Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 27471 

the end of the second calendar quarter 

for which it meets the criteria for a CIDI. 

(3) Upon the merger of two or more 

Non-CIDIs, if the resulting institution 

meets the criteria for a CIDI, that CIDI 

must comply with the requirements of 

this section no later than 6 months after 

the effective date of the merger. 

(4) Upon the merger of two or more 

CIDIs, the merged institution must 

comply with the requirements of this 

section within 6 months following the 

effective date of the merger. This 

provision, however, does not supplant 

any preexisting implementation date 

requirement, in place prior to the date 

of the merger, for the individual CIDI(s) 

involved in the merger. 

(5) Upon the merger of one or more 

CIDIs with one or more Non-CIDIs, the 

merged institution must comply with 

the requirements of this section within 

6 months following the effective date of 

the merger. This provision, however, 

does not supplant any preexisting 

implementation date requirement for 

the individual CIDI(s) involved in the 

merger. 

(6) Notwithstanding the general 

requirements of this paragraph (d), on a 

case-by-case basis, the FDIC may 

accelerate, upon notice, the 

implementation and updating time 

frames for all or part of the requirements 

of this section. 

(7) FDIC may, upon application of a 

CIDI and for good cause shown, modify 

or waive the minimum requirements set 

forth in this section for that institution. 

‘‘Good cause’’ shall mean that, because 

of the CIDI’s asset size, level of 

complexity, risk profile, scope of 

operations or other relevant 

characteristics, the FDIC is able to 

determine that the particular IDI does 

not, at the time of the application, 

appear to present material resolution 

challenges or other unusual risk to the 

Deposit Insurance Fund. Any such 

waiver or modification shall be effective 

for one year. 

(e) Confidentiality of Information 

Submitted Pursuant to this Section. 

Proprietary information and information 

which, if disclosed, could endanger the 

institution’s safety and soundness, 

should be identified and segregated to 

the extent possible, and be accompanied 

by a request for confidential treatment. 

Confidential information will not be 

disclosed except as required by law. 

Dated at Washington, DC, this 11th day of 

May 2010. 

By order of the Board of Directors. 

Robert E. Feldman, 

Executive Secretary, Federal Deposit 

Insurance Corporation. 

[FR Doc. 2010–11646 Filed 5–14–10; 8:45 am] 

BILLING CODE 6714–01–P 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 360 

RIN 3064–AD53 

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 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Notice of proposed rulemaking 

with request for comments. 

SUMMARY: The Federal Deposit 

Insurance Corporation (‘‘FDIC’’) 

proposes to adopt amendments to the 

rule regarding the treatment by the 

FDIC, as receiver or conservator of an 

insured depository institution, of 

financial assets transferred by the 

institution in connection with a 

securitization or a participation after 

September 30, 2010 (the ‘‘Proposed 

Rule’’). The Proposed Rule would 

continue the safe harbor for transferred 

financial assets in connection with 

securitizations in which the financial 

assets were transferred under the 

existing regulations. The Proposed Rule 

would clarify the conditions for a safe 

harbor for securitizations or 

participations issued after September 

30, 2010. The Proposed Rule also sets 

forth safe harbor protections for 

securitizations that do not comply with 

the new accounting standards for off 

balance sheet treatment by providing for 

expedited access to the financial assets 

that are securitized if they meet the 

conditions defined in the Proposed 

Rule. The conditions contained in the 

Proposed Rule would serve to protect 

the Deposit Insurance Fund (‘‘DIF’’) and 

the FDIC’s interests as deposit insurer 

and receiver by aligning the conditions 

for the safe harbor with better and more 

sustainable securitization practices by 

insured depository institutions (‘‘IDIs’’). 

The FDIC seeks comment on the 

regulations, the scope of the safe harbors 

provided, and the terms and scope of 

the conditions included in the Proposed 

Rule. 

DATES: Comments on this Notice of 

Proposed Rulemaking must be received 

by July 1, 2010. 

ADDRESSES: You may submit comments 

on the Proposed Rule, by any of the 

following methods: 

• Agency Web Site: http:// 

www.FDIC.gov/regulations/laws/ 

federal/notices.html. Follow 

instructions for submitting comments 

on the Agency Web Site. 

• E-mail: Comments@FDIC.gov. 

Include RIN 3064–AD53 on the subject 

line of the message. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments, Federal 

Deposit Insurance Corporation, 550 17th 

Street, NW., Washington, DC 20429. 

• Hand Delivery: Comments may be 

hand delivered to the guard station at 

the rear of the 550 17th Street Building 

(located on F Street) on business days 

between 7 a.m. and 5 p.m. 

Instructions: All comments received 

will be posted generally without change 

to http://www.fdic.gov/regulations/laws/ 

federal/propose.html, including any 

personal information provided. 

FOR FURTHER INFORMATION CONTACT: 

Michael Krimminger, Office of the 

Chairman, 202–898–8950; George 

Alexander, Division of Resolutions and 

Receiverships, (202) 898–3718; Robert 

Storch, Division of Supervision and 

Consumer Protection, (202) 898–8906; 

or R. Penfield Starke, Legal Division, 

(703) 562–2422, Federal Deposit 

Insurance Corporation, 550 17th Street, 

NW., Washington, DC 20429. 

SUPPLEMENTARY INFORMATION: 

I. Background 

In 2000, the FDIC clarified the scope 

of its statutory authority as conservator 

or receiver to disaffirm or repudiate 

contracts of an insured depository 

institution with respect to transfers of 

financial assets by an IDI in connection 

with a securitization or participation 

when it adopted a regulation codified at 

12 CFR 360.6 (the ‘‘Securitization 

Rule’’). This rule provided that the FDIC 

as conservator or receiver would not use 

its statutory authority to disaffirm or 

repudiate contracts to reclaim, recover, 

or recharacterize as property of the 

institution or the receivership any 

financial assets transferred by an IDI in 

connection with a securitization or in 

the form of a participation, provided 

that such transfer meets all conditions 

for sale accounting treatment under 

generally accepted accounting 

principles (‘‘GAAP’’). The rule was a 

clarification, rather than a limitation, of 

the repudiation power. Such power 

authorizes the conservator or receiver to 

breach a contract or lease entered into 

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27472 Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 

1Of particular note, Paragraph 26A of FAS 166 

introduces a new concept that was not in FAS 140, 

as follows: ‘‘* * * the transferor must first consider 

whether the transferee would be consolidated by 

the transferor. Therefore, if all other provisions of 

this Statement are met with respect to a particular 

transfer, and the transferee would be consolidated 

by the transferor, then the transferred financial 

assets would not be treated as having been sold in 

the financial statements being presented.’’ 

2 12 U.S.C. 1821(e)(13)(C). 

3 12 U.S.C. 1811 et. seq. 4 12 U.S.C. 1821(e)(12). 

by an IDI and be legally excused from 

further performance, but it is not an 

avoiding power enabling the 

conservator or receiver to recover assets 

that were previously sold and no longer 

reflected on the books and records on an 

IDI. 

The Securitization Rule provided a 

‘‘safe harbor’’ by confirming ‘‘legal 

isolation’’ if all other standards for off 

balance sheet accounting treatment, 

along with some additional conditions 

focusing on the enforceability of the 

transaction, were met by the transfer in 

connection with a securitization or a 

participation. Satisfaction of ‘‘legal 

isolation’’ was vital to securitization 

transactions because of the risk that the 

pool of financial assets transferred into 

the securitization trust could be 

recovered in bankruptcy or in a bank 

receivership. Generally, to satisfy the 

legal isolation condition, the transferred 

financial assets must have been 

presumptively placed beyond the reach 

of the transferor, its creditors, a 

bankruptcy trustee, or in the case of an 

IDI, the FDIC as conservator or receiver. 

The Securitization Rule, thus, addressed 

only purported sales which met the 

conditions for off balance sheet 

accounting treatment under GAAP. 

Since its adoption, the Securitization 

Rule has been relied on by 

securitization participants, including 

rating agencies, as assurance that 

investors could look to securitized 

financial assets for payment without 

concern that the financial assets would 

be interfered with by the FDIC as 

conservator or receiver. Recently, the 

implementation of new accounting rules 

has created uncertainty for 

securitization participants. 

Modifications to GAAP Accounting 

Standards 

On June 12, 2009, the Financial 

Accounting Standards Board (‘‘FASB’’) 

finalized modifications to GAAP 

through Statement of Financial 

Accounting Standards No. 166, 

Accounting for Transfers of Financial 

Assets, an Amendment of FASB 

Statement No. 140 (‘‘FAS 166’’) and 

Statement of Financial Accounting 

Standards No. 167, Amendments to 

FASB Interpretation No. 46(R) (‘‘FAS 

167’’) (the ‘‘2009 GAAP Modifications’’). 

The 2009 GAAP Modifications are 

effective for annual financial statement 

reporting periods that begin after 

November 15, 2009. The 2009 GAAP 

Modifications made changes that affect 

whether a special purpose entity (‘‘SPE’’) 

must be consolidated for financial 

reporting purposes, thereby subjecting 

many SPEs to GAAP consolidation 

requirements. These accounting changes 

may require an IDI to consolidate an 

issuing entity to which financial assets 

have been transferred for securitization 

on to its balance sheet for financial 

reporting purposes primarily because an 

affiliate of the IDI retains control over 

the financial assets.1 Given the 2009 

GAAP Modifications, legal and 

accounting treatment of a transaction 

may no longer be aligned. As a result, 

the safe harbor provision of the 

Securitization Rule may not apply to a 

transfer in connection with a 

securitization that does not qualify for 

off balance sheet treatment. 

