re-proposing the requirement to revise the text of the certification to state that the securitization is not guaranteed by this certification to produce cash flows at times and amounts sufficient to service the expected payments on the asset-backed securities. Furthermore, we have revised the language so that it no longer addresses how the securities “will” pay or perform but instead focuses on the design of the transaction.

See

letters from ASF (issuer members), ABASA, CRE Finance Council (CREFC) and Wells Fargo on the 2010 ABS Proposing Release.

See

letter from Vanguard on the 2010 ABS Proposing Release.

We are also re-proposing the requirement in order to allow either the chief executive officer of the depositor or the executive officer in charge of securitization of the depositor to sign the certification. In the 2010 ABS Proposing Release, we had proposed that the chief executive officer of the depositor sign the certification. We explained that the chief executive officer of the depositor is already responsible as signatory of the registration statement for the issuer's disclosure in the prospectus and is subject to liability for material misstatements or omissions under the federal securities laws.

We would expect that chief executive officers of depositors, as signatories to the registration statement, would have reviewed the necessary documents regarding the assets, transactions and disclosures.

We believe that requiring the chief executive officer of the depositor to sign the certification is consistent with other signature requirements for asset-backed securities.

See

Securities Act Section 11 (15 U.S.C. 77k(a)) and Exchange Act Section 10(b) (15 U.S.C. 78j(b)).

We also noted that an officer providing a false certification potentially could be subject to Commission action for violating Securities Act Section 17 (15 U.S.C. 77q(a)).

See, e.g.,

Item 601(b)(31)(ii) of Regulation S-K (exhibit requirement for ABS regarding certification required by Exchange Act Rules 13a-14(d) and 15d-14(d)).

In the 2010 ABS Proposing Release, we asked whether an individual in a different position should be required to provide the certification, and in particular, whether the senior officer in charge of securitization for the depositor should sign the certification. Moreover, the 2010 ABS Proposals included a requirement that the senior officer in charge of the securitization of the depositor sign the registration statement for ABS issuers, instead of the principal accounting officer or controller of the depositor.

Several commentators suggested that the proposed certification be signed by the senior officer in charge of securitization of the depositor in order to provide consistency with our outstanding signature page proposal.

We agree with commentators' suggestions and believe that requiring such individual to sign the certification would serve the goal of encouraging more extensive oversight of ABS transaction as well as being consistent with our other signature requirements for ABS issuers. However, we believe the officer signing the certification should be an executive officer. The definition of “executive officer” is already provided in Securities Act Rule 405.

“Executive officer in charge of

securitization” rather than “senior officer in charge of securitization” is more consistent with our other regulations requiring executive officers be signators and our view that more extensive oversight by an executive officer may improve the quality of the securities. Therefore, we are proposing to require that an executive officer in charge of securitization be permitted to sign the certification.

In the 2010 ABS Proposing Release, we recognized that providing signatures of the principal accounting officer or controller of the depositor appears to serve no purpose because ABS issuers are not required to file financial statements under our rules or pursuant to their governing documents, and ABS issuers do not employ a principal accounting officer or controller. Thus, we stated our belief that requiring the senior officer in charge of the securitization to sign the registration statement would be more meaningful in the context of ABS offerings because it is more consistent with our other signature requirements for ABS issuers for Form 10-K. See the 2010 ABS Proposing Release at 23354.

See letters from ABA; ABASA; ASF; JP Morgan; MBA and Wells Fargo on the 2010 ABS Proposing Release.

The term executive officer, when used with reference to a registrant, means its president, any vice president of the registrant in charge of a principal business unit, division or function (such

as sales, administration or finance), any other officer who performs a policy making function or any other person who performs similar policy making functions for the registrant. Executive officers of subsidiaries may be deemed executive officers of the registrant if they perform such policy making functions for the registrant. [17 CFR 230.405].

Similar to the 2010 ABS Proposal, under the re-proposal, the statements required in the certification would be made based on the knowledge of the certifying person. We would expect that a chief executive officer and executive officer in charge of securitization of the depositor would have reviewed the necessary documents regarding the assets, transactions and disclosures. Under current requirements, the registration statement for an ABS offering is required to include a description of the material characteristics of the asset pool,

as well as information about the flow of funds for the transaction, including the payment allocations, rights and distribution priorities among all classes of the issuing entity's securities, and within each class, with respect to cash flows, credit enhancement and any other structural features in the transaction.

The proposed certification would be an explicit representation by the certifying person of what is implicit in what should already be disclosed in the registration statement.

If the certifying person did not believe the securitization was designed to produce cash flows at times and in amounts sufficient to service expected payments on the asset-backed securities being registered, disclosure about such insufficiency would be required under Securities Act Rule 408 and Exchange Act Rule 10b-5.

Similarly, the executive officer would not be able to sign the certification if he or she knew or expected that the design of the securitization would not produce cash flows at times and in amounts sufficient to service expected payments on the asset-backed securities.

See

Item 1111 of Regulation AB [17 CFR 229.1111].

See

Item 202 of Regulation S-K [17 CFR 229.202] and Item 1113 of Regulation AB [17 CFR 229.1113].

This approach is somewhat similar to the approach we took with Regulation AC, which requires certifications from analysts. We noted there that Regulation AC makes explicit the representations that are already implicit when an analyst publishes his or her views—that the analysis of a security published by the analyst reflects the analyst's honestly held views. Section II of

Regulation Analyst Certification,

Release No. 33-8193 (Feb. 23, 2003) [68 FR 9482].

17 CFR 230.408 and 17 CFR 240.10b-5.

Commentators also were concerned about the scope of the certification because, as proposed, the certification would apply to “any payments of the securities as described in the prospectus.” A few commentators raised the point that the lower or junior tranches of a securitization are offered at steep discounts because investors expect that the assets will

not

produce the cash flows necessary to service any payments of those securities.

Those lower tranches typically have not been sold in registered transactions because they did not satisfy the current investment grade ratings transaction requirement. In order to provide clarity, we are re-proposing the text of the certification so that the certification would apply to the securities offered and sold pursuant to the registration statement and thus would not apply to privately offered and sold securities even if issued by the same issuing entity. Under our re-proposal, this certification would be an additional exhibit requirement for the shelf registration statement that would not be applicable to the non-shelf registration statement, proposed Form SF-1. We are proposing the certification be dated as of the date of the final prospectus under Rule 424 and would be required to be filed by the time the final prospectus is required to be filed under Rule 424.

See

letters from ABA, ASF, and Sallie Mae on the 2010 ABS Proposing Release.

See

proposed revision to Item 601(b) of Regulation S-K.

Reflecting revisions in response to comments, as described above, the revised proposed certification would be required to be provided by the CEO or the executive officer in charge of securitization for the depositor and would state that,

• The executive officer has reviewed the prospectus and is familiar with the structure of the securitization, including without limitation the characteristics of the securitized assets underlying the offering, the terms of any internal credit enhancements, and the material terms of all contracts and other arrangements entered in to effect the securitization;

• Based on the executive officer's knowledge, the prospectus does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading;

• Based on the executive officer's knowledge, the prospectus and other information included in the registration statement of which it is a part, fairly present in all material respects the characteristics of the securitized assets underlying the offering described therein and the risks of ownership of the asset-backed securities described therein, including all credit enhancements and all risk factors relating to the securitized assets underlying the offering that would affect the cash flows sufficient to service payments on the asset-backed securities as described in the prospectus; and

• Based on the executive officer's knowledge, taking into account the characteristics of the securitized assets underlying the offering, the structure of the securitization, including internal credit enhancements, and any other material features of the transaction, in each instance, as described in the prospectus, the securitization is designed to produce, but is not guaranteed by this certification to produce, cash flows at times and in amounts sufficient to service expected payments on the asset-backed securities offered and sold pursuant to the registration statement.

We note that an executive officer in delivering the certificate is precluded from taking into account external credit enhancements because the certification is expressly directed to the design of the securitization and whether or not taking into account the characteristics of the securitized assets underlying the offering, the structure of the securitization, including internal credit enhancements, and any other material features of the transaction, in each instance, as described in the prospectus, such securitization is designed to produce cash flows at times and in amounts sufficient to service expected payments on the asset-backed securities offered and sold pursuant to the registration statement. An example of an external credit enhancement is a third party insurance to reimburse losses on the pool assets or the securities.

Request for Comment

1. Is our proposal to require a certification by the chief executive officer of the depositor or the executive officer in charge of securitization appropriate as a condition to shelf eligibility? Would the proposed certification encourage more extensive oversight of the transaction, and, therefore, be a partial indicator of an ABS that is a higher quality security?

2. Does the re-proposed language clarify that the certification does not constitute a guarantee?

3. Are the chief executive officer of the depositor or the executive officer in charge of securitization of the depositor the appropriate parties that should

provide the certification, as proposed? Some of our signature requirements related to ABS refer to “senior officer in charge of securitization.”

Should we revise all of those references to conform so that they refer to executive officer in charge of securitization?

The Form 10-K [17 CFR 249.310] 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. In addition, the certifications for ABS issuers that are required under Section 302 of the Sarbanes-Oxley Act 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.

4. Is the text of the proposed certification appropriate? Would having an executive officer certify that taking into account the structure of the transaction, the disclosure in the prospectus, the exhibits to the registration statement, and the information currently known to the executive officer about the securitized assets backing the securities offered and sold pursuant to the registration statement, there is a reasonable basis to conclude that those assets will generate cash flows in amounts and at times that will permit those securities to make the payments described in the transaction documents, achieve the same result as the proposed certification? Would this certification be appropriate if it also stated that this certification is only an expression of the executive officer's current belief and is not a guarantee that those assets will generate such cash flows, and there may be current facts not known to the executive officer and there may be future developments that would cause his or her opinion to change or that would result in those assets not generating such cash flows?

5. Would it be more appropriate to tie the certification to current investment grade rating standards? For instance, should the executive officer certify that the securities being offered and sold under the registration statement have adequate capacity to meet financial commitments, similar to some definitions of investment grade securities?

6. Are there other certifications that would more effectively promote accountability and oversight of the transaction by the executive officer, resulting in shelf eligible ABS being of a higher quality?

7. Would a certification limited to the disclosure in the prospectus effectively promote accountability and oversight of the transaction by the executive officer resulting in shelf-eligible ABS being of higher quality? If so, would the following language be appropriate: I, [certifying individual], certify that:

1. I have reviewed the prospectus relating to [title of securities the offer and sale of which are registered] and am familiar with the structure of the securitization, including the characteristics of the securitized assets underlying the offering, the terms of any internal credit enhancements and the material terms of all contracts and other arrangements entered in to the effect the securitization];

2. Based on my knowledge, the prospectus does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading; and

3. Based on my knowledge, the prospectus and other information included in the registration statement of which it is a part, fairly present in all material respects the characteristics of the securitized assets underlying the offering described therein and the risks of ownership of the asset-backed securities described therein, including all credit enhancements and all risk factors relating to the securitized assets underlying the offering that would affect the cash flows sufficient to service payments on the asset-backed securities as described in the prospectus.