FAS 166 also affects the treatment of 

participations issued by an IDI, in that 

it defines participating interests as paripassu pro-rata interests in financial 

assets, and subjects the sale of a 

participation interest to the same 

conditions as the sale of financial assets. 

Statement FAS 166 provides that 

transfers of participation interests that 

do not qualify for sale treatment will be 

viewed as secured borrowings. While 

the GAAP modifications have some 

effect on participations, most 

participations are likely to continue to 

meet the conditions for sale accounting 

treatment under GAAP. 

FDI Act Changes 

In 2005, Congress enacted 

11(e)(13)(C) 2 of the Federal Deposit 

Insurance Act (the ‘‘FDI Act’’)3. In 

relevant part, this paragraph provides 

that generally no person may exercise 

any right or power to terminate, 

accelerate, or declare a default under a 

contract to which the IDI is a party, or 

obtain possession of or exercise control 

over any property of the IDI, or affect 

any contractual rights of the IDI, 

without the consent of the conservator 

or receiver, as appropriate, during the 

45-day period beginning on the date of 

the appointment of the conservator or 

the 90-day period beginning on the date 

of the appointment of the receiver. If a 

securitization is treated as a secured 

borrowing, section 11(e)(13)(C) could 

prevent the investors from recovering 

monies due to them for up to 90 days. 

Consequently, securitized assets that 

remain property of the IDI (but subject 

to a security interest) would be subject 

to the stay, raising concerns that any 

attempt by securitization noteholders to 

exercise remedies with respect to the 

IDI’s assets would be delayed. During 

the stay, interest and principal on the 

securitized debt could remain unpaid. 

The FDIC has been advised that this 90- 

day delay would cause substantial 

downgrades in the ratings provided on 

existing securitizations and could 

prevent planned securitizations for 

multiple asset classes, such as credit 

cards, automobile loans, and other 

credits, from being brought to market. 

Analysis 

The FDIC believes that several of the 

issues of concern for securitization 

participants regarding the impact of the 

2009 GAAP Modifications on the 

eligibility of transfers of financial assets 

for safe harbor protection can be 

addressed by clarifying the position of 

the conservator or receiver under 

established law. Under Section 11(e)(12) 

of the FDI Act,4 the conservator or 

receiver cannot use its statutory power 

to repudiate or disaffirm contracts to 

avoid a legally enforceable and 

perfected security interest in transferred 

financial assets. This provision applies 

whether or not the securitization meets 

the conditions for sale accounting. The 

Proposed Rule would clarify that prior 

to any monetary default or repudiation, 

the FDIC as conservator or receiver 

would consent to the making of required 

payments of principal and interest and 

other amounts due on the securitized 

obligations during the statutory stay 

period. In addition, if the FDIC decides 

to repudiate the securitization 

transaction, the payment of repudiation 

damages in an amount equal to the par 

value of the outstanding obligations on 

the date of receivership will discharge 

the lien on the securitization assets. 

This clarification in paragraphs (d)(4) 

and (e) of the Proposed Rule addresses 

certain questions that have been raised 

about the scope of the stay codified in 

Section 11(e)(13)(C). 

An FDIC receiver generally makes a 

determination of what constitutes 

property of an IDI based on the books 

and records of the failed IDI. If a 

securitization is reflected on the books 

and records of an IDI for accounting 

purposes, the FDIC would evaluate all 

facts and circumstances existing at the 

time of receivership to determine 

whether a transaction is a sale under 

applicable state law or a secured loan. 

Given the 2009 GAAP Modifications, 

there may be circumstances in which a 

sale transaction will continue to be 

reflected on the books and records of the 

IDI because the IDI or one of its affiliates 

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Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 27473 

5 12 U.S.C. 1821(e)(12). 

continues to exercise control over the 

assets either directly or indirectly. The 

Proposed Rule would provide comfort 

that conforming securitizations which 

do not qualify for off balance sheet 

treatment would have access to the 

assets in a timely manner irrespective of 

whether a transaction is viewed as a 

legal sale. 

If a transfer of financial assets by an 

IDI to an issuing entity in connection 

with a securitization is not 

characterized as a sale, the securitized 

assets would be viewed as subject to a 

perfected security interest. This is 

significant because the FDIC as 

conservator or receiver is prohibited by 

statute from avoiding a legally 

enforceable or perfected security 

interest, except where such an interest 

is taken in contemplation of insolvency 

or with the intent to hinder, delay, or 

defraud the institution or the creditors 

of such institution.5 Consequently, the 

ability of the FDIC as conservator or 

receiver to reach financial assets 

transferred by an IDI to an issuing entity 

in connection with a securitization, if 

such transfer is characterized as a 

transfer for security, is limited by the 

combination of the status of the entity 

as a secured party with a perfected 

security interest in the transferred assets 

and the statutory provision that 

prohibits the conservator or receiver 

from avoiding a legally enforceable or 

perfected security interest. 

Thus, for securitizations that are 

consolidated on the books of an IDI, the 

Proposed Rule would provide a 

meaningful safe harbor irrespective of 

the legal characterization of the transfer. 

There are two situations in which 

consent to expedited access to 

transferred assets would be given—(i) 

monetary default under a securitization 

by the FDIC as conservator or receiver 

or (ii) repudiation of the securitization 

agreements by the FDIC. The Proposed 

Rule provides that in the event the FDIC 

is in monetary default under the 

securitization documents and the 

default continues for a period of ten (10) 

business days after written notice to the 

FDIC, the FDIC will be deemed to 

consent pursuant to Section 

(11)(e)(13)(C) to the exercise of 

contractual rights under the documents 

on account of such monetary default, 

and such consent shall constitute 

satisfaction in full of obligations of the 

IDI and the FDIC as conservator or 

receiver to the holders of the 

securitization obligations. 

The Proposed Rule also provides that 

in the event the FDIC repudiates the 

securitization asset transfer agreement, 

the FDIC shall have the right to 

discharge the lien on the financial assets 

included in the securitization by paying 

damages in an amount equal to the par 

value of the obligations in the 

securitization on the date of the 

appointment of the FDIC as conservator 

or receiver, less any principal payments 

made to the date of repudiation. If such 

damages are not paid within ten (10) 

business days of repudiation, the FDIC 

will be deemed to consent pursuant to 

Section (11)(e)(13)(C) to the exercise of 

contractual rights under the 

securitization agreements. 

The Proposed Rule would also 

confirm that, if the transfer of the assets 

is viewed as a sale for accounting 

purposes (and thus the assets are not 

reflected on the books of an IDI), the 

FDIC as receiver would not reclaim, 

recover, or recharacterize as property of 

the institution or the receivership assets 

of a securitization through repudiation 

or otherwise, but only if the transactions 

comply with the requirements set forth 

in paragraphs (b) and (c) of the Proposed 

Rule. The treatment of off balance sheet 

transfers of the Proposed Rule is 

consistent with the prior safe harbor 

under the Securitization Rule. 

Pursuant to 12 U.S.C. 1821(e)(13)(C), 

no person may exercise any right or 

power to terminate, accelerate, or 

declare a default under a contract to 

which the IDI is a party, or to obtain 

possession of or exercise control over 

any property of the IDI, or affect any 

contractual rights of the IDI, without the 

consent of the conservator or receiver, 

as appropriate, during the 45-day period 

beginning on the date of the 

appointment of the conservator or the 

90-day period beginning on the date of 

the appointment of the receiver. In order 

to address concerns that the statutory 

stay could delay repayment of investors 

in a securitization or delay a secured 

party from exercising its rights with 

respect to securitized financial assets, 

the Proposed Rule provides for the 

consent by the conservator or receiver, 

subject to certain conditions, to the 

continued making of required payments 

under the securitization documents and 

continued servicing of the assets, as 

well as the ability to exercise self-help 

remedies after a payment default by the 

FDIC or the repudiation of a 

securitization asset transfer agreement 

during the stay period of 12 U.S.C. 

1821(e)(13)(C). 

The FDIC recognizes that, as a 

practical matter, the scope of the 

comfort that would be provided by the 

Proposed Rule is more limited than that 

provided in the Securitization Rule. 

However, the FDIC believes that the 

proposed requirements are necessary to 

support sustainable securitization. The 

safe harbor is not exclusive, and it does 

not address any transactions that fall 

outside the scope of the safe harbor or 

that fail to comply with one or more safe 

harbor conditions. The FDIC believes 

that its safe harbor should promote 

responsible financial asset underwriting 

and increase transparency in the market. 

Previous Rulemakings 

On November 12, 2009, the FDIC 

issued an Interim Final Rule amending 

12 CFR 360.6, 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, to 

provide for safe harbor treatment for 

participations and securitizations until 

March 31, 2010, which was further 

amended on March 11, 2010, by a Final 

Rule extending the safe harbor until 

September 30, 2010 (as so amended, the 

‘‘Transition Rule’’). Under the Transition 

Rule, all existing securitizations as well 

as those for which transfers were made 

or, for revolving trusts, for which 

obligations were issued prior to 

September 30, 2010, were permanently 

‘‘grandfathered’’ so long as they 

complied with the pre-existing § 360.6. 

At its December 15, 2009 meeting, the 

Board adopted an Advance Notice of 

Proposed Rulemaking (‘‘ANPR’’) that 

sought public comment on the scope of 

amendments to Section 360.6, as well as 

the requirements for the application of 

the safe harbor. The ANPR and the 

public comments received are discussed 

below in Sections III and IV. 