8. We note above that the proposed certification would be an explicit representation of the certifying person of what is already implicit in the disclosure contained in the registration statement and that as a signatory of the registration statement for the issuer's disclosure in the prospectus, the executive officer can be liable for material misstatements or omissions under the federal securities laws. Would the certification create new potential liability for the certifier?

9. If the CEO or executive officer in charge of securitization of the depositor provides the certification, as proposed, and obtains assistance from a third party, should we require disclosure about the third party? Should the disclosure requirement be the same as or similar to the possible disclosures regarding an independent evaluator that we describe below? If not the same, what disclosures about the third party should be required?

10. Is it appropriate to require the certification be made as of the date of the final prospectus, as proposed? Should it instead be made as of the date when the securities are first sold?

Or should it be made as of the date of the Rule 424(h) preliminary prospectus?

[17 CFR 230.159]. Rule 159 provides the following: (a) For purposes of section 12(a)(2) of the Securities Act only, and without affecting any other rights a purchaser may have, for purposes of determining whether a prospectus or oral statement included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading at the time of sale (including, without limitation, a contract of sale), any information conveyed to the purchaser only after such time of sale (including such contract of sale) will not be taken into account and (b) For purposes of section 17(a)(2) of the Act only, and without affecting any other rights the Commission may have to enforce that section, for purposes of determining whether a statement includes or represents any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading at the time of sale (including, without limitation, a contract of sale), any information conveyed to the purchaser only after such time of sale (including such contract of sale) will not be taken into account.

11. Is it appropriate to require the certification be filed as an exhibit to the registration statement at the time of the final prospectus by means of a Form 8-K, as proposed? Or would it be more appropriate to require the certification be filed at the same time as the proposed Rule 424(h) preliminary prospectus?

See

discussion below in Section III.A.

12. In lieu of the requirement that the chief executive officer or executive officer in charge of securitization of the depositor provide a certification, should we allow an opinion to be provided by an “independent evaluator” regarding the ABS that would provide the same assurances as the certification? Would permitting such an opinion encourage appropriate oversight of the transaction structure for purposes of determining shelf eligibility? Would allowing an opinion by an independent evaluator give issuers the flexibility to engage a third party to give the certification that would otherwise be required of the CEO or the executive officer in charge of securitization? If we permit an independent evaluator to provide an opinion in lieu of an officer certification, would it be appropriate for us to require that the text of the opinion be the same as the proposed text for the certification by the CEO or executive officer in charge of securitization of the depositor?

13. We note that if we permit an opinion to be provided, we anticipate that the opinion would need to be filed as an exhibit to the registration statement and the independent evaluator would need to consent to being named as an “expert” in the registration statement and be subject to

the liability provisions of Section 11 of the Securities Act.

Would these requirements be appropriate? Would third parties be willing to act as independent evaluators on this basis?

Section 7 of the Securities Act requires the consent of any person, whose profession gives authority to a statement made by him, is named as having prepared or certified any part of the registration statement, or is named as having prepared or certified a report or valuation for use in connection with the registration statement.

See also

Securities Act Section 11 [15 U.S.C. 77k].

14. How would we define an independent evaluator for purposes of providing the opinion? For example, would it be appropriate to define an independent evaluator as a person who: (i) Has expertise and experience in structuring and evaluating asset-backed securities; (ii) is not affiliated with the issuer or any person involved in the organization or operation of the issuer;

(iii) itself, and any of its affiliates, does not knowingly have, or does not have the intention to acquire, any direct or indirect beneficial interest in any securities issued or assets held by the issuer, and (iv) does not have any other material business or financial relationship with the issuer or any person involved in the organization or operation of the issuer.

Should we impose any additional or different requirements on an independent evaluator?

An “affiliate” of, or a person “affiliated” with, a specified person, is defined in Commission rules to mean “a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.”

See, e.g.,

Securities Act Rule 405 and Exchange Act Rule 12b-2. The term “control” also is defined in those rules as “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.”

This requirement would not preclude an independent evaluator to serve as an independent evaluator in other ABS transactions of the same sponsor or depositor.

15. What steps should the issuer (or another person on behalf of the issuer) need to take to determine whether a prospective independent evaluator meets specified criteria? Should it be able to rely on a statement of the evaluator, for example, that it has the required expertise and experience?

16. Would a provision prohibiting ownership of beneficial interests in securities issued by the issuer or assets held by the issuer and any other material business or financial relationships facilitate the evaluator's independence?

17. Should we place limits on whether an independent evaluator in one transaction could serve as an independent evaluator in other ABS transactions of the same sponsor or depositor?

18. What types of entities are likely to serve as independent evaluators? We anticipate that firms, such as asset management firms, consultants, credit enhancement providers and rating agencies could serve as independent evaluators. Should any types of persons or entities be excluded from being independent evaluators?

19. Should rating agencies be permitted to serve as independent evaluators? If so, should a rating agency hired to issue a credit rating on an ABS also be able to serve as an independent evaluator on the same transaction?

20. Would it be appropriate for a duly authorized person of the independent evaluator to sign on behalf of the independent evaluator? Should the signature of an individual from the independent evaluator be required?

21. Should we require that if an opinion is provided by an independent evaluator, that the prospectus include specific information about the independent evaluator such as the name of the independent evaluator, its form of organization, its experience with evaluating ABS, the manner in which the independent evaluator was compensated for the certification, and to the extent material, any affiliations between the independent evaluator and the issuer as well as other transaction parties? In addition, should we add a requirement to describe the basis on which the person responsible for selecting the independent evaluator determined that the evaluator selected has the requisite expertise and experience? Should we require disclosure regarding the process undertaken by the opinion provider and the factual and analytical bases for such opinion? Should we require any additional disclosure?

(b) Credit Risk Manager and Repurchase Request Dispute Resolution Provisions

Commentators on the 2010 ABS Proposing Release suggested that a different third party mechanism for investigating and resolving breaches of representations and warranties concerning the pool assets would better serve the interests of investors than the proposed shelf eligibility criterion regarding representations and warranties.

Based on comments received on the 2010 ABS Proposing Release, we are proposing, as a second transaction requirement for ABS shelf offerings, that the underlying transaction documents of an ABS include provisions requiring that the trustee of the issuing entity appoint a credit risk manager to review the underlying assets upon the occurrence of certain trigger events and provide its report to the trustee of the findings and conclusions of the review of the assets. We are also proposing as a part of this shelf eligibility condition to require certain provisions in the underlying transaction agreements in order to resolve repurchase request disputes. As we explain further below, these proposals would be in lieu of the proposed shelf eligibility condition to require a provision in the pooling and servicing agreement to require the party obligated to repurchase assets for breach of representations and warranties to periodically furnish an opinion of an independent third party. We believe that this revised proposal would better strengthen the enforceability of contract terms surrounding the representations and warranties regarding the pool assets for ABS shelf transactions and incentivize obligated parties to better consider the characteristics and quality of the assets underlying the securities, making it an appropriate partial replacement for investment grade ratings.

See

letters from ABASA; ASF; BOA; JPMorgan; Metlife; Prudential Investment Management (Prudential); SIFMA; Group of 16 Vehicle ABS Issuers (Vehicle ABS Group); Vanguard; Wells Fargo on the 2010 ABS Proposing Release. As we noted in previous Commission releases, the effectiveness of the contractual provisions related to representations and warranties has been questioned and the lack of responsiveness by sponsors to potential breaches of representations and warranties in the pool assets has been the subject of investor complaint. 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.

See

the 2010 ABS Proposing Release and Disclosure for

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

, SEC Release No. 33-9175 (January 20, 2011) [76 FR 4489] (the “943 Release”) at 4490.

We have noted in previous Commission releases that 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 representations 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.

See

the 2010 ABS Proposing Release.

See also

the 943 Release.

In January 2011, we adopted new rules to implement Section 943 of the Act, requiring disclosure related to representations and warranties in ABS offerings (the “943 Release”). While our new rules under Section 943 require disclosure of fulfilled and unfulfilled repurchase request activity, they do not directly address the enforceability, as a practical matter, of put back provisions in the underlying transaction agreements. As we noted in the 943 Release, 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.

See

the 943 Release at 4490.

In order to address this investor concern, in the 2010 ABS Proposing Release, we 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.

Several commentators from both the issuer and investor community were concerned that this proposal was unduly complex, costly, and would not achieve its goals. Instead, commentators generally suggested that a better way to address the concern regarding enforceability of repurchase obligations related to breaches of representations and warranties would be to require a review of the underlying assets by an independent third party, or “credit risk manager”.

After considering the comment letters received, we are proposing as the second transaction requirement for shelf offerings to replace investment grade ratings, in lieu of the proposed requirement for a third-party opinion, that the underlying transaction documents include provisions requiring a credit risk manager to review the underlying assets upon the occurrence of certain trigger events that are described below. Under the proposal, the credit risk manager

would be appointed by the trustee,

not be affiliated with any sponsor, depositor or servicer in the transaction, and would have authorization to access the underlying loan documents.

By requiring that the trustee appoint the credit risk manager and requiring that there be no affiliation with the sponsor, depositor or servicer, we are attempting to address any potential conflicts that could arise between the credit risk manager and the obligated party. In addition, we are requiring that the credit risk manager have access to copies of the underlying loan documents so it can perform its duties under the proposed requirement.

See

the 2010 ABS Proposing Release at 23344.

See

letters from ASF, ABASA, BOA, Vanguard, SIFMA, Wells Fargo, Metlife, Prudential, JPMorgan on the 2010 ABS Proposing Release.

See

proposed Item 1101(m) of Regulation AB.

See

letter from Prudential on the 2010 ABS Proposing Release.

Under our proposal, the credit risk manager could also be the same party serving another role in the same transaction, such as the trustee, custodian or an operating advisor (as proposed in the Risk Retention Proposals) as long as it is not affiliated with the sponsor, depositor or servicer.

See

the Risk Retention Proposing Release at 24109.

See also

letters from ASF, BOA and SIFMA.

We are proposing that the credit risk manager review the underlying assets of the ABS for compliance with the representations and warranties on the underlying pool assets upon the occurrence of trigger events which would be specified in the transaction agreements. We are proposing to require that the transaction agreements require, at a minimum, review by the credit risk manager (1) when the credit enhancement requirements, such as required reserve account amounts or overcollateralization percentages, as specified in the underlying transaction agreements, are not met; and (2) at the direction of investors pursuant to the processes provided in the transaction agreement and disclosed in the prospectus. These two trigger events should facilitate the ability of transaction parties to pursue transaction remedies, which we believe would be a feature of a higher quality security, as well as directly address commentators' concerns related to representations, warranties and enforcement mechanisms in underlying transaction agreements for the reasons we describe below. At the same time, we are not proposing to mandate that transaction parties follow specific procedures related to the review or repurchase process because we preliminarily believe transaction parties should have the flexibility to tailor the procedures to each ABS transaction, taking into account the specific features of the transaction and/or asset class. Our proposal would require that the transaction agreements require a review by the credit risk manager, at a minimum, in certain specified instances described below. However, the transaction agreements could, at the election of the transaction parties, specify additional triggers for a credit risk manager review. We also expect that the transaction parties may develop more specific and robust procedures for monitoring and reviewing the assets that support the ABS.

Some commentators suggested that the credit risk manager be required to review the assets at other trigger events. ASF (investor members) and Metlife suggested that review be required at objectively defined trigger events such as when loans default shortly after origination, when loans become seriously delinquent (60 days), or when the servicer or trustee suspects a breach. ASF (sponsor members) suggested that review be required by terms of the transaction agreement only or when a bona fide and substantiated allegation of breach by a security holder is received. SIFMA suggested that review be required when the credit risk manager determines it is appropriate to assert a claim for breach on behalf of the securitization trust, in the interests of all investors in the aggregate, or as directed by an investor subject to certain standards. We request comment below on whether we should require any of these suggestions in addition to our proposals or as alternatives to our proposal.

Credit enhancement or other structural support for asset-backed securities can be provided in a variety of ways, including both internally structured support as well as externally provided enhancement or support.

For example, internal credit enhancement is structured into the transaction to increase the likelihood that one or more classes of asset-backed securities will pay in accordance with their terms, such as subordination provisions, overcollateralization, reserve accounts, cash collateral accounts or spread accounts. Accordingly, the underlying transaction agreements typically require that internal credit enhancement be maintained at a specified amount. We believe it would be appropriate for the credit risk manager to review defaulted assets when the credit enhancements (including structural supports, such as subordination), fall below the required target levels, as specified in the

underlying transaction agreements, because if that happens, then losses may be higher than originally expected, thereby calling into question whether the defaulted assets met the representations and warranties provided in the underlying transaction documents.

See

the 2004 ABS Adopting Release at 1548.

For example, if the overcollateralization target amount specified in the transaction document is 3%, then the credit risk manager would be required to conduct a review of the defaulted assets for compliance with representations and warranties when it falls below 3%.

As we explained in the 943 Release, 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.

However, many investors have been frustrated with the structure and process because, as discussed above, trustees have not enforced repurchase rights and investors have been unable to locate other investors in order to force trustees to do so.

In response to this concern, we are proposing as a part of the second shelf eligibility condition that the transaction agreements be required to provide a process whereby investors are able to direct the credit risk manager to review assets for potential breaches of a representation or warranty because we believe that such a requirement facilitates an investor's ability to pursue remedies under the transaction agreement, contributing to a higher quality security. As noted above, we are allowing for flexibility by not specifying the procedural requirements by which investors may make the request. However, because commentators on the 2010 ABS Proposing Release suggested several mechanisms that could be appropriate for investor-directed review of assets and requests for repurchase, we are requesting comment on whether we should specify those procedures as conditions to shelf eligibility.

Under the proposal, transaction parties would retain the flexibility to determine the appropriate procedures and times for investor-directed review of underlying assets for each ABS and whatever mechanism is provided would be described in the prospectus.

See

the 943 Release at 4498.

Typically, investor rights require a minimum percentage of investors acting together in order to enforce the representation and warranty provisions contained in the underlying transaction agreements. We discuss our ABS shelf proposal related to investor communication in Section II.B.1.c. below.

See also

Alex Ulam, “Investors Try to Use Trustees as Wedge in Mortgage Put-Back Fight,”

American Banker

(Jun. 27, 2011) (noting that investor votes are required in order to force a trustee to take action).

See

letter from Metlife on the 2010 ABS Proposing Release (suggesting that bondholders representing 5% or more of a transaction be able to direct the trustee to poll investors on whether to initiate a review of assets. Following such a vote, the sponsor would need to repurchase any non-compliant asset and if the sponsor did not comply, then disputes would be submitted to independent arbitration).

See also

letters from ASF and SIFMA on the 2010 ABS Proposing Release.

We are also proposing to require as part of the second shelf eligibility condition that the underlying transaction agreements require that the credit risk manager provide its report to the trustee of the findings and conclusions of its review of the assets.

The trustee could then use the report to determine whether a repurchase request would be appropriate under the terms of the transaction agreements, thereby enhancing the effectiveness of the contract provisions of the ABS contributing to the higher quality of the securities. Although we are not proposing to specify the format of the report, we are requesting comment on whether specifying the format of the report is necessary.

A “report of findings and conclusions” of a review is similar in concept to the requirements of new Rule 193 and Item 1111(a)(7) of Regulation AB. As discussed above, those new rules will require the issuer of an ABS to conduct a review of the pool assets underlying an ABS at the time of securitization and disclose of the findings and conclusions of the review of the assets.

See

Section II.B.1.a. and fn. 39. We note that the issuer review would be performed at the time of securitization, while the proposed credit risk manager review would be performed pursuant the processes provided in an underlying transaction agreement.

We are proposing disclosure requirements in prospectuses and in ongoing reports about the credit risk managers. In prospectuses, we are proposing to require disclosure of the name of the credit risk manager, its form of organization, the extent of its experience serving as a credit risk manager for ABS transactions involving similar pool assets, and the manner and amount in which the credit risk manager is compensated for its services.

In addition, disclosure would be required about the credit risk manager's duties and responsibilities under the governing documents and under applicable law, any limitations on the credit risk manager's liability under the transaction agreements, any indemnification provisions, and any contractual provisions or understanding regarding the credit risk manager's removal, replacement or resignation, as well as how any related expenses would be paid.

Further, disclosure would be required, to the extent material, about any affiliations and relationships between the credit risk manager and other transaction parties.

These disclosure requirements are similar to current disclosure requirements for trustees.

See

proposed Item 1109(c) of Regulation AB in the 2010 ABS Proposing Release.

See

proposed Item 1109(c) of Regulation AB in the 2010 ABS Proposing Release.

See

proposed Item 1119(a)(7) of Regulation AB in the 2010 ABS Proposing Release.

See

Item 1109 of Regulation AB [17 CFR 229.1109].

In ongoing reports on Form 10-D, if during the distribution period the credit risk manager is required to review the assets, we are proposing to require disclosure of the event(s) that triggered the review by the credit risk manager during the distribution period. We are also proposing that if a report by the credit risk manager of the findings and conclusions of its review of assets that is provided to the trustee during the distribution period, that the full report be filed as an exhibit to the Form 10-D.

In addition, we are proposing that if, during the distribution period, a credit risk manager has resigned, or has been removed, replaced or substituted, or if a new credit risk manager has been appointed, disclosure would be required of the date the event occurred, and the circumstances surrounding the change. If a new credit risk manager has been appointed, disclosure required by proposed Item 1109(b) of Regulation AB would be required.

The report would be filed as an additional exhibit under Exhibit 99.

See

Item 601(b)(99) of Regulation S-K [17 CFR 229.601(b)(99)].

In order to provide a timely mechanism for enforcement of repurchase requirements, we are also proposing to require as a part of the second condition to shelf eligibility that the underlying transaction documents include repurchase request dispute resolution procedures. Under the proposal, the transaction agreements would be required to provide that if an asset, subject to a repurchase request pursuant to the terms of the transaction agreements, is not repurchased by the end of the 180-day period beginning when notice is received, then the party submitting such repurchase request shall have the right to refer the matter, at its discretion, to either mediation or third-party arbitration, and the party obligated to repurchase must agree to the selected resolution method.

Our proposal would give a requesting party the ability to compel the obligated party to submit to dispute resolution if the obligor did not repurchase the assets. However, because we understand that a party obligated to repurchase will need the time to investigate a repurchase request, our proposal would allow 180

days before a requesting party had the right to compel mediation or arbitration.

Of course, the transaction agreements could call for a period shorter than 180 days.

See, e.g.

, letters from Center for Audit Quality (CAQ), Group of 14 CMBS investors (CMBS Investors), Ernst & Young (E&Y), Prudential on the 2010 ABS Proposing Release.

See

letter from Prudential on the 2010 ABS Proposing Release (suggesting that a sponsor should have a specified amount of time to challenge any third party claim). See also letter from SIFMA on the 2010 ABS Proposing Release (suggesting that arbitration be available if the parties do not resolve the repurchase request within 180 days).

We believe that investors and issuers should both benefit from our proposals to require a credit risk manager and the proposed repurchase request dispute resolution provisions because they are designed to facilitate a timely resolution of repurchase claims. We also believe that these mechanisms are appropriate as one of the requirements for shelf eligibility because they provide enhanced mechanisms for transaction parties to pursue contract remedies, thereby contributing to the quality of the security. Our proposal does not specify whether mediation or arbitration must be agreed to by the obligated party in the dispute resolution provision. We preliminarily believe that the requesting party should have the flexibility to select the appropriate mechanism to resolve repurchase disputes, although we request comment on whether we should mandate one or the other.

Request for Comment

22. Is the requirement of a credit risk manager review of the underlying assets appropriate as a condition for shelf eligibility, as proposed? Is it appropriate to require certain terms requiring repurchase dispute resolution in the underlying transaction documents, as a condition for shelf eligibility, as proposed?

23. Is it appropriate to require that the trustee appoint the credit risk manager, as proposed? Should another party be able to appoint the credit risk manager? Should we specify terms for removal and re-appointment of the credit risk manager?

24. Is it appropriate to require that the credit risk manager not be an affiliate of any sponsor, depositor, or servicer, as proposed? Would an affiliate of the sponsor, depositor or servicer be able to objectively perform the credit risk manager review function? Should we require that the credit risk manager be required to represent that no conflict of interest exists between itself and any transaction party, including investors?

Would it be appropriate for the trustee to also be the credit risk manager?

See

letter from Prudential on the 2010 ABS Proposing Release.

25. Is it appropriate to require that the credit risk manager be given access to copies of the underlying documents related to the pool assets, as proposed? Should the requirement be limited in any way? Are there any privacy considerations? If so, should we require a covenant in the underlying transaction documents that all information be kept confidential?

26. Should we specify an additional requirement that the credit risk manager be given access to all underwriting guidelines and any other documents necessary to evaluate the loans?