The 2009 GAAP Modifications affect 

the way securitizations are viewed by 

the rating agencies and whether they 

can achieve ratings that are based solely 

on the credit quality of the financial 

assets, independent from the rating of 

the IDI. Rating agencies are concerned 

with several issues, including the ability 

of a securitization transaction to pay 

timely principal and interest in the 

event the FDIC is appointed receiver or 

conservator of the IDI. Rating agencies 

are also concerned with the ability of 

the FDIC to repudiate the securitization 

obligations and pay damages that may 

be less than the full principal amount of 

such obligations and interest accrued 

thereon. Moody’s, Standard & Poor’s, 

and Fitch have expressed the view that 

because of the 2009 GAAP 

Modifications and the extent of the 

FDIC’s rights and powers as conservator 

or receiver, bank securitization 

transactions would have to be linked to 

the rating of the IDI and are unlikely to 

receive ‘‘AAA’’ ratings if the bank is 

rated below ‘‘A’’. This view is based in 

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27474 Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 

6FDIC Covered Bond Policy Statement, 73 FR 

43754 et seq. (July 28, 2008) 

part on the ratings agencies’ assessment 

of the delay involved in receipt of 

amounts due with respect to 

securitization obligations and the 

amount of repudiation damages payable 

under the FDI Act. Securitization 

practitioners have asked the FDIC to 

provide assurances regarding the 

position of the conservator or receiver as 

to the treatment of both existing and 

future securitization transactions to 

enable securitizations to be structured 

in a manner that enables them to 

achieve de-linked ratings. 

Purpose of the Proposed Rule 

The FDIC, as deposit insurer and 

receiver for failed IDIs, has a unique 

responsibility and interest in ensuring 

that residential mortgage loans and 

other financial assets originated by IDIs 

are originated for long-term 

sustainability. The supervisory interest 

in origination of quality loans and other 

financial assets is shared with other 

bank and thrift supervisors. 

Nevertheless, the FDIC’s responsibilities 

to protect insured depositors and 

resolve failed insured banks and thrifts 

and its responsibility to the DIF require 

that when the FDIC provides a safe 

harbor consenting to special relief from 

the application of its receivership 

powers, it must do so in a manner that 

fulfills these responsibilities. 

The evident defects in many subprime 

and other mortgages originated and sold 

into securitizations requires attention by 

the FDIC to fulfill its responsibilities as 

deposit insurer and receiver in addition 

to its role as a supervisor. The defects 

and misalignment of incentives in the 

securitization process for residential 

mortgages were a significant contributor 

to the erosion of underwriting standards 

throughout the mortgage finance system. 

While many of the troubled mortgages 

were originated by non-bank lenders, 

insured banks and thrifts also made 

many troubled loans as underwriting 

standards declined under the 

competitive pressures created by the 

returns achieved by lenders and service 

providers through the ‘‘originate to 

distribute’’ model. 

Defects in the incentives provided by 

securitization through immediate gains 

on sale for transfers into securitization 

vehicles and fee income directly led to 

material adverse consequences for 

insured banks and thrifts. Among these 

consequences were increased 

repurchase demands under 

representations and warranties 

contained in securitization agreements, 

losses on purchased mortgage and assetbacked securities, severe declines in 

financial asset values and in mortgageand asset-backed security values due to 

spreading market uncertainty about the 

value of structured finance investments, 

and impairments in overall financial 

prospects due to the accelerated decline 

in housing values and overall economic 

activity. These consequences, and the 

overall economic conditions, directly 

led to the failures of many IDIs and to 

significant losses to the DIF. In this 

context, it would be imprudent for the 

FDIC to provide consent or other 

clarification of its application of its 

receivership powers without imposing 

requirements designed to realign the 

incentives in the securitization process 

to avoid these devastating effects. 

The FDIC’s adoption of 12 CFR 360.6 

in 2000 provided clarification of ‘‘legal 

isolation’’ and facilitated legal and 

accounting analyses that supported 

securitization. In view of the accounting 

changes and the effects they have upon 

the application of the Securitization 

Rule, it is crucial that the FDIC provide 

clarification of the application of its 

receivership powers in a way that 

reduces the risks to the DIF by better 

aligning the incentives in securitization 

to support sustainable lending and 

structured finance transactions. 

The Proposed Rule is fully consistent 

with the position of the FDIC in the 

Final Covered Bond Policy Statement of 

July 15, 2008. In that Policy Statement, 

the FDIC Board of Directors acted to 

clarify how the FDIC would treat 

covered bonds in the case of a 

conservatorship or receivership with the 

express goal of thereby facilitating the 

development of the U.S. covered bond 

market. As noted in that Policy 

Statement, it served to ‘‘define the 

circumstances and the specific covered 

bond transactions for which the FDIC 

will grant consent to expedited access to 

pledged covered bond collateral.’’ The 

Policy Statement further specifically 

referenced the FDIC’s goal of promoting 

development of the covered bond 

market, while protecting the DIF and 

prudently applying its powers as 

conservator or receiver.6

The Proposed Rule is also consistent 

with the amendments to Regulation AB 

proposed by the Securities and 

Exchange Commission (‘‘SEC’’) on April 

7, 2010 (as so proposed to be amended, 

‘‘New Regulation AB’’). The proposed 

amendments represent a significant 

overhaul of Regulation AB and related 

rules governing the offering process, 

disclosure requirements and ongoing 

reporting requirements for 

securitizations. New Regulation AB 

would establish extensive new 

requirements for both SEC registered 

publicly offered securitization and 

many private placements, including 

disclosure of standardized financial 

asset level information, enhanced 

investor cash flow modeling tools and 

on-going information reporting 

requirements. In addition New 

Regulation AB requires certain 

certifications to the quality of the 

financial asset pool, retention by the 

sponsor or an affiliate of a portion of the 

securitization securities and third party 

reports on compliance with the 

sponsor’s obligation to repurchase assets 

for breach of representations and 

warranties as a precondition to an 

issuer’s ability to use a shelf 

registration. The disclosure and 

retention requirements of New 

Regulation AB are consistent with and 

support the approach of the Proposed 

Rule. 

To ensure that IDIs are sponsoring 

securitizations in a responsible and 

sustainable manner, the Proposed Rule 

would impose certain conditions on all 

securitizations and additional 

conditions on securitizations that 

include residential mortgages (‘‘RMBS’’), 

including those that qualify as true 

sales, as a prerequisite for the FDIC to 

grant consent to the exercise of the 

rights and powers listed in 12 U.S.C. 

1821(e)(13)(C) with respect to such 

financial assets. To qualify for the safe 

harbor provision of the Proposed Rule, 

the conditions must be satisfied for any 

securitization (i) for which transfers of 

financial assets were made on or after 

September 30, 2010 or (ii) for revolving 

trusts, for which obligations were issued 

on or after September 30, 2010. 

The FDIC believes that the 

transitional period until September 30, 

2010, that is currently provided for in 

the Transitional Rule is sufficient to 

allow sponsors and other participants in 

securitizations to restructure 

transactions to comply with the new 

accounting requirements, and to 

properly structure transactions which 

meet the conditions of the Proposed 

Rules, when final. However, the FDIC is 

requesting public comment on the 

adequacy of the transitional period 

under the Transitional Rule for potential 

changes to securitizations to comply 

with the Proposed Rule. 

II. The ANPR 

On January 7, 2010, the FDIC 

published its Advance Notice of 

Proposed Rulemaking Regarding 

Treatment by the FDIC as Conservator or 

Receiver of Financial Assets Transferred 

by an IDI in Connection with a 

Securitization or Participation After 

March 31, 2010 in the Federal Register. 

75 FR 935 (Jan. 7, 2010). The ANPR 

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Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 27475 

solicited public comment for 45 days 

relating to proposed amendments to the 

Securitization Rule regarding the 

treatment by the FDIC, as receiver or 

conservator of an IDI, of financial assets 

transferred by an IDI in connection with 

a securitization or participation 

transaction. 

The ANPR set forth specific questions 

as to which comments were sought and, 

in addition, in order to provide a basis 

for consideration of the questions, the 

ANPR included a draft of sample 

regulatory text (the ‘‘Sample Text’’). The 

questions posed by the ANPR were 

grouped under the following general 

categories: 

A. Capital Structure and Financial 

Assets. These questions included 

whether there should be limitations on 

the capital structures of securitizations 

that are eligible for safe harbor 

treatment, including whether the 

number of tranches should be limited 

and whether external credit support 

should be prohibited or limited. 

B. Disclosure. These questions 

included whether disclosures for private 

placements should be required to 

include the types of information and 

level of specificity applicable to public 

securitizations and inquiries as to the 

degree of disclosure and periodic 

reports that should be required, as well 

as whether broker, rating agency and 

other fees should be disclosed. 

C. Documentation and Record 

Keeping. These questions included 

whether securitization documentation 

should be required to include certain 

provisions relating to actions by 

servicers, such as requiring servicers to 

act for the benefit of all investors and 

commence loss mitigation within a 

specified time period, and whether 

there should be limits on the ability of 

servicers to make advances. 

D. Compensation. These questions 

included whether a portion of RMBS 

fees should be deferred and paid out 

over a number of years based on the 

performance of the financial assets and 

whether compensation to servicers 

should be required to take into account 

services provided and include 

incentives for servicing and loss 

mitigation actions that maximize the 

value of financial assets. 

E. Origination and Risk Retention. 

These questions included whether 

sponsors should be required to retain an 

economic interest in the credit risk of 

the financial assets, and whether a 

requirement that mortgage loans 

included in RMBS be originated more 

than twelve (12) months before being 

transferred for a securitization would be 

an effective way to align incentives to 

promote sound lending or, alternatively, 

whether a one (1) year hold back of 

proceeds due to the sponsor to fund 

repurchase requirements after a review 

of representations and warranties would 

better fulfill the goal of such alignment. 

In addition, the ANPR included 

questions relating to the adequacy of the 

scope of the safe harbor provisions, the 

effect of the change in accounting rules 

on participation transactions and certain 

other general questions. 

III. Summary of Comments 

The FDIC received 36 comment letters 

on the questions posed by the ANPR 

and on provisions of the Sample Text, 

and held one teleconference with 

interested parties at which details of the 

ANPR were discussed. The letters 

included comments from trade 

associations, banks, law firms, rating 

agencies, consumer advocates and 

investors, among others. 

Institutional investors and consumer 

advocates supported many of the 

proposed changes as responsive to the 

issues demonstrated in the current crisis 

by the prior model of securitization. 

Certain institutional investors 

commented specifically on the need for 

greater disclosures of loan level data 

and emphasized the value of disclosures 

and strong representations and 

warranties as important in allowing 

investors to understand and limit the 

ongoing risks in a securitization. 

Consumer advocate and investor 

comments also included support for risk 

retention and greater clarity in servicing 

responsibilities. 

A number of banks, law firms and 

industry trade organizations opposed 

the new conditions set forth in 

paragraph (b) of the Proposed Rule for 

a variety of reasons. Their comments in 

opposition to the conditions included 

disagreement that such requirements 

would serve to promote more long-term 

sustainability for loans and other 

financial assets originated by IDIs, and 

objections that the conditions would 

impose additional costs on IDIs and 

competitively disadvantage IDIs in 

relation to non-regulated securitization 

sponsors. Several commenters stated 

that the FDIC should not unilaterally 

adopt new conditions, and some urged 

the FDIC to act only on an interagency 

basis or following final Congressional 

action. 

These comments reflect a 

misunderstanding of the purpose of the 

conditions. The conditions are designed 

to provide greater clarity and 

transparency to allow a better ongoing 

evaluation of the quality of lending by 

banks and reduce the risks to the DIF 

from the opaque securitization 

structures and the poorly underwritten 

loans that led to the onset of the 

financial crisis. In addition, these 

comments fail to recognize that 

securitization as a viable liquidity tool 

in mortgage finance will not return 

without greater transparency and clarity 

because investors have experienced the 

difficulties provided by the existing 

model of securitization. However, 

greater transparency is not solely for 

investors but will serve to more closely 

tie the origination of loans to their longterm performance by requiring 

disclosure of that performance. 

Moreover, many of the conditions are 

supported by New Regulation AB and 

are reflected in proposed financial 

services legislation. 

Several commenters also objected to 

inclusion of certain conditions, 

especially ongoing requirements or 

subjective criteria, because they would 

make it more difficult for persons 

analyzing a securitization to conclude at 

the outset of the securitization whether 

the conditions to the safe harbor have 

been satisfied. Some commenters 

asserted that, as a result, it would be 

difficult for the rating agencies to delink the rating of a securitization from 

the rating of the sponsor. While the 

FDIC is not persuaded that rating 

agencies, which normally evaluate 

qualitative information, would not 

evaluate compliance with certain 

subjective criteria, the Proposed Rule 

has been drafted to tie disclosure and 

various other requirements to the 

contractual terms of the securitization. 

This should enable both rating agencies 

and investors to assess whether a 

transaction meets the conditions in the 

Proposed Rule. 

Comment letters also requested that 

the FDIC confirm that the safe harbor is 

not exclusive and, thus, that the failure 

of a securitization transaction to satisfy 

one or more safe harbor conditions 

would not make the financial assets 

transferred to a special purpose issuing 

entity subject to reclamation by a 

receiver. Commenters also requested 

that the FDIC confirm its agreement 

with the legal principle that the power 

to repudiate a contract is not a power to 

avoid asset transfers. As indicated 

above, the FDIC does not view the safe 

harbor as exclusive, but cannot provide 

comfort as to transactions that are not 

eligible for the safe harbor. The FDIC 

also recognizes that the power to 

repudiate a contract is not a power to 

recover assets that were previously sold 

and are no longer reflected on the books 

and records of an IDI. 

Several commenters stated that the 

new accounting treatment of assets 

transferred as part of a securitization 

should not be determinative of the 

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27476 Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 

FDIC’s treatment of such assets in an 

insolvency of a bank sponsor and that 

the Proposed Rule should focus instead 

on a legal analysis in determining 

whether a transfer of assets should be 

treated as a sale. Several commenters 

also objected to the proposal in the 

ANPR to treat as secured borrowings 

transfers that did not satisfy the 

requirements for sale accounting 

treatment. This position is not 

consistent with precedent. The 

Securitization Rule as adopted in 2000, 

as well as the FDIC’s longstanding 

evaluation of assets potentially subject 

to receivership powers, has addressed 

only the treatment of those assets by 

looking to their treatment under 

applicable accounting rules. This was 

explicitly stated in the Securitization 

Rule. In formulating the revised safe 

harbor, it is appropriate for the FDIC to 

consider whether assets are treated 

under GAAP as part of the IDI’s balance 

sheet when making the determination of 

how to treat assets in a conservatorship 

or receivership. 

The objections to a safe harbor based 

on a secured borrowing analysis are 

misplaced. Such safe harbor provides a 

high degree of certainty for 

securitization transfers that do not meet 

the requirements for off balance sheet 

treatment under the 2009 GAAP 

Modifications. Prior to the 

Securitization Rule, securitization 

transactions were typically viewed as 

either secured transactions or sales, and 

the analysis would rely on a perfected 

security interest in the financial assets 

that are subject to securitization. As a 

result, under the Proposed Rule, if the 

securitization does not meet the 

standards for off balance sheet 

treatment, irrespective of whether the 

transfer qualifies as a sale, the 

transaction would qualify for treatment 

as a secured transaction if it meets the 

requirements imposed on such 

transactions under the Proposed Rule. 

In this way, investors in securitization 

transactions that do not qualify for off 

balance sheet treatment may still receive 

benefits of expedited access to the 

securitized loans if they meet the 

conditions specified in the Proposed 

Rule. 

Comments relating to specific 

questions posed by the ANPR are 

discussed below in the description of 

the Proposed Rule. 

IV. The Proposed Rule 

The Proposed Rule would replace the 

Securitization Rule as amended by the 

Transition Rule. Paragraph (a) of the 

Proposed Rule sets forth definitions of 

terms used in the Proposed Rule. It 

retains many of the definitions 

previously used in the Securitization 

Rule but modifies or adds definitions to 

the extent necessary to accurately reflect 

current industry practice in 

securitizations. 

Paragraph (b) of the Proposed Rule 

imposes conditions to the availability of 

the safe harbor for transfers of financial 

assets to an issuing entity in connection 

with a securitization. These conditions 

make a clear distinction between the 

conditions imposed on RMBS from 

those imposed on securitizations for 

other asset classes. In the context of a 

conservatorship or receivership, the 

conditions applicable to all 

securitizations would improve overall 

transparency and clarity through 

disclosure and documentation 

requirements along with ensuring 

effective incentives for prudent lending 

by requiring that the payment of 

principal and interest be based 

primarily on the performance of the 

financial assets and by requiring 

retention of a share of the credit risk in 

the securitized loans. 

The conditions applicable to RMBS 

are more detailed and explicit and 

require additional capital structure 

changes, disclosures, and 

documentation, the establishment of a 

reserve and deferral of compensation. 

These standards are intended to address 

the factors that caused significant losses 

in current RMBS securitization 

structures as demonstrated in the recent 

crisis. Confidence can be restored in 

RMBS markets only through greater 

transparency and other structures that 

support sustainable mortgage 

origination practices and require 

increased disclosures. These standards 

respond to investor demands for greater 

transparency and alignment of the 

interests of parties to the securitization. 

In addition, they are generally 

consistent with industry efforts while 

taking into account proposed legislative 

and regulatory initiatives. 

Capital Structure and Financial Assets 

For all securitizations, the benefits of 

the Proposed Rule should be available 

only to securitizations that are readily 

understood by the market, increase 

liquidity of the financial assets and 

reduce consumer costs. Any resecuritizations (securitizations 

supported by other securitization 

obligations) would need to include 

adequate disclosure of the obligations, 

including the structure and the assets 

supporting each of the underlying 

securitization obligations and not just 

the obligations that are transferred in 

the re-securitization. This requirement 

would apply to all re-securitizations, 

including static re-securitizations as 

well as managed collateralized debt 

obligations. Securitizations that are 

unfunded or synthetic transactions 

would not be eligible for expedited 

consent under the Proposed Rule. To 

support sound lending, all 

securitizations would be required to 

have payments of principal and interest 

on the obligations primarily dependent 

on the performance of the financial 

assets supporting the securitization. 

Payments of principal or interest to 

investors could not be contingent on 

market or credit events that are 

independent of the assets supporting the 

securitization, except for interest rate or 

currency mismatches between the 

financial assets and the obligations to 

investors. 

For RMBS only, the capital structure 

of the securitization would be limited to 

six tranches or less to discourage 

complex and opaque structures. The 

most senior tranche could include timebased sequential pay or planned 

amortization sub-tranches, which are 

not viewed as separate tranches for the 

purpose of the six tranche requirement. 

This condition would not prevent an 

issuer from creating the economic 

equivalent of multiple tranches by resecuritizing one or more tranches, so 

long as they meet the conditions set 

forth in the rule, including adequate 

disclosure in connection with the resecuritization. In addition, RMBS could 

not include leveraged tranches that 

introduce market risks (such as 

leveraged super senior tranches). 