See

letter from SIFMA on the 2010 ABS Proposing Release.

27. What types of entities are likely to serve as credit risk managers? Should any types of persons or entities be excluded from being credit risk managers?

28. Are the proposed triggers for review by the credit risk manager appropriate? Is it appropriate to require review when a transaction's required credit enhancement falls below defined target levels, as proposed? Should we specify which types of credit enhancement would be subject to the requirement (

e.g.,

overcollateralization, reserve account)? If so, what types of credit enhancement features should we specify and why? Are there any asset classes, or securitization structures, where no target credit enhancement is specified? Is it appropriate that triggers relating to credit enhancement include structural supports, such as subordination? Are there any other features that should be or should not be included as credit enhancement for purposes of triggering a credit risk manager review?

29. As noted above, we intend that shelf-eligible transaction agreements, at a minimum, provide for the specified trigger events for a credit risk manager review. Will market practice develop to add additional triggers, if any, as circumstances warrant?

30. Is it appropriate to require review by the credit risk manager at the direction of investors, pursuant to the processes provided in the transaction agreement and disclosed in the prospectus? Should we specify the procedures for the investor directed review process? If so, what should the requirements be and why? For example, should we require that investors representing 5% or more of investors in interest (

i.e.,

investors that are not affiliates of the sponsor or servicer) be able to direct a review? Should the percentage of investors required to initiate a review be higher or lower? If the percentage is higher, such as 25%, should we require that investors representing 5% or more of investors in interest first be able to direct the trustee to poll investors on whether to initiate a review of assets?

As an alternative to specifying procedures, would it be appropriate to specify certain maximum conditions, where the percentage of investors required to direct review could be no more than a certain percentage, such as 5%, 10%, or 25%?

See

letter from Metlife on the 2010 ABS Proposing Release.

31. Is our proposal to require a provision that the credit risk manager provide its report to the trustee of the findings and conclusions of its review of the assets appropriate? Should we specify the format of the report?

32. Is our proposal to require the report of the credit risk manager be filed as an exhibit to the Form 10-D filing covering the period in which the report is given to the trustee appropriate? Should it be filed sooner, such as on a Form 8-K within four business days of receipt by the trustee? Should we also require that a summary of the report by the credit risk manager of the findings and conclusions of its review of assets be included in the Form 10-D?

33. Are the proposed disclosure requirements in prospectuses regarding credit risk managers appropriate? Should we require any additional disclosure?

34. Should our rules include any other specific triggers for review? Should we require review based on specific triggers, such as the occurrence of delinquency of a specified duration, such as 60, 90, or 120 days? Should we require review of early payment defaults, (

e.g.,

loans that become delinquent within the first 60, 90 or 120 days past origination)?

Should we require review of all loans for which the servicer or trustee suspects a breach? If so, how should we define this trigger? Would any of these requirements be in addition to, or as an alternative to the proposed requirements?

See

letter from Metlife on the 2010 ABS Proposing Release.

35. Should we require that the credit risk manager have discretion to assert a claim for breach on behalf of the securitization trust, in the interests of all investors in the aggregate?

Would this requirement be in addition to, or as an alternative to the proposed requirements? Should we specify some or all of the procedures related to the review or repurchase process?

See

letter from SIFMA on the 2010 ABS Proposing Release.

36. Is our proposal to require ongoing disclosure about the credit risk manager and its activities in Form 10-D appropriate? Is our proposal to require disclosure about the event(s) that triggered a credit risk manager review appropriate? Is it appropriate to require the disclosure only with respect to those triggers that are proposed for shelf eligibility (

i.e.,

credit enhancement trigger and investor directed review), as proposed? Or should disclosure be required with respect to any review undertaken by a credit risk manager, pursuant to the provisions in the agreement?

37. Is it appropriate to require disclosure in the Form 10-D of a change of credit risk manager as proposed?

38. In addition to the proposed shelf eligibility and disclosure requirements, should we require that each party with a repurchase obligation provide an annual certificate to the trustee and noteholders certifying that all loans required to be repurchased under the transaction documents have been repurchased or detail why any loans identified as breaching a representation or warranty were not removed.

See

letter from Sallie Mae on the 2010 ABS Proposing Release.

39. Is our proposal to require dispute resolution provisions in the underlying transaction documents as a shelf eligibility condition, appropriate? Is it appropriate to require that requesting parties wait 180 days until they can force the obligated part to submit to dispute resolution? Should the period be longer or shorter? Should we not specify a particular period, but instead require there to be a set time period in the transaction agreements? Is it appropriate to require that the obligated party agree to either mediation or arbitration, as proposed? Should we require that all the parties agree to either mediation or arbitration? Or should we require one or the other? Is it appropriate to require that the transaction documents provide that investors, in their sole discretion, may elect whether to refer a disputed repurchase request to arbitration or mediation? Would it be more appropriate to require that the transaction documents provide for a mandatory dispute resolution mechanism (specifying mediation or arbitration) after 180 days, and disclose the mandatory dispute resolution mechanism in the prospectus, without mandating the details of those provisions?

40. Should we specify who should pay the expenses for mediation or arbitration of the repurchase request? For example, should we require that expenses related to the mediation or arbitration of a repurchase request be paid by the obligated party, the person(s) requesting repurchase, or the issuing entity? Or should expenses be the responsibility of the losing party, or should costs be shared? Is it clear who the losing party would be in mediation? Or should costs be determined by the mediator or arbitrator? Would specifying that the obligated party is required to cover all costs associated with mediation or arbitration of the repurchase request provide further incentive for the obligated party to resolve the request within 180 days? If so, do the benefits of this additional incentive justify the potential costs imposed on the obligated party? If a trustee is the requesting party, and it is determined that the trustee is obligated to pay expenses (by the terms of transaction agreement, the outcome of the dispute resolution procedures, or otherwise) how would the trustee pay for the expenses? Would the possible obligation to pay for the expenses, be yet another disincentive for trustees so they would not initiate a repurchase request?

41. Should we require that if the obligated party fails to agree to mediation or arbitration of any unresolved repurchase dispute within such period, the obligated party would be required to honor the repurchase request?

See

letter from Prudential on the 2010 ABS Proposing Release.

As we discussed above, we are aware that investors have had difficulty enforcing rights contained in transactions agreements, and in particular, those relating to the repurchase of underlying assets for breach of representations and warranties. Investors have raised concerns regarding the inability to locate other investors in order to enforce these rights.

Frequently, these investor rights require a minimum percentage of investors acting together. In response to the 2010 ABS Proposing Release, one commentator noted that because most ABS are held by custodians or brokers in “street name” through the Depository Trust Company, as a practical matter it is very difficult for ABS investors to communicate with each other in order to jointly exercise any of their substantive protections or rights provided in the transaction documents.

Another commentator expressed that given the complexity of securitization structures and the underlying collateral it is important for investors who have identified concerns with the collateral or any structural issue to be able to effectively communicate with other investors in the transaction and to either prompt the trustee to take action or solicit further direction from investors.

See

Alex Ulam, “Investors Try to Use Trustees as Wedge in Mortgage Put-Back Fight,”

American Banker

(Jun. 24, 2011) (noting that many attempted put-backs have “flamed out after investor coalitions failed to get the 25% bondholder votes that pooling and servicing agreements require for a trustee to be forced to take action against a mortgage servicer”).

See also

Tom Hals and Al Yoon, “Mortgage Investors Zeroing in on Subprime Lender,”

Thomson Reuters

(May 9, 2011) (noting that gathering the requisite number of investors needed to demand accountability for faulty loans pooled into investments is a “laborious” task).

See

letter from Metlife on the 2010 ABS Proposing Release (suggesting that the Commission mandate that one ABS transaction party have real-time knowledge of the legal names and contact information of the beneficial owners of each of the bonds in the issuance so that bondholders could request that such transaction party (likely the trustee) send communications to the other bondholders notifying them of suspected breaches of representations and warranties, thus protecting investor identity, but also addressing the collective action problem). The Depository Trust Company provides custody and book-entry transfer services of securities transactions in the U.S. market involving equities, corporate and municipal debt, money market instruments, American depositary receipts, and exchange-traded funds. In accordance with its rules, DTC accepts deposits of securities from its participants (

i.e.,

broker-dealers and banks), credits those securities to the depositing participants' accounts, and effects book-entry movements of those securities.

See

letter from Prudential on the 2010 ABS Proposing Release (suggesting that a group of 10% investor interest should be able to initiate communication with others through the trustee).

In connection with these concerns, we are proposing, as a third shelf eligibility requirement, that an underlying transaction agreement include a provision to require the party responsible for making periodic filings on Form 10-D to include in the Form 10-D any request from an investor to communicate with other investors related to an investor's rights under the terms of the ABS that was made during the reporting period received by the party responsible for making the Form 10-D filings where the request is received on or before the end date of a reporting period.

By requiring the provision be included in an underlying agreement, the party responsible for making Form 10-D filings would be

contractually obligated to disclose an investor's desire to communicate. We preliminarily believe this is an appropriate requirement for shelf eligibility because facilitating communication among investors enables them to exercise the rights included in the underlying transaction agreements, which we believe would address a specific concern about enforceability of representations and warranties raised in ABS transactions and would help to distinguish higher quality ABS from other ABS.

Most ABS issuers report and distribute payments to investors on a monthly basis. The Form 10-D is required to be filed within fifteen days after a required distribution date, and a distribution date is typically two weeks after the end of a reporting period. For example, for the month of June, under our proposal a request from an investor would have to be received prior to the close of the reporting period on June 30, a distribution would be due to investors by July 15, and the Form 10-D filing due date would be July 30.

We are also proposing to revise Regulation AB and Form 10-D to include the disclosure requirements related to the investor communication shelf eligibility condition. The disclosure requirements would only apply if the transaction was a registered shelf offering. We are proposing that the disclosure on Form 10-D be required to include the name of the investor making the request; the date the request was received; and a description of the method by which other investors may contact the requesting investor.

Under the proposal, we are including an instruction to Item 1121(g) to define the type of communications that may be facilitated as a result of the required notices on Form 10-D. The Form 10-D would be required to include disclosure of only those notices of an investor's desire to communicate where the communication relates to investors exercising their rights under the terms of the ABS. Thus, an ABS investor would not be permitted to use this mechanism for other purposes, such as identifying potential customers, marketing efforts, or the like.

See

proposed Item 1121(f) and Item 1.B. of Form 10-D.

To the extent an investor wishes to communicate with other investors about other matters, the investor must consider the potential applicability of other regulatory provisions under the federal securities laws. For example, an investor proposing to commence a tender offer for securities in the ABS class must evaluate whether such a communication is subject to Exchange Act Sections 14(d) and 14(e) and Regulations 14D and 14E thereunder.