Although the financial assets transferred 

into an RMBS would be permitted to 

benefit from asset level credit support, 

such as guarantees (including 

guarantees provided by governmental 

agencies, private companies, or 

government-sponsored enterprises), cosigners, or insurance, the RMBS could 

not benefit from external credit support. 

The temporary payment of principal 

and interest, however, could be 

supported by liquidity facilities. These 

conditions are designed to limit both the 

complexity and the leverage of an RMBS 

and therefore the systemic risks 

introduced by them in the market. 

Comments in response to the ANPR 

expressed concern that a limitation on 

the number of tranches of an RMBS 

would stifle innovation and would 

negatively affect the ability of 

securitizations to meet investor 

objectives and maximize offering 

proceeds. In addition, commenters 

argued that there should be no 

restriction on external third party pool 

level credit support, while one 

commenter stated that guarantees in 

RMBS transactions should be permitted 

at the loan level only if issued by 

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7 12 U.S.C. 1821(e)(10). 

8 Institutions should verify and document the 

borrower’s income (both source and amount), assets 

and liabilities. For the majority of borrowers, 

institutions should be able to readily document 

income using recent W–2 statements, pay stubs, 

and/or tax returns. Stated income and reduced 

documentation loans should be accepted only if 

there are mitigating factors that clearly minimize 

the need for direct verification of repayment 

capacity. Reliance on such factors also should be 

documented. Mitigating factors might include 

situations where a borrower has substantial liquid 

reserves or assets that demonstrate repayment 

capacity and can be verified and documented by the 

lender. A higher interest rate is not considered an 

acceptable mitigating factor. 

regulated third parties with proven 

capacity to ensure prudent loan 

origination and satisfy their obligations. 

Commenters also requested that the 

Proposed Rule not include the provision 

that a securitization may not be an 

unfunded securitization or synthetic 

transaction. 

In formulating the Proposed Rule, the 

FDIC was mindful of the need to permit 

innovation and accommodate financing 

needs, and thus attempted to strike a 

balance between permitting multitranche structures for RMBS 

transactions, on the one hand, and 

promoting readily understandable 

securitization structures and limiting 

overleveraging of residential mortgage 

assets, on the other hand. 

The FDIC is of the view that 

permitting pool level, external credit 

support in an RMBS can lead to 

overleveraging of assets, as investors 

might focus on the credit quality of the 

credit support provider as opposed to 

the sufficiency of the financial asset 

pool to service the securitization 

obligations. 

Finally, although the Proposed Rule 

would exclude unfunded and synthetic 

securitizations from the safe harbor, the 

FDIC does not view the inclusion of 

existing credit lines that are not fully 

drawn in a securitization as causing 

such securitization to be an ‘‘unfunded 

securitization.’’ In addition, to the extent 

an unfunded or synthetic transaction 

qualifies for treatment as a qualified 

financial contract under section (11)(e) 

of the FDI Act, it would not need the 

benefits of the safe harbor provided in 

the Proposed Rule in an FDIC 

receivership.7

Disclosure 

For all securitizations, disclosure 

serves as an effective tool for increasing 

the demand for high quality financial 

assets and thereby establishing 

incentives for robust financial asset 

underwriting and origination practices. 

By increasing transparency in 

securitizations, the Proposed Rule 

would enable investors (which may 

include banks) to decide whether to 

invest in a securitization based on full 

information with respect to the quality 

of the asset pool and thereby provide 

additional liquidity only for sustainable 

origination practices. 

The data must enable investors to 

analyze the credit quality for the 

specific asset classes that are being 

securitized. The FDIC would expect 

disclosure for all issuances to include 

the types of information required under 

current Regulation AB (17 CFR 229.1100 

through 229.1123) or any successor 

disclosure requirements with the level 

of specificity that would apply to public 

issuances, even if the obligations are 

issued in a private placement or are not 

otherwise required to be registered. 

Securitizations that would qualify 

under this rule must include disclosure 

of the structure of the securitization and 

the credit and payment performance of 

the obligations, including the relevant 

capital or tranche structure and any 

liquidity facilities and credit 

enhancements. The disclosure would be 

required to include the priority of 

payments and any specific 

subordination features, as well as any 

waterfall triggers or priority of payment 

reversal features. The disclosure at 

issuance would also be required to 

include the representations and 

warranties made with respect to the 

financial assets and the remedies for 

breach of such representations and 

warranties, including any relevant 

timeline for cure or repurchase of 

financial assets, and policies governing 

delinquencies, servicer advances, loss 

mitigation and write offs of financial 

assets. The periodic reports provided to 

investors would be required to include 

the credit performance of the obligations 

and financial assets, including periodic 

and cumulative financial asset 

performance data, modification data, 

substitution and removal of financial 

assets, servicer advances, losses that 

were allocated to each tranche and 

remaining balance of financial assets 

supporting each tranche as well as the 

percentage coverage for each tranche in 

relation to the securitization as a whole. 

The FDIC anticipates that, where 

appropriate for the type of financial 

assets included the pool, monthly 

reports would also include asset level 

information that may be relevant to 

investors (e.g. changes in occupancy, 

loan delinquencies, defaults, etc.). 

Disclosure to investors would also be 

required to include the nature and 

amount of compensation paid to any 

mortgage or other broker, each servicer, 

rating agency or third-party advisor, and 

the originator or sponsor, and the extent 

to which any risk of loss on the 

underlying financial assets is retained 

by any of them for such securitization. 

Disclosure of changes to this 

information while obligations are 

outstanding would also be required. 

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. 

For RMBS, loan level data as to the 

financial assets securing the mortgage 

loans, such as loan type, loan structure, 

maturity, interest rate and location of 

property, would also be required to be 

disclosed by the sponsor. Sponsors of 

securitizations of residential mortgages 

would be required to affirm compliance 

with applicable statutory and regulatory 

standards for origination of mortgage 

loans, including that the mortgages in 

the securitization pool are underwritten 

at the fully indexed rate relying on 

documented income 8 and comply with 

existing supervisory guidance governing 

the underwriting of residential 

mortgages, including the Interagency 

Guidance on Non-Traditional Mortgage 

Products, October 5, 2006, and the 

Interagency Statement on Subprime 

Mortgage Lending, July 10, 2007, and 

such additional guidance applicable at 

the time of loan origination. 

The Proposed Rule would require 

sponsors to disclose a third party due 

diligence report on compliance with 

such standards and the representations 

and warranties made with respect to the 

financial assets. Finally, the Proposed 

Rule would require that the 

securitization documents require the 

disclosure by servicers of any 

ownership interest of the servicer or any 

affiliate of the servicer in other whole 

loans secured by the same real property 

that secures a loan included in the 

financial asset pool. This provision does 

not require disclosure of interests held 

by servicers or their affiliates in the 

securitization securities. This provision 

is intended to give investors information 

to evaluate potential servicer conflicts of 

interest that might impede the servicer’s 

actions to maximize value for the 

benefit of investors. 

Responses to questions in the ANPR 

concerning disclosure included requests 

that disclosure requirements be set forth 

in terms that are susceptible to 

verification of compliance at the time 

when the securitization securities are 

issued. Under the Proposed Rule, most 

of the disclosure provisions would 

require that the securitization 

documents require proper disclosure 

rather than making the disclosure itself 

a condition to eligibility for the safe 

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27478 Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 

harbor. Under these provisions, if 

required disclosure is not made, there 

would be a default under the 

securitization documents, but a 

transaction that otherwise qualified for 

the safe harbor would not be ineligible 

for the safe harbor on the basis of 

inadequate disclosure. 

Several letters requested that the FDIC 

refrain from adopting its own disclosure 

requirements and that private 

placements not be required to include 

the same degree of disclosure as is 

required for public securitizations. 

Concern was also expressed that loan 

level disclosure was inappropriate for 

certain asset classes, such as credit card 

receivables. Commenters also urged that 

the safe harbor should not require more 

information on re-securitizations than is 

required by the securities laws. 

Comments also opposed a requirement 

that sponsors affirm compliance with all 

statutory and regulatory standards for 

mortgage loan origination. Finally, the 

comments included a request that rating 

agency fees not be disclosed because of 

a concern that such disclosure would 

jeopardize the objectivity of the ratings 

process by making such information 

available to the rating agency analysts 

that rate securitizations. 

The Proposed Rule recognizes that 

loan level disclosure may not be 

appropriate for each type of asset class 

securitization. 

The FDIC believes that regardless of 

whether the securitization transaction is 

in the form of a private rather than 

public securities issuance, full 

disclosure to investors in such 

transaction is necessary. With respect to 

re-securitizations, the FDIC does not 

believe that there is a logical basis for 

requiring less disclosure than is 

required for original securitizations. For 

both securitizations and resecuritizations, the Proposed Rule 

would permit the omission of 

information that is not available to the 

sponsor or issuer after reasonable 

investigation so long as there is 

disclosure as to the types of information 

omitted and the reason for such 

omission. In particular, the FDIC is 

concerned that robust disclosure be 

provided in CDO transactions and that 

ongoing monthly reports are provided to 

investors in a securitization, whether or 

not there is an ongoing obligation for 

filing with respect to such securitization 

under the Securities Exchange Act of 

1934. 

Finally, the FDIC feels that disclosure 

of rating agency fees is very important 

to investors and that rating agencies can 

take appropriate internal measures to 

ensure that such disclosure does not 

impact the rating process. 

Documentation and Recordkeeping 

For all securitizations, the operative 

agreements are required to set forth all 

necessary rights and responsibilities of 

the parties, including but not limited to 

representations and warranties, ongoing 

disclosure requirements and any 

measures to avoid conflicts of interest. 