We understand that transaction parties might want to specify procedures for verifying the identity of a beneficial owner in a particular ABS prior to including the proposed notice in a Form 10-D. While we are not proposing specific procedural requirements, we believe the procedures should be simple for an investor to follow so that the party responsible for making the disclosure could verify the interest of an investor in the ABS. Therefore, we are proposing an instruction to the shelf eligibility requirement to make clear that the verification requirements that could be contained in the transaction documents, may require no more than the following: (1) If the investor is a record holder of the securities at the time of a request to communicate, then the investor would not have to provide verification of ownership because the person obligated to make the disclosure will have access to a list of record holders and (2) if the investor is not the record holder of the securities at the time of the request to communicate, the person obligated to make the disclosure must receive a written statement from the record holder verifying that, at the time the request is submitted, the investor beneficially held the securities.

Requests for Comment

42. Is our proposal to require a provision in the transaction agreements to require an investor's request to communicate with other investors to be included on Form 10-D reports an appropriate condition to shelf eligibility? Would investors find the provision valuable?

43. Is the proposed disclosure requirement on Form 10-D appropriate? Should it require different information? Should we prescribe a pre-set list of objective categories that an investor could choose from for the purpose of indicating why it is requesting communication with other investors? If so, what should be the list of defined categories? Would the following be an appropriate list of present categories: Servicing, trustee, representations and warranties, voting matters, pool assets, and other?

44. Under the proposal, the Form 10-D would be required to include requests received during the reporting period for the form. Are there any timing concerns? Should the request to communicate instead be required to be filed on Form 8-K?

45. Is the proposed instruction clarifying the maximum type of verification procedures that may be included in the underlying transaction documents appropriate? Are they reasonable requirements to demonstrate ownership? Is the limitation on requirements proving ownership, assuming the holder is not the record holder, necessary or appropriate? Are there other procedures that we should require, or limitations we should impose? Would those be in addition to or in lieu of those described in the proposed instruction? Are there procedures that would be easier for investors to meet but would have the same effect?

46. We understand that investors are often able to obtain reports related to an ABS they own by accessing a password protected Web site, usually maintained by the trustee. Should the list of investors that have access to the Web site be enough to verify the interest of an investor?

47. Relatedly, investors have advised us that they sometimes have difficulty receiving notices for investor votes, and, therefore, have not been able to participate in that process. Should we require a Form 8-K be filed to disclose that an investor vote has been noticed? Should the Form 8-K include a copy of the notice? Should the Form 8-K be filed within a specified minimum period of the notice, such as two days? Or would a shorter or longer due date be more appropriate? What other mechanisms would be appropriate to facilitate the ability of an investor to exercise their right to vote and at the same time be appropriate requirements for shelf eligibility?

48. We understand that a number of privately placed CMBS transactions have included more extensive means for investor communication. The following requests for comment are based on our understanding of those transactions. Are these types of arrangements prevalent in CMBS deals? Are they used with other asset classes?

49. Instead of allowing verification of an investor's interest at the time a request to communicate is made, should we instead require as a condition to shelf eligibility that an underlying transaction agreement require the trustee, or some other transaction party, to maintain a list of investors and require the request to be included in the Form 10-D only if the investor is included on the list? If so, how would the person responsible for maintaining the list of investors obtain and maintain the information? Should a form of investor verification be required to be specified in the underlying transaction agreement in connection with this shelf eligibility condition? If so, when should the investor be required to provide the completed form?

50. Should we require, as a condition to shelf eligibility, that the investor communication notice be distributed in any other way, in addition to, or instead of the Form 10-D? For instance, should we require that the notice be posted on a designated Web site? If so, when should it be posted? Alternatively, should the notice be required to be distributed to investors by the trustee or some other transaction party? If so, should the notice be required to be distributed only to those investors that voluntarily provide their contact information to the trustee or a person responsible for maintaining an investor

list? Would there be any reason that an investor would not provide their contact information? If all investors did not provide their contact information, we expect there would be a possibility that the list of investors would not be complete. Would that frustrate the purposes of this approach?

2. Revised and Re-Proposed Registrant Requirements

In the 2010 ABS Proposals, we proposed to add new registrant requirements related to compliance with the four proposed transaction requirements (

i.e.,

risk retention, third party opinion provision in transaction agreements, officer certification, and an undertaking to file ongoing Exchange Act reports).

We also proposed to retain the existing registrant requirement in Form S-3 relating to delinquent filings of the depositor or an affiliate of the depositor for purposes of proposed Form SF-3. Similar to existing requirements, we proposed that prior to filing a registration statement on proposed Form SF-3, to the extent the depositor or any issuing entity previously established by the depositor or an affiliate of the depositor are or were at any time during the twelve month look-back period required to file Exchange Act reports with respect to a class of asset-backed securities involving the same asset class, such depositor and each such issuing entity must have filed all material required to be filed during the twelve months (or shorter period that the entity was required to have filed such materials).

Also, such material, other than certain specified reports on Form 8-K, must have been filed in a timely manner.

This proposal remains unchanged and outstanding. In the 2010 ABS Proposal, we also proposed to repeal the existing exception from the filing timeliness requirement for Item 6.05 Form 8-K reports. Item 6.05 Form 8-K reports are required to be filed if there is a change in the asset pool characteristics from the description of the asset pool provided in the final prospectus and, thereby, provide important information regarding the composition of the assets.

100

The proposal to require the timely filings of Item 6.05 Form 8-K reports remains unchanged and outstanding. The revised and re-proposed registrant requirements for shelf eligibility are described below.

See

proposed General Instructions I.A.1. to I.A.4. of proposed Form SF-3 in the 2010 ABS Proposing Release.

For Form S-3, an issuer is not eligible for registration on the form if the depositor or an affiliate of the depositor, with respect to a class of asset-backed securities involving the same asset class, has not filed the Exchange Act reports required to be filed or has not filed such reports in a timely manner for a period of twelve months prior to the filing of the registration statement.

See

General Instruction I.A.4 of Form S-3.

See

proposed General Instruction I.A.3 to Form SF-3.

100

In the 2010 ABS Proposing Release, we also proposed to lower the threshold amount of change that would trigger a filing requirement for Item 6.05 Form 8-K reports from five percent of any material pool characteristic to one percent. That proposal remains outstanding.

See

the 2010 ABS Proposing Release at 23392.

In light of the changes to the proposed amendments to the transaction requirements described in Section II.B.1. above, we are revising and re-proposing the other registrant requirements to make conforming changes. Specifically, we are proposing to require that to the extent the depositor or any issuing entity previously established by the depositor or an affiliate of the depositor is or was at any time during the twelve month look-back period required to comply with the proposed transaction requirements of Form SF-3, with respect to a previous offering of asset-backed securities involving the same asset class, the following requirements would apply:

• Such depositor and each such issuing entity must have timely filed all the required certifications of the depositor's chief executive officer or the depositor's executive officer in charge of securitization;

• Such depositor and each such issuing entity must have timely filed all the transaction agreements that contain the required provisions relating to the credit risk manager and repurchase request disputes; and

• Such depositor and each such issuing entity must have timely filed all the transaction agreements that contain the required provision relating to investor communication.

In addition, in the 2010 ABS Proposing Release, we proposed to include as a separate registrant requirement that there be disclosure in the registration statement stating that the proposed registrant requirements have been complied with. We continue to believe disclosure of compliance with the registrant requirements would provide a means for market participants (as well as the Commission and its staff) to better oversee compliance with the proposed shelf eligibility conditions of Form SF-3. We believe that the requirement is more appropriately located in the instructions to the requirements rather than as a registrant requirement and, therefore, are proposing to include this requirement as an instruction.

Request for Comment

51. Are our re-proposed registrant requirements appropriate?

52. Is the twelve-month look-back period appropriate for compliance with the certification, credit risk manager and repurchase dispute resolution transaction requirements, and the investor communication provision? Should it be longer or shorter?

53. Is our proposed instruction to require disclosure in a registration statement of compliance with the registrant requirements appropriate? Should we specify a location in the registration statement for such disclosure?

54. Should we require that registrants provide a “yes” or “no” answer to whether it has complied with all the registrant requirements? If so, should the data be tagged in XML so that it could be an electronically searchable piece of data?

101

We briefly discuss XML tagging below in Section III.B.

3. Annual Evaluation of Form SF-3 Eligibility in Lieu of Section 10(a)(3) Update

(a) Annual Compliance Check Related to Timely Exchange Act Reporting

In the 2010 ABS Proposing Release, we proposed to require annual and quarterly evaluations of compliance with the registrant requirements for ABS shelf eligibility. For the evaluation of compliance with the Exchange Act reporting registrant requirement, we proposed to require an annual evaluation of whether the Exchange Act reporting registrant requirement has been satisfied in lieu of a Securities Act Section 10(a)(3) update.

102

Under the 2010 ABS Proposal, an ABS issuer wishing to conduct a takedown off an effective shelf registration statement would be required to evaluate whether the depositor and any affiliated issuing entity of the depositor that were required to report under Sections 13(a) or 15(d) of the Exchange Act during the previous twelve months, have filed such reports on a timely basis, as of ninety days after the end of the depositor's

fiscal year end.

103

This proposal remains unchanged and outstanding.

102

As noted in the 2010 ABS Proposing Release, Form S-3 eligibility under the current rules is determined at the time of filing the registration statement and at the time of updating that registration statement under Securities Act Section 10(a)(3) [15 U.S.C. 77j(a)(3)] by filing audited financial statements. Because ABS registration statements do not contain financial statements of the issuer, a periodic determination of whether the issuer can continue to use the shelf would need to be specified by rule.

See

Securities Act Rule 401(b) [17 CFR 230.401(b)].

103

As noted in the 2010 ABS Proposing Release, under this proposal the related registration statement could not be utilized for subsequent offerings for at least one year from the date the depositor or the affiliated issuing entity that had failed to file Exchange Act reports then became current in its Exchange Act reports (and the other requirements had been met).

(b) Annual Compliance Check Related to the Fulfillment of the Transaction Requirements in Previous ABS Offerings

In the 2010 ABS Proposing Release, we also proposed to require that in order to conduct a takedown off an effective shelf registration statement, an ABS issuer would be required to conduct an evaluation at the end of the fiscal quarter prior to the takedown of whether the ABS issuer was in compliance with the previously proposed registrant requirements relating to risk retention, third party opinions, the depositor's chief executive officer certification, and the undertaking to file ongoing reports.

104

In response to our proposal, we received four comment letters that did not support the quarterly requirement.