The contractual rights and 

responsibilities of each party to the 

transaction must provide each party 

with sufficient authority and discretion 

for such party to fulfill its respective 

duties under the securitization 

contracts. 

Additional requirements apply to 

RMBS to address a significant issue that 

has been demonstrated in the mortgage 

crisis by improving the authority of 

servicers to mitigate losses on mortgage 

loans consistent with maximizing the 

net present value of the mortgages, as 

defined by a standardized net present 

value analysis. Therefore, for RMBS, 

contractual provisions in the servicing 

agreement must provide servicers with 

the authority to modify loans to address 

reasonably foreseeable defaults and to 

take such other action as necessary or 

required to maximize the value and 

minimize losses on the securitized 

financial assets. The servicers are 

required to apply industry best practices 

related to asset management and 

servicing. 

The RMBS documents may not give 

control of servicing discretion to a 

particular class of investors. The 

documents must require that the 

servicer act for the benefit of all 

investors rather for the benefit of any 

particular class of investors. Consistent 

with the forgoing, the servicer must 

commence action to mitigate losses no 

later than ninety (90) days after an asset 

first becomes delinquent unless all 

delinquencies on such asset have been 

cured. A servicer must maintain 

sufficient records of its actions to permit 

appropriate review of its actions. 

The FDIC believes that a prolonged 

period of servicer advances in a market 

downturn misaligns servicer incentives 

with those of the RMBS investors. 

Servicing advances also serve to 

aggravate liquidity concerns, exposing 

the market to greater systemic risk. 

Occasional advances for late payments, 

however, are beneficial to ensure that 

investors are paid in a timely manner. 

To that end, the servicing agreement for 

RMBS should not require the primary 

servicer to advance delinquent 

payments by borrowers for more than 

three (3) payment periods unless 

financing or reimbursement facilities to 

fund or reimburse the primary servicers 

are available. However, foreclosure 

recoveries cannot serve as the ‘financing 

facility’ for repayment of advances. 

Comments on questions as to these 

provisions posed by the ANPR included 

statements that the safe harbor should 

not require the servicer to act for the 

benefit of all investors, and that the 

servicer should be permitted to act for 

a specified class of investors. In 

addition, concern was expressed that 

requiring servicer loss mitigation to 

maximize the net present value of the 

financial assets would unduly restrict 

the servicers. 

Several comments were received 

relating to whether servicers should be 

required to commence action to mitigate 

losses in connection with residential 

mortgage securitizations within 90 days 

after an asset first becomes delinquent 

and whether servicer advances should 

be limited to three payment periods. 

The comments included suggestions 

that there should be no loss mitigation 

provisions in the safe harbor, that no set 

period should be established, that 90 

days was too short, and that 90 days was 

too long. Responses relating to servicer 

advances included statements that the 

safe harbor should not include limits on 

servicer advances, and that a longer 

period for servicer advances should be 

permitted. One commenter suggested 

that servicers be given explicit authority 

to reduce principal and exercise 

forbearance as to principal payments, 

and that loan modification be required 

to be evaluated as a precondition to 

foreclosure. 

While the FDIC agrees that servicers 

should be given flexibility on how best 

to maximize the value of financial 

assets, it believes that it is essential that 

there be certain governing principles in 

RMBS transactions. Maximization of net 

present value is a widely accepted 

standard for mortgage loan workouts, 

and the FDIC believes that use of this 

standard will result in the highest value 

being obtained. The FDIC also believes 

that the Proposed Rule would give the 

servicer authority to reduce principal or 

exercise forbearance if such action 

would maximize the value of an asset, 

and expects that servicers will consider 

loan modification in evaluating how 

best to maximize value. 

The FDIC understands that it may not 

be possible to determine with absolute 

certainty the appropriate deadline for 

the commencement of servicer loss 

mitigation or the appropriate number of 

payment periods for which servicers can 

be required to make advances for which 

financing or reimbursement facilities are 

not available. However, the FDIC 

believes that a framework for 

sustainable securitizations must include 

certain deadlines and limits that address 

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issues identified in the current financial 

crisis, and that the loss mitigation 

deadline and servicer advance limits set 

forth in the Proposed Rule are 

appropriate. In this connection, it is 

important to note that action to mitigate 

losses may include contact with the 

borrower or other steps designed to 

return the asset to regular payments, but 

does not require initiation of foreclosure 

or other formal enforcement 

proceedings. 

Finally, the FDIC does not agree that 

sustainable securitizations would be 

promoted if sponsors are permitted to 

structure securitizations where the 

servicer does not act for all classes of 

investors. 

Compensation 

The compensation requirements of 

the Proposed Rule would apply only to 

RMBS. Due to the demonstrated issues 

in the compensation incentives in 

RMBS, in this asset class the Proposed 

Rule seeks to realign compensation to 

parties involved in the rating and 

servicing of residential mortgage 

securitizations. 

The securitization documents are 

required to provide that any fees 

payable credit rating agencies or similar 

third-party evaluation companies must 

be payable in part over the five (5) year 

period after the initial issuance of the 

obligations based on the performance of 

surveillance services and the 

performance of the financial assets, with 

no more than sixty (60) percent of the 

total estimated compensation due at 

closing. Thus payments to rating 

agencies must be based on the actual 

performance of the financial assets, not 

their ratings. 

A second area of concern is aligning 

incentives for proper servicing of the 

mortgage loans. Therefore, 

compensation to servicers must include 

incentives for servicing, including 

payment for loan restructuring or other 

loss mitigation activities, which 

maximizes the net present value of the 

financial assets in the RMBS. 

Commenters were divided on whether 

compensation to parties involved in a 

securitization should be deferred. 

Responses to the ANPR also stated that 

compensation to rating agencies should 

not be linked to performance of a 

securitization because such linkage 

would interfere with the neutral ratings 

process, and a rating agency expressed 

the concern that such linkage might give 

rating agencies an incentive to rate a 

transaction at a level that is lower than 

the level that the rating agency believes 

to be the appropriate level. Concern was 

also expressed that linkage of 

compensation to performance of the 

securitization could cause payment of 

full compensation to one category of 

securitization participants to be 

dependent in some measure on the 

performance of a different category of 

securitization participants. Comments 

also included an objection that if 

deferred performance based 

compensation was imposed on certain 

securitization participants, such as 

underwriters, these participants would 

be subject to risks that they had not 

expected to assume. Others commented 

that there should be incentives for 

servicers to modify loans rather than to 

foreclose. Concern was also expressed 

as to the complexity of reserving for 

deferred compensation and developing 

cash flow models relating to servicing 

incentives. Finally, concern was 

expressed that giving servicers 

incentives might lead to additional 

assets being consolidated on bank 

balance sheets. 

Based on the comments provided, the 

Proposed Rule imposes the deferred 

compensation requirement only on fees 

and other compensation to rating 

agencies or similar third-party 

evaluation companies. The FDIC notes 

that rating agencies have procedures in 

place to protect analytic independence 

and ensure the integrity of their ratings. 

Compensation deferral may have certain 

ramifications on internal rating agency 

processes but should not affect the 

ratings or surveillance process. Finally, 

the FDIC is mindful of the proposal to 

encourage loan modification rather than 

foreclosure and has spearheaded efforts 

in this area. The Proposed Rule would 

include loan restructuring activities as 

one of the categories of loss mitigation 

activities for which incentive 

compensation could be payable to 

servicers. 

Origination and Retention Requirements 

To provide further incentives for 

quality origination practices, several 

conditions address origination and 

retention requirements for all 

securitizations. For all securitizations, 

the sponsor must retain an economic 

interest in a material portion, defined as 

not less than five (5) percent, of the 

credit risk of the financial assets. The 

retained interest may be either in the 

form of an interest of not less than five 

(5) percent in each credit tranche or in 

a representative sample of the 

securitized financial assets equal to not 

less than five (5) percent of the principal 

amount of the financial assets at 

transfer. By requiring that the sponsor 

retain an economic interest in the asset 

pool without hedging the risk of such 

portion, the sponsor would be less 

likely to originate low quality financial 

assets. 

The Proposed Rule would require that 

RMBS securitization documents require 

that a reserve fund be established in an 

amount equal to at least five (5) percent 

of the cash proceeds due to the sponsor 

and that this reserve be held for twelve 

(12) months to cover any repurchases 

required for breaches of representations 

and warranties. 

In addition, residential mortgage 

loans in an RMBS must comply with all 

statutory, regulatory and originator 

underwriting standards in effect at the 

time of origination. Residential 

mortgages must be underwritten at the 

fully indexed rate and rely on 

documented income and comply with 

all existing supervisory guidance 

governing the underwriting of 

residential mortgages, including the 

Interagency Guidance on NonTraditional Mortgage Products, October 

5, 2006, and the Interagency Statement 

on Subprime Mortgage Lending, July 10, 

2007, and such additional regulations or 

guidance applicable at the time of loan 

origination. 

Many commenters objected to the 

imposition of a 5 percent risk retention 

requirement, while other commenters 

suggested that a higher risk retention 

requirement might be acceptable. 

Objections included reference to the 

costs associated with this requirement, 

the fact that the requirement eliminates 

the ability of the originating bank to 

transfer all of the credit risk, and 

assertions that the requirement would 

constrict mortgage credit and would 

discourage banks from securitizing low 

risk assets and high quality jumbo prime 

loans. Commenters also objected that 

the retention requirements could cause 

securitizations that might otherwise 

qualify for sale accounting treatment 

under the 2009 GAAP Modifications to 

not qualify for that treatment. Many 

comment letters stated that the goals 

sought to be achieved by risk retention 

could be better achieved by the 

establishment of minimum financial 

asset underwriting standards. Other 

suggestions included establishing a 

reserve to support the repurchase 

obligations of a sponsor. 