105

One commentator urged us to consider whether penalty options less severe than the loss of shelf eligibility for a year would be appropriate for a single violation but did not suggest specific alternatives.

106

Another commentator suggested that shelf eligibility should be suspended only if the staff determines it is appropriate, and only a full year in egregious cases.

107

104

In the 2010 ABS Proposing Release, we had proposed that in order to conduct a takedown off an effective shelf registration statement, an ABS issuer would be required to evaluate at the end of the fiscal quarter prior to the takedown whether, during the previous twelve months, the depositor and its affiliates had filed on a timely basis all of the certifications and transaction agreements required by the shelf eligibility transaction requirements of a previous offering. If they had not, then the depositor could not utilize the registration statement or file a new registration statement on Form SF-3 until one year after the required filings were filed.

See

2010 ABS Proposing Release at 23348.

105

See

letters from ASF, BOA, MBA and SIFMA on the 2010 ABS Proposing Release.

106

See

letter from MBA on the 2010 ABS Proposing Release.

107

See

letter from SIFMA on the 2010 ABS Proposing Release.

In light of the changes we are proposing to the transaction requirements to shelf eligibility described above, and taking into consideration the comments we received, we are revising and re-proposing the registrant requirement to require an annual evaluation of compliance with the transaction requirements of shelf registration. Under the re-proposal, notwithstanding that the registration statement may have been previously declared effective, in order to conduct a takedown off an effective shelf registration statement, an ABS issuer would be required to evaluate, as of ninety days after the end of the depositor's fiscal year end, whether it continues to meet the registrant requirements, which would be the same as our 2010 ABS Proposal for Exchange Act reporting described above. In order to make the provision more workable and to simplify the evaluation for shelf compliance we are revising our proposal from a quarterly evaluation to an annual evaluation.

108

Under the re-proposal, to the extent the depositor or any issuing entity previously established, directly or indirectly, by the depositor or any affiliate of the depositor, is or was at any time during the previous twelve months, required to comply with the proposed new transaction requirements related to the certification, credit risk manager and repurchase dispute resolution provisions, and investor communication provision, with respect to a previous offering of ABS involving the same asset class, such depositor and each issuing entity must have filed on a timely basis, at the required time for each takedown, all transaction agreements containing the provisions that are required by the proposed transaction requirements as well as all certifications.

108

Although we are revising our proposal, we emphasize that failure to file the information required by the registrant requirements would be a violation of our rules, and subject to liability accordingly. Furthermore, failing to provide disclosure at the required time periods may raise serious questions about whether all required disclosure was provided to investors prior to investing in the securities.

In response to commentators' concerns that the one-year penalty for missed transaction requirements was too extreme, we are revising and re-proposing to allow depositors and issuing entities to cure any failure to meet the transaction requirements, or failure to file the required certification or transaction agreements at the required time for purposes of ABS shelf eligibility. Under the re-proposal, a depositor and issuing entity could cure the deficiency if it subsequently files the information that was required and after a waiting period, it would be permitted to continue to use its shelf registration statement.

109

Under the proposed cure mechanism, the depositor and issuing entity would be deemed to have met the registrant requirements, for purposes of this Form, 90 days after the date all required filings are filed.

109

Curing the deficiency would also allow the depositor, or its affiliates to file a new registration statement, if it also meets the other registrant requirements.

See

proposed General Instruction I.A.1. to proposed Form SF-3.

For example, a depositor with a December 31 fiscal year end has an effective shelf registration statement. On March 30, it evaluates compliance with all registrant requirements under proposed Rule 401 (90 days after the last fiscal year end) and determines that it is in compliance. The depositor then offers ABS and does not timely file the required transaction agreements required to be filed on June 20. The depositor would be able to continue to use its existing shelf until it is required to perform the annual evaluation required by proposed Rule 401(g), on March 30 of the following year. After March 30 of Year 2 and until June 20 of Year 2, the depositor would not be able to offer ABS off of the shelf registration statement. Further, the depositor or its affiliates would not be permitted to file a new shelf registration statement after the missed filing on June 20, Year 1 because they could not meet the registrant requirement of timely filing of the transaction agreements containing the provisions required for any shelf offering for the prior twelve months. But, if the depositor had cured the defect, for example, on July 1 of Year 1, under the proposal, a new registration statement could be filed 90 days after July 1 of Year 1 (or September 29 of Year 1), instead of waiting until June 20 of Year 2 (when it otherwise would meet the twelve month timely filing requirement). Further, at the time of the next annual evaluation for the old shelf (noted above as March 30 of Year 2), the depositor would be deemed to have met the registrant requirements after 90 days after it had cured the defect on July 1 of Year 1, and the depositor could continue to use its old shelf registration statement (instead of waiting until June 20 of Year 2, as noted above).

Our approach is an attempt to strike a balance between encouraging issuers' compliance with the proposed shelf transaction requirements and commentator's concerns that the one-year penalty period was too long.

Requests for Comment

55. Should we add, as proposed, registrant requirements that would require, as a condition to form eligibility, affiliated issuers of the depositor that had offered securities of the same asset class that were registered on Form SF-3 to have complied with the certification, credit risk manager review and repurchase dispute resolution eligibility and investor communication conditions that replace the investment grade ratings

requirement? Will these requirements lead to better compliance by ABS issuers with the new shelf eligibility conditions that we are proposing? If not, what other mechanisms can we use to ensure compliance?

56. Is it appropriate to require, as proposed, that the certifications and the transaction agreement(s) containing the credit risk manager and repurchase dispute provisions and investor communication provision be required to be filed pursuant to our proposed shelf eligibility conditions and also filed on a timely basis?

57. Should we revise Rule 401, as proposed, to require that as a condition to continued use of an existing shelf registration statement for takedowns, an issuer conduct a periodic evaluation of form eligibility? If not, how should we approach the updating issue since ABS issuers are not required to file amendments for purposes of Section 10(a)(3)?

58. Should we require that the annual evaluation of all the registrant requirements of affiliated issuers have been filed on a timely basis be made as of the 90 days after the depositor's fiscal year, as proposed? Should the evaluation be made on a different timeframe, such as the last day of the most recent fiscal quarter, consistent with our previous proposals?

59. Should we include, as proposed, an ability to cure an issuer's non-timely filing of the certification and agreements containing the credit risk manager review and repurchase dispute resolution and investor communication provisions? Should we require issuers to wait 90 days after curing the defect, as proposed, to be deemed to meet the registrant requirements? Should the period be shorter (

e.g.,

30 or 45 days) or longer (

e.g.,

180 or 270 days)?

60. Should we require additional requirements for evaluating compliance with registrant requirements, or an additional penalty for non-compliance with the registrant requirements?

4. General Requests for Comment on Shelf Eligibility

We request comment on our proposals for shelf-eligibility for asset-backed securities.

61. Are all of the proposed shelf eligibility conditions necessary? Would one condition or a combination of fewer conditions be sufficient? As noted above, the 2010 ABS Proposals included risk retention and continued Exchange Act reporting as two of the four proposed requirements for shelf eligibility. In light of the fact that the Risk Retention proposals will apply to both registered and unregistered transactions, and ABS issuers with Exchange Act reporting obligations will continue to report without regard to shelf eligibility requirements, should we require the proposed requirements for shelf eligibility discussed above? Put another way, are risk retention and continued Exchange Act reporting together, sufficient replacements for the investment grade rating condition to eligibility for shelf offerings, so that no other conditions are necessary or appropriate?

62. We are also considering whether an additional or alternative shelf eligibility condition based on previous offerings should be included in our final rules. In this regard, would an ABS issuer having sufficient experience in the ABS market be an appropriate criterion for shelf registration? For example, would an additional or alternative shelf eligibility condition that would restrict shelf eligibility to depositors with a history of similar prior ABS issuances (

e.g.,

a requirement based on the number of past ABS transactions within the same asset class and similar structure within a specified period of time) be appropriate? What would be the economic impact of such a shelf eligibility condition? Should such a shelf eligibility condition require the registrant and its affiliates, as of a date within 60 days prior to the filing of the registration statement, to have engaged in at least three primary offerings of asset-backed securities in the last three years, provided the following criteria are met: (i) At least one of the previous offerings was registered under the Securities Act of 1933; (ii) the asset-backed securities issued in the previous offerings are of the same asset class as the asset-backed securities registered on the registration statement; and (iii) the structures of the transactions of the previous offerings are similar to the structure of each transaction registered on the registration statement. If so, should the requirement be an additional shelf eligibility condition, or should it replace one or more of the proposed conditions? Are the criteria described above appropriate? In particular, should we use a different measurement period than the 60 days prior to filing? Would a three year look-back time period be appropriate, or should it be less time (such as 2 years) or more time (such as 4 years)? What should be the required minimum number of transactions? Should all the transactions used for measuring be required to have been registered under the Securities Act? Are the requirements related to the same asset class and similar structure appropriate? Do we need to provide guidance on what is a similar structure, and if so, what kind of guidance? If private or offshore offerings are permitted to count for purposes of this possible shelf eligibility condition, should we require disclosure in the registration statement of these transactions for the purpose of monitoring compliance with the shelf eligibility condition? If so, what disclosure should be required? In order to prevent parties that may otherwise fail this shelf eligibility condition from simply using the registration statement of an unaffiliated eligible depositor (

e.g.,

rent-a-shelf transactions), should the condition also require the registrant to be affiliated with a sponsor and depositor in each of the previous transactions as well as affiliated with a sponsor and depositor in the offerings conducted off the shelf registration statement? Commentators are requested to provide empirical data and other factual support for their views, if possible.

63. Asset-backed issuers may rely on the exclusion from the definition of investment company in Section 3(c)(5) of the Investment Company Act rather than on Rule 3a-7 under the Investment Company Act.

110

Section 3(c)(5) was intended to exclude from the definition of investment company certain factoring, discounting and mortgage companies. However, Rule 3a-7 contains substantive conditions designed to address, among other things, conflicts of interest concerning ABS and Section 3(c)(5) does not contain the same substantive conditions. Would it be appropriate to require, as an additional transaction requirement for ABS shelf eligibility, that the ABS issuer of the transaction meet the requirements of Rule 3a-7? We note that the practical effect of such a requirement would be that transactions excluded from the definition of

investment company under Section 3(c)(5) of the Investment Company Act would not be eligible for shelf registration unless they satisfy Rule 3a-7. Would restricting shelf eligibility to those issuers that meet the requirements of Rule 3a-7 give equal access to shelf for all issuers of ABS across asset classes? Should we require disclosure of the basis for the exclusion from the definition of investment company in the prospectus?