Commenters also suggested that the 

amount of risk to be retained should 

vary based on the asset type. Certain 

commenters suggested that certain types 

of assets, such as prudently 

underwritten loans or prime credit 

mortgage loans, be exempted from the 

retention requirement. 

Concern was also expressed that 

attaching an anti-hedging requirement 

to the retained portion would interfere 

with proper credit risk management 

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27480 Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 

9See, 12 U.S.C. 1823(e). 

practices. Comments also included the 

concern that requiring that all assets 

have been originated in compliance 

with all applicable underwriting 

standards could make the safe harbor 

unachievable. 

Finally, many comments were 

received that opposed a 12 month 

seasoning requirement for RMBS loans 

that was included in the options set 

forth in the ANPR. 

The FDIC believes that the sponsor 

must be required to retain an economic 

interest in the credit risk relating to each 

credit tranche or in a representative 

sample of financial assets in order to 

help ensure quality origination 

practices. A risk retention requirement 

that did not cover all types of exposure 

would not be sufficient to create an 

incentive for quality underwriting at all 

levels of the securitization. The recent 

economic crisis made clear that, if 

quality underwriting is to be assured, it 

will require true risk retention by 

sponsors, and that the existence of 

representations and warranties or 

regulatory standards for underwriting 

will not alone be sufficient. The FDIC 

believes that the 5 percent across the 

board requirement for all types of assets 

is appropriate, and notes that it is 

consistent with the requirements set 

forth in New Regulation AB. 

Based on the comments objecting to 

the seasoning requirement, the Proposed 

Rule includes the reserve requirement 

in lieu of a seasoning requirement. 

With respect to the concern expressed 

that the safe harbor may be 

unachievable if all assets included in an 

RMBS must comply with all applicable 

underwriting standards, the FDIC 

understands that during the origination 

process it is difficult to assure 

compliance with all origination and 

regulatory standards. While the 

Proposed Rule would require that the 

financial assets be originated in 

compliance with all regulatory 

standards, the FDIC does not view 

technical non-compliance with some 

standards, or occasional limited noncompliance with origination standards, 

as affecting the availability of the safe 

harbor. 

Finally, while the Proposed Rule 

provides that the retained interest 

cannot be hedged during the term of the 

securitization, the FDIC does not regard 

this prohibition as precluding hedging 

the interest rate or currency risks 

associated with the retained portion of 

the securitization tranches. Rather, the 

FDIC views this prohibition as being 

directed at the credit risk of the 

transaction, to ensure that the originator 

properly underwrites the financial 

assets. 

Additional Conditions 

Paragraph (c) of the Proposed Rule 

includes general conditions for all 

securitizations and the transfer of 

financial assets. These conditions also 

include requirements that are consistent 

with good banking practices and are 

necessary to make the transactions 

comply with established banking law.9

The transaction should be an armslength, bona fide securitization 

transaction and the obligations cannot 

be sold to an affiliate or insider. The 

securitization agreements must be in 

writing, approved by the board of 

directors of the bank or its loan 

committee (as reflected in the minutes 

of a meeting of the board of directors or 

committee), and have been, 

continuously, from the time of 

execution, in the official record of the 

bank. The securitization also must have 

been entered into in the ordinary course 

of business, not in contemplation of 

insolvency and with no intent to hinder, 

delay or defraud the bank or its 

creditors. 

The Proposed Rule would apply only 

to transfers made for adequate 

consideration. The transfer and/or 

security interest would need to be 

properly perfected under the UCC or 

applicable state law. The FDIC 

anticipates that it would be difficult to 

determine whether a transfer complying 

with the Proposed Rule is a sale or a 

security interest, and therefore expects 

that a security interest would be 

properly perfected under the UCC, 

either directly or as a backup. 

The sponsor would be required to 

separately identify in its financial asset 

data bases the financial assets 

transferred into a securitization and 

maintain an electronic or paper copy of 

the closing documents in a readily 

accessible form. The sponsor would also 

be required to maintain a current list of 

all of its outstanding securitizations and 

issuing entities, and the most recent 

Form 10–K or other periodic financial 

report for each securitization and 

issuing entity. If acting as servicer, 

custodian or paying agent, the sponsor 

would not be permitted to commingle 

amounts received with respect to the 

financial assets with its own assets 

except for the time necessary to clear 

payments received, and in event for 

more than two days. The sponsor would 

be required to make these records 

available to the FDIC promptly upon 

request. This requirement would 

facilitate the timely fulfillment of the 

receiver’s responsibilities upon 

appointment and will expedite the 

receiver’s analysis of securitization 

assets. This would also facilitate the 

receiver’s analysis of the bank’s assets 

and determination of which assets have 

been securitized and are therefore 

potentially eligible for expedited access 

by investors. 

In addition, the Proposed Rule would 

require that the transfer of financial 

assets and the duties of the sponsor as 

transferor be evidenced by an agreement 

separate from the agreement governing 

the sponsor’s duties, if any, as servicer, 

custodian, paying agent, credit support 

provider or in any capacity other than 

transferor. 

The Safe Harbor 

Paragraph (d)(1) of the Proposed Rule 

would continue the safe harbor 

provision that was provided by the 

Securitization Rule with respect to 

participations so long as the 

participation satisfies the conditions for 

sale accounting treatment set forth by 

generally accepted accounting 

principles. 

Paragraph (d)(2) of the Proposed Rule 

provides that for any participation or 

securitization (i) for which transfers of 

financial assets made or (ii) for 

revolving trusts, for which obligations 

were issued, on or before September 30, 

2010, the FDIC as conservator or 

receiver will not, in the exercise of its 

statutory authority to disaffirm or 

repudiate contracts, reclaim, recover, or 

recharacterize as property of the 

institution or the receivership any such 

transferred financial assets 

notwithstanding that such transfer does 

not satisfy all conditions for sale 

accounting treatment under generally 

accepted accounting principles as 

effective subsequent to November 15, 

2009, so long as such transfer satisfied 

the conditions for sale accounting 

treatment as set forth in generally 

accepted accounting principles in effect 

prior to November 15, 2009. This 

provision is intended to continue the 

safe harbor provided by the Transition 

Rule. 

Paragraph (d)(3) addresses transfers of 

financial assets made in connection 

with a securitization for which transfers 

of financial assets were made after 

September 30, 2010 or revolving trusts 

for which obligations were issued after 

September 30, 2010, that satisfy the 

conditions for sale accounting treatment 

under GAAP in effect for reporting 

periods after November 15, 2009. For 

such securitizations, the FDIC as 

conservator or receiver will not, in the 

exercise of its statutory authority to 

disaffirm or repudiate contracts, 

reclaim, recover, or recharacterize as 

property of the institution or the 

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10 12 U.S.C. 1821(e)(13)(A)). 

receivership any such transferred 

financial assets, provided that such 

securitization complies with the 

conditions set forth in paragraphs (b) 

and (c) of the Proposed Rule. 

Paragraph (d)(4) of the Proposed Rule 

addresses transfers of financial assets in 

connection with a securitization for 

which transfers of financial assets were 

made after September 30, 2010 or 

revolving trusts for which obligations 

were issued after September 30, 2010, 

that satisfy the conditions set forth in 

paragraphs (b) and (c), but where the 

transfer does not satisfy the conditions 

for sale accounting treatment under 

GAAP in effect for reporting periods 

after November 15, 2009. Clause (A) 

provides that if there is a monetary 

default which remains uncured for ten 

(10) business days after actual delivery 

of a written request to the FDIC to 

exercise contractual rights because of 

such default, the FDIC consents to the 

exercise of such contractual rights, 

including any rights to obtain 

possession of the financial assets or the 

exercise of self-help remedies as a 

secured creditor or liquidating properly 

pledged financial assets by the 

investors, provided that no involvement 

of the receiver or conservator is 

required. This clause also provides that 

the consent to the exercise of such 

contractual rights shall serve as full 

satisfaction for all amounts due. 

Clause (B) provides that if the FDIC as 

conservator or receiver to an IDI 

provides a written notice of repudiation 

of the securitization agreement pursuant 

to which assets were transferred and the 

FDIC does not pay the damages due by 

reason of such repudiation within ten 

(10) business days following the 

effective date of the notice, the FDIC 

consents to the exercise of any 

contractual rights, including any rights 

to obtain possession of the financial 

assets or the exercise of self-help 

remedies as a secured creditor or 

liquidating properly pledged financial 

assets by the investors, provided that no 

involvement of the receiver or 

conservator is required. Clause (B) also 

provides that the damages due for these 

purposes shall be an amount equal to 

the par value of the obligations 

outstanding on the date of receivership 

less any payments of principal received 

by the investors to the date of 

repudiation, and that upon receipt of 

such payment the investors’ liens on the 

financial assets shall be released. 

Comments as to the scope of the safe 

harbor, including a comment from one 

of the rating agencies, expressed 

concern with the risk of repudiation by 

the FDIC, in particular, the risk that the 

FDIC would repudiate an issuer’s 

securitization obligations and liquidate 

the financial assets at a time when the 

market value of such assets was less 

than the amount of the outstanding 

obligations owed to investors, thus 

exposing investors to market value risks 

relating to the securitization asset pool. 