110

Section 3(c)(5) of the Investment Company Act excludes from the definition of investment company any person who is not engaged in the business of issuing redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates, and who is primarily engaged in one or more of the following businesses: (A) Purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance and services; (B) making loans to manufacturers, wholesalers and retailers of, and to prospective purchasers of, specified merchandise, insurance, and services and (C) purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. Certain asset-backed issuers, including those that securitize retail automobile installment contracts, credit card receivables, trade receivables, boat loans or equipment leases, have sought to rely on the provisions of Section 3(c)(5)(A) or (B).

III. Disclosure Requirements

A. Exhibits To Be Filed With Rule 424(h) Filing

We are proposing to require ABS issuers to file copies of the underlying transaction agreements, including all attached schedules, and other agreements that are referenced (such as those containing representations and warranties regarding the underlying assets), at the same time as a preliminary prospectus that would be required under proposed Rule 424(h).

111

See

Section II. above and fn. 19.

See

also the 2010 ABS Proposing Release at 23335.

In the 2010 ABS Proposing Release, we proposed to revise the filing deadlines in shelf offerings to provide investors with additional time to analyze transaction-specific information prior to making an investment decision. Under the proposed ABS shelf procedures, an ABS issuer would be required to file a preliminary prospectus with the Commission for each takedown off of the proposed new shelf registration form for ABS (Form SF-3) at least five business days prior to the first sale in the offering.

112

We proposed to require that such information be filed at least five business days before the first sale of securities in the offering in an effort to balance the interest of ABS issuers in quick access to the capital markets and the need of investors to have more time to consider transaction-specific information. Given many ABS investors' stated desire for more time to consider the transaction and for more detailed information regarding the pool assets, the proposed new filing deadlines were designed to promote independent analysis of ABS by investors rather than reliance on credit ratings. While commentators generally either supported

113

or did not object to this proposed approach, some commentators asked that we shorten the five-day period. For example, several commentators generally suggested the period be reduced to two days.

114

We have not reached a conclusion on that aspect of the proposal and it remains outstanding.

112

We proposed new Rule 430D to provide the framework for shelf registration of ABS offerings and related Rule 424(h) filing requirements for a preliminary prospectus. Under proposed Rule 430D, the Rule 424(h) preliminary prospectus must contain substantially all the information for the specific ABS takedown previously omitted from the prospectus filed as part of an effective registration statement, except for pricing information.

See

the 2010 ABS Proposing Release at 23335.

113

See

letters from AMI; California Public Employees' Retirement System (CalPERS); CREFC; Rylee Houseknecht; Jamie L. Larson; Investment Company Institute (ICI); AFL-CIO; CFA Institute; Metlife; Prudential and Realpoint on the 2010 ABS Proposing Release.

114

See

letters from ABA; AmeriCredit; ASF; BOA; CNH; Vanguard; Vehicle ABS Group; and Wells Fargo on the 2010 ABS Proposing Release.

Related to the proposal to require the preliminary prospectus be made available in time to facilitate independent analysis by investors, commentators on the 2010 ABS Proposal requested that investors also have access to copies of the underlying agreements on a more timely basis given the importance of the final documents to an investor's understanding of the actual contractual provisions.

115

In the staff's experience with the filing of these documents, ABS issuers have delayed filing such material agreements with the Commission until several days or even weeks after the offering of securities off of a shelf registration statement, even though these transaction agreements and other documents provide important information regarding the terms of the transactions, representations and warranties about the assets, servicing terms, and many other rights that would be material to an investor.

116

In light of these concerns, we had proposed to amend Item 1100(f) of Regulation AB

117

to clarify the existing exhibit filing requirements by making explicit that the exhibits filed with respect to an ABS offering, registered on proposed Form SF-3, must be on file and made part of the registration statement at the latest by the date the final prospectus is required to be filed pursuant to Rule 424.

118

115

See

letter from CMBS investors on the 2010 ABS Proposing Release (suggesting that the rules require that key disclosures, including the pooling and servicing agreement, be made available to investors during the marketing period so that investors have adequate time to review prior to making an investment decision).

See also

letter from Prudential on the 2010 ABS Proposing Release (stating that last minute financial engineering may occur, thereby contributing to poor understanding, and in some instances, misunderstanding of the transaction).

116

In the 2004 ABS Adopting Release we stated that consistent with Item 601 of Regulation S-K, governing documents and material agreements for an ABS offering such as the pooling and servicing agreement, the indenture and related documents must be filed as an exhibit.

117

Item 1100(f) of Regulation AB allows ABS issuers to file agreements or other documents as exhibits on Form 8-K and, in the case of offerings on Form S-3, incorporate the exhibits by reference instead of filing a post-effective amendment.

118

We stated in the 2010 ABS Proposing Release that ABS shelf offerings were designed to mirror non-shelf offerings in terms of filing exhibits and final prospectuses. We also noted that the filing requirements for Form S-3 are consistent with Form S-1 because all exhibits to Form S-1 must be filed by the time of effectiveness.

See

2010 ABS Proposing Release at 23388.

As noted above, commentators urged that we should ensure that the exhibits be available for investor review prior to making an investment decision.

119

In light of these concerns, we are re-proposing Item 1100(f) of Regulation AB to also require that the underlying transaction documents, in substantially final form, be filed and made part of the registration statement by the date the Rule 424(h) prospectus is required to be filed. This requirement, if adopted, would allow investors additional time to analyze the actual underlying agreements containing the specific structure, assets, and contractual rights regarding each transaction. If the exhibits filed with the Rule 424(h) prospectus remain unchanged at the time final prospectus under Rule 424(b) is required to be filed, then an issuer would not be required to re-file the same exhibits.

120

119

See

fn. 116.

120

Under this proposal, any change to the agreement could only be minor. As we explained in the 2010 ABS Proposing Release, a material change in the information provided in the Rule 424(h) filing, other than offering price, would require a new Rule 424(h) filing.

See

the 2010 ABS Proposing Release at 23335. Finalized agreements at the time of the offering may be filed as provided by Instruction 1 to Item 601 of Regulation S-K. The filing requirement for an exhibit (other than opinions and consents) may be satisfied by filing the final form of the document to be used; the final form must be complete, except that prices, signatures and similar matters may be omitted.

See Elimination of Certain Pricing Amendments and Revision of Prospectus Filing Procedures,

Release No. 33-6714 (June 5, 1987) [52 FR 21252]. We also note that filing of final agreements at the time the final prospectus is due will be after the time of sale of the security for purposes of Rule 159 and Securities Act Section 12(a)(2), and that information conveyed to the investor after the time of sale will not be taken into account for purposes of Section 12(a)(2) of the Securities Act.

See

Rule 159.

Request for Comment

64. Is our proposed amendment to Item 1100(f) appropriate? Is there any reason that exhibits, in substantially final form, could not be filed by the time the preliminary prospectus is required to be filed under proposed Rule 424(h)?

65. Is it appropriate to require that exhibits be filed in “substantially final form” at the time of filing the Rule 424(h) prospectus, as proposed? If we require something other than “substantially final form” what information should we require, and what information may be omitted?

66. Should we require the final form of the exhibits to be filed at the same time as the Rule 424(b) prospectus, if the exhibits have not changed since the 424(h) filing?

67. One commentator also suggested that we require issuers provide investors with a copy of the representations, warranties, remedies and exceptions marked to show how it compares with model provisions developed by the Commercial Real Estate Finance Council (CREFC).

121

Should we require that issuers file as an exhibit a copy of the representations, warranties, remedies and exceptions marked to show how it compares to an industry developed model provisions? If so, should we require that the industry developed model provisions be developed by an industry group whose membership includes issuers, investors, and other market participants? Do such model provisions exist for other asset classes? Should we require that the marked copy be filed at the same time as the Rule 424(h) prospectus? Should we require an updated marked copy be filed at the same time as the Rule 424(b) prospectus if they have not changed since the 424(h) filing?

121

See

letter from CMBS investors on the 2010 ABS Proposing Release. CREFC is a trade organization for the commercial real estate finance industry.

B. Requests for Comment on Asset-Level Information

1. Section 7(c) of the Securities Act

Section 942(b) of the Act added Section 7(c) to the Securities Act requiring the Commission to adopt regulations requiring an issuer of an asset-backed security to disclose, for each tranche or class of security, information regarding the assets backing that security.

122

It specifies that in adopting regulations, the Commission shall:

122

See

Section 7(c) of the Securities Act, as added by Section 942(b) of the Act.

(A) Set standards for the format of the data provided by issuers of an asset-backed security, which shall, to the extent feasible, facilitate the comparison of such data across securities in similar types of asset classes; and

(B) Require issuers of asset-backed securities, at a minimum, to disclose asset-level or loan-level data, if such data are necessary for investors to independently perform due diligence including—

(i) Data having unique identifiers relating to loan brokers and originators;

(ii) The nature and extent of the compensation of the broker or originator of the assets backing the security; and

(iii) The amount of risk retention by the originator and the securitizer of such assets.

123

See

Section 7(c)(2) of the Securities Act, as added by Section 942(b) of the Act.

In the 2010 ABS Proposing Release, to augment our current principles-based pool-level disclosure requirements, we had proposed new requirements to disclose asset-level information in prospectuses and in periodic reports. We believe that our proposal for asset-level data for registered offerings, which remains outstanding, would implement the requirements of Section 7(c) because our proposal would set standards that would facilitate the comparison of data across asset classes, and within the same asset class. Further, our proposals require issuers to disclose asset-level data, which we believe are necessary for investors to independently perform due diligence.

In the 2010 ABS Proposing Release, we explained that investors, market participants, policy makers and others have increasingly noted that asset-level information is essential to evaluating an asset-backed security.

124

We proposed to require, with some exceptions, that prospectuses for public offerings of asset-backed securities and ongoing Exchange Act reports contain specified asset-level information about each of the assets in the pool.

125

Because we believe that issuers should provide transparent and comparable data, we proposed to require asset-level information in a standardized format to be included in the prospectus and periodic reports and filed on EDGAR. Our proposal specifies and defines each item that must be disclosed for each asset in the pool and requires that the asset-level information be provided in a tagged data format using Extensible Markup Language (XML) in order to facilitate data analysis, consistent with the requirements of Section 7(c).

126

124

See

the 2010 ABS Proposing Release at 23355.

125

We proposed that all asset classes, except for stranded cost and credit cards issuers, provide asset-level data. For credit card and charge card ABS, we proposed that issuers be required to provide grouped account data.