The Proposed Rule addresses this 

concern. It clarifies that repudiation 

damages would be equal to the par 

value of the obligations as of the date of 

receivership less payments of principal 

received by the investors to the date of 

repudiation. The Proposed Rule also 

provides that the FDIC consents to the 

exercise of remedies by investors, 

including self-help remedies as secured 

creditors, in the event that the FDIC 

repudiates a securitization transfer 

agreement and does not pay damages in 

such amount within ten business days 

following the effective date of notice of 

repudiation. Thus, if the FDIC 

repudiates and the investors are not 

paid the par value of the securitization 

obligations, they will be permitted to 

obtain the asset pool. Accordingly, 

exercise by the FDIC of its repudiation 

rights will not expose investors to 

market value risks relating to the asset 

pool. 

The comments also included a request 

that the safe harbor not condition the 

FDIC’s consent to the exercise of 

secured creditor remedies on there 

being no involvement of the receiver or 

conservator. The FDIC does not believe 

that the condition that no involvement 

of the receiver of conservator be 

required in connection with the exercise 

of secured creditor remedies should be 

of concern to investors, because the 

provision should not be understood to 

encompass ordinary course consents or 

transfers of financial asset related 

documentation needed to facilitate 

customary remedies as to the collateral. 

Comments also included concern that 

non-proportionate participation 

arrangements, such as LIFO 

participations, entered into after 

September 30, 2010, that do not satisfy 

the criteria for ‘‘participating interests’’ 

under the 2009 GAAP Modifications 

would no longer qualify for sale 

treatment because the safe harbor is 

available only to participations which 

satisfy sale accounting treatment. 

Because the vast majority of 

participations are expected to satisfy the 

sale accounting requirement, the 

Proposed Rule includes only 

participations that satisfy the sale 

accounting requirements. However, the 

FDIC recognizes that this formulation 

may exclude certain types of 

participations from eligibility for the 

safe harbor and is requesting more 

detailed comments on how it could 

address these type of participations in a 

manner that does not expand the safe 

harbor inappropriately. 

Consent to Certain Payments and 

Servicing 

Paragraph (e) provides that, during 

the stay period imposed by 12 U.S.C. 

1821(e)(13)(C) and during the period 

specified in subparagraph (d)(4)(A) prior 

to any payment of damages or consent 

under 12 U.S.C. 1821(e)(13)(C) to the 

exercise of any contractual rights, the 

FDIC as conservator or receiver of the 

sponsor consents to the making of 

required payments to the investors in 

accordance with the securitization 

documents, except for provisions that 

take effect upon the appointment of the 

receiver or conservator, and to any 

servicing activity required in 

furtherance of the securitization, 

(subject to the FDIC’s rights to repudiate 

such agreements) with respect to the 

underlying financial assets in 

connection with securitizations that 

meet the conditions set forth in 

paragraphs (b) and (c) of the Proposed 

Rule. 

Responses to the ANPR included a 

request that the safe harbor state 

specifically that the FDIC will make 

payments prior to repudiation, rather 

than merely consenting to payments to 

the investors in accordance with the 

securitization documents. The FDIC 

does not believe that addition of this 

provision is necessary. Unless the FDIC 

repudiates an agreement, as successor to 

the obligations of an IDI it would 

continue to perform the IDI’s obligations 

under the securitization documents. 

Therefore the servicer, on behalf of the 

FDIC, in its capacity as receiver or 

conservator, would apply the payments 

received on financial assets to 

securitization obligations as required 

under the securitization documents. 

Finally, the comments included a 

request that provisions addressing the 

making of payments during the stay 

period not be limited to originally 

scheduled payments of principal and 

interest. In response to these comments, 

the Proposed Rule was drafted to permit 

the making of required payments in 

accordance with the securitization 

documents, excluding any such 

payments arising on account of 

insolvency or the appointment of a 

receiver or conservator. Under the 

Federal Deposit Insurance Act, such 

ipso facto clauses are unenforceable.10

Miscellaneous 

Paragraph (f) requires that any party 

requesting the FDIC’s consent pursuant 

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27482 Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 

to paragraph (d)(4), provide notice to the 

FDIC together with a statement of the 

basis upon the request is made, together 

with copies of all documentation 

supporting the request. This would 

include a copy of the applicable 

agreements (such as the transfer 

agreement and the security agreement) 

and of any applicable notices under the 

agreements. 

Paragraph (g) of the Proposed Rule 

provides that the conservator or receiver 

will not seek to avoid an otherwise 

legally enforceable agreement that is 

executed by an insured depository 

institution in connection with a 

securitization solely because the 

agreement does not meet the 

‘‘contemporaneous’’ requirement of 12 

U.S.C. 1821(d)(9), 1821(n)(4)(I), or 

1823(e). 

Paragraph (h) of the Proposed Rule 

would provide that the consents set 

forth in the Proposed Rule would not 

act to waive or relinquish any rights 

granted to the FDIC in any capacity, 

pursuant to any other applicable law or 

any agreement or contract except the 

securitization transfer agreement or any 

relevant security agreements, and 

nothing contained in the section would 

alter the claims priority of the 

securitized obligations. 

Paragraph (i) provides that the 

Proposed Rule does not authorize, and 

shall not be construed as authorizing the 

waiver of the prohibitions in 12 U.S.C. 

1825(b)(2) against levy, attachment, 

garnishment, foreclosure, or sale of 

property of the FDIC, nor does it 

authorize nor shall it be construed as 

authorizing the attachment of any 

involuntary lien upon the property of 

the FDIC. The Proposed Rule should not 

be construed as waiving, limiting or 

otherwise affecting the rights or powers 

of the FDIC to take any action or to 

exercise any power not specifically 

mentioned, including but not limited to 

any rights, powers or remedies of the 

FDIC regarding transfers taken in 

contemplation of the institution’s 

insolvency or with the intent to hinder, 

delay or defraud the institution or the 

creditors of such institution, or that is 

a fraudulent transfer under applicable 

law. 

The right to consent under 12 U.S.C. 

1821(e)(13)(C) may not be assigned or 

transferred to any purchaser of property 

from the FDIC, other than to a 

conservator or bridge bank. The 

Proposed Rule could be repealed by the 

FDIC upon 30 days notice provided in 

the Federal Register, but any repeal 

would not apply to any issuance that 

complied with the Proposed Rule before 

such repeal. 

V. Solicitation of Comments 

The FDIC is soliciting comments on 

all aspects of the Proposed Rule. The 

FDIC specifically requests comments 

responding to the following: 

1. Does the Proposed Rule treatment 

of participations provide a sufficient 

safe harbor to address most needs of 

participants? Are there changes to the 

Proposed Rule that would expand 

protection different types of 

participations issued by IDIs? 

2. Is there a way to differentiate 

among participations that are treated as 

secured loans by the 2009 GAAP 

Modifications? Should the safe harbor 

consent apply to such participations? Is 

there a concern that such changes may 

deplete the assets of an IDI because they 

would apply to all participations? 

3. Is the transition period to 

September 30, 2010, sufficient to 

implement the changes required by the 

conditions identified by Paragraph (b) 

and (c)? In light of New Regulation AB, 

how does this transition period impact 

existing shelf registrations? 

4. Does the capital structure for RMBS 

identified by paragraph (b)(1)(ii)(A) 

provide for a structure that will allow 

for effective securitization of wellunderwritten mortgage loan assets? Does 

it create any specific issues for specific 

mortgage assets? 

5. Do the disclosure obligations for all 

securitizations identified by paragraph 

(b)(2) meet the needs of investors? Are 

the disclosure obligations for RMBS 

identified by paragraph (b)(2) sufficient? 

Are there additional disclosure 

requirements that should be imposed to 

create needed transparency? How can 

more standardization in disclosures and 

in the format of presentation of 

disclosures be best achieved? 

6. Do the documentation requirements 

in paragraph (b)(3) adequately describe 

that rights and responsibilities of the 

parties to the securitization that are 

required? Are there other or different 

rights and responsibilities that should 

be required? 

7. Do the documentation requirements 

applicable only to RMBS in paragraph 

(b)(3) adequately describe the 

authorities necessary for servicers? 

Should similar requirements be applied 

to other asset classes? 

8. Are the servicer advance provisions 

applicable only to RMBS in paragraphs 

(b)(3)(ii)(A) effective to provide effective 

incentives for servicers to maximize the 

net present value of the serviced assets? 

Do these provisions create any 

difficulties in application? Are similar 

provisions appropriate for other asset 

classes? 

9. Is the limitation on servicer interest 

applicable only to RMBS in paragraph 

(b)(3)(ii)(C) effective to minimize 

servicer conflicts of interest? Does this 

provision create any difficulties in 

application? Are similar provisions 

appropriate for other asset classes? 

10. Are the compensation 

requirements applicable only to RMBS 

in paragraph (b)(4) effective to align 

incentives of all parties to the 

securitization for the long-term 

performance of the financial assets? Are 

these requirements specific enough for 

effective application? Are there 

alternatives that would be more 

effective? Should similar provisions be 

applied to other asset classes? 

11. Are the origination or retention 

requirements of paragraph (b)(5) 

appropriate to support sustainable 

securitization practices? If not, what 

adjustments should be made? 

12. Is the requirement that a reserve 

fund be established to provide for 

repurchases for breaches of 

representations and warranties an 

effective way to align incentives to 

promote sound lending? What are the 

costs and benefits of this approach? 

What alternatives might provide a more 

effective approach? 

13. Is retention by the sponsor of a 5 

percent ‘‘vertical strip’’ of the 

securitization adequate to protect 

investors? Should any hedging strategies 

or transfers be allowed? 

14. Do you have any other comments 

on the conditions imposed