See

2010 ABS Proposing Release at 23355.

126

By proposing to require the asset-level data file in XML, a machine-readable language, we anticipate that users of the data will be able to download the disclosure directly into spreadsheets and databases, analyze it using commercial off-the-shelf software, or use it within their own models in other software formats. As we explained in the 2010 ABS Proposing Release, XML is an open standard that defines or “tags” data using standard definitions. The term “open standard” is generally applied to technological specifications that are widely available to the public, royalty-free, at minimal or no cost. The tags establish a consistent structure of identity and context. This consistent structure can be recognized and processed by a variety of different software applications. In the case of XML, software applications, such as databases, financial reporting systems, and spreadsheets recognize and process tagged information. Some issuers already file loan schedules on EDGAR as part of the pooling and servicing exhibit or a free writing prospectus. However, the data is currently filed on EDGAR in ASCII or HTML, both of which do not facilitate data analysis.

See

the 2010 ABS Proposing Release at 23374.

Section 7(c) also requires that we require issuers of asset-backed securities, at a minimum, to disclose asset-level or loan-level data, if such data are necessary for investors to independently perform due diligence, including data having unique identifiers relating to loan brokers and originators. The 2010 ABS Proposal would require disclosure of the name of the originator of an asset for all asset classes.

127

If the asset is a residential mortgage, and a MERS number for the originator is available, we proposed to require that the MERS number for the originator be provided.

128

127

See

proposed Item 1(a)(4) of Schedule L of Regulation AB in the 2010 ABS Proposing Release.

128

Mortgage Electronic Registration Systems, Inc. (MERS) is affiliated with the Mortgage Industry Standards Maintenance Organization (MISMO), a not-for profit subsidiary of the Mortgage Bankers Association. MERS has developed a unique numbering system and reporting packages to capture and report data at different times during the life of the underlying residential or commercial loan.

In addition, for residential mortgages only, we proposed that issuers be required to disclose unique identifiers related to loan originators and company, as required by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, otherwise known as the NMLS numbers.

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We note that the NMLS numbers for “originator” and company refer to the individual and company taking the loan application, which would include loan brokers and the company that the broker works for.

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Therefore, we believe that our proposal to require NMLS numbers would implement the requirements of Section 7(c) with respect to mortgages by requiring a unique numerical identifier for a loan broker.

129

See

proposed Items 2(a)(11) and (12) of Schedule L of Regulation AB in the 2010 ABS Proposing Release. In 2008, Congress passed The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “SAFE Act”) which required the creation of a Nationwide Mortgage Licensing System and Registry and unique identifiers for loan originators and company (NMLS numbers). The SAFE Act is designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators and for the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) to establish and maintain a nationwide mortgage licensing system and registry for the residential mortgage industry. The SAFE Act was enacted as part of the Housing and Economic Recovery Act of 2008, Public Law 110-289, Division A, Title V, sections 1501-1517, 122 Stat. 2654, 2810-2824 (July 30, 2008), codified at 12 U.S.C. 5101-5116.

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In contrast, note that for purposes of Regulation AB, we have generally interpreted an originator to be the person or entity that extends the

credit to the borrower.

See

the 2004 Adopting Release at 1538.

We are unaware of any standardized unique identifying system used for the purpose of identifying brokers or originators of other asset classes, across all asset classes or within an asset class.

131

Further, we believe that asset classes, other than RMBS and CMBS, do not typically use brokers to originate loans; however we request comment on whether brokers are used in other asset classes. We are also requesting comment on whether unique identifiers for loan brokers and originators exist for other asset classes (or a system of unique identifiers could reasonably be established), and if so, whether the data is necessary to independently perform due diligence for other asset classes.

131

See also

Joint Study on the Feasibility of Mandating Algorithmic Descriptions for Derivatives (April 7, 2011), available at

http://www.sec.gov/news/studies/2011/719b-study.pdf

(also concluding that before mandating the use of standardized descriptions for all derivatives a universal entity identifier and product or instrument identifiers, among other things, are needed).

Section 7(c) also requires that we require issuers to disclose asset-level data on the nature and extent of the compensation of the broker or originator of the assets backing the security, if such data are necessary for investors to independently perform due diligence. The 2010 ABS Proposals did not include requirements to provide asset-level data regarding fees to brokers or originators. However, with respect to RMBS, our proposal did include an asset-level disclosure requirement to indicate whether a broker originated a loan.

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In addition, disclosure of the origination channel for each loan is also required under the 2010 ABS Proposals (

i.e.,

was the loan originated through a bank's own retail operation, a broker, a correspondent lender,

etc.

133

We are not proposing asset-level disclosure requirements for broker's compensation at this time because we believe that the proposed data points may provide the information necessary to perform due diligence on an RMBS pool with respect to broker involvement because investors can analyze the method in which a loan was underwritten based on these data points. We request comment on whether the specific compensation paid to brokers or originators would be useful in performing due diligence for RMBS and for other asset classes and should be required under our final rules. In light of the fact that compensation may be paid in many different forms and calculated in different ways we are requesting comment about the forms of compensation. We also request comment on how to define these data points so that the information provided is standardized and comparable across asset classes or within an asset class.

132

See

proposed Item 2(a)(9) of Schedule L of Regulation AB in the 2010 ABS Proposing Release.

133

See

proposed Item 2(a)(10) of Schedule L of Regulation AB in the 2010 ABS Proposing Release.

In addition, Section 7(c) requires that we require issuers to disclose asset-level data related to the amount of risk retention by the originator and securitizer of such assets, if such data are necessary for investors to independently perform due diligence. The 2010 ABS Proposals include a requirement to disclose any interest the sponsor has retained in the transaction, including the amount and nature of that interest.

134

Also, as discussed above, the joint regulators proposed risk retention requirements as required by Section 15G of the Exchange Act and that proposal also includes disclosure requirements concerning the risk retention option selected.

135

The outstanding Risk Retention Proposals do not require originators to retain risk in individual assets of the pool.

136

In light of the outstanding Risk Retention Proposals and 2010 ABS Proposal for sponsor risk retention disclosure, at this time we are not proposing additional disclosure requirements but we are requesting comment on whether risk retention disclosure on an asset-level basis is necessary for investors to independently perform due diligence.

134

See

proposed Item 1104(e) of Regulation AB in the 2010 ABS Proposing Release.

135

See

fn. 12.

136

See

the Risk Retention Proposing Release at 24114.

Requests for Comment

68. Do the 2010 ABS Proposals implement Section 7(c) effectively? Are there any changes or additions that would better implement Section 7(c)?

69. Is the proposed XML format an adequate standard for the format of data that, to the extent feasible, facilitates the comparison of data across securities in similar types of asset classes? If not, how could it be improved?

70. Are unique identifiers for loan brokers and/or originators necessary to permit investors to independently perform due diligence for asset classes other than RMBS or CMBS? If so, is there a unique system of identifiers for brokers and originators for other asset classes?

71. Do asset classes other than RMBS or CMBS use brokers?

72. Would it be appropriate to require an originator's tax ID number, RSSD ID number, FDIC Certificate Number or Routing Transit Number (RTN) as a unique identifier?

137

Would any of these identifiers be an appropriate unique identifier across asset classes? Do originators have multiple tax ID numbers, RSSD IDs, FDIC Certificate Numbers, or RTNs? If so, how should we specify which one to use? With respect to tax ID numbers, should we specify that social security numbers should not be provided? Are there any other existing unique identifiers that would be appropriate for these purposes? Should new identification systems be developed? If so, by whom?

137

A tax ID number is a unique number assigned by the Internal Revenue Service. An RSSD ID is a unique identifying number assigned by the Federal Reserve for all financial institutions, main offices, as well as branches. An FDIC Certification Number is a unique number assigned by the FDIC used to identify institutions and to issue insurance certificates. An RTN, or a routing transit number, is a nine-digit unique bank identifier originally designed by the American Bankers Association.

73. Is asset-level disclosure related to the nature and extent of the compensation of the broker or originator necessary to independently perform due diligence across all asset classes?

74. How are the brokers and originators compensated? Should we require the fee to be expressed as a dollar amount, a percentage or both? If percentage, what should be the basis for calculating the percentage? Is it appropriate for RMBS or CMBS only? Any other asset classes?

75. How should the asset-level data points for broker or originator compensation be defined so that the information provided will be standardized and comparable across asset classes or within an asset class?

76. Is it more useful if the broker or originator compensation disclosure is provided in a format other than at the asset-level?

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Could it be provided in

the prospectus in narrative form or some other tabular format?

138

The Federal Deposit Insurance Corporation (“FDIC”) recently amended its “safe harbor” rule from the FDIC's statutory authority to disaffirm or repudiate contracts of an insured depository institution (“IDI”) with respect to transfers of financial assets by an IDI in connection with a securitization or a participation (the “FDIC Safe Harbor Rule”). Under the FDIC Safe Harbor Rule the securitization documents must require disclosure to investors of the nature and amount of compensation paid to any mortgage or other broker, noting that this disclosure should enable investors to assess potential conflicts of interests and how the compensation structure affects the quality of the assets securitized or the securitization as a whole. We note, however, that the FDIC Safe Harbor Rule requires disclosure of compensation for RMBS only.

See

Federal Deposit Insurance Corporation, Treatment by the Federal Deposit Insurance Corporation as Conservator or Receiver of Financial Assets Transferred by an Insured Depository Institution in Connection With a Securitization or Participation After September 30, 2010 (Sep. 27, 2010) [70 FR 60287].

77. Is the amount of risk retention, on an asset-level basis, necessary to independently perform due diligence? If so, how should we require it be calculated in light of the outstanding Risk Retention Proposal requiring risk retention in the securities and not the asset? Should we require the amount of risk retention be expressed as a dollar amount, a percentage or both? If percentage, what should be the basis for calculating the percentage?

78. Is it more useful to provide disclosure regarding risk retention in a format other than asset-level? Could it be provided in the prospectus in a narrative form or some other tabular format? Is the 2010 ABS Proposal to require disclosure of any interest the sponsor has retained in the transaction, sufficient to address the purpose of the asset-level risk retention disclosure requirements in Section 7(c)?

79. In light of the joint Risk Retention Proposals, and the servicing standards included in the proposal, we are requesting comment on whether additional data points related to loss mitigation and RMBS should be required.

139

In the case of borrower default, most pooling and servicing agreements require a servicer, among other things, to take loss mitigation actions in the event the net present value (NPV) of loss mitigation exceeds the estimated NPV of recovery through foreclosure. Should the estimated NPV in both cases be required to be disclosed as an asset-level data point? Should the method of calculation be required to be disclosed as an asset-level data point? Are there standard methods of calculating NPV? Are the formulas for calculating NPV included in the underlying transaction agreements? If not, who determines the method used and should that method be required to be disclosed? Should the assumptions used be required to be disclosed? If not, how can an investor evaluate the NPV? Is it appropriate to require disclosure of the method of calculation and assumptions on an asset-level with Schedule L? Or is it more appropriate to require the disclosure

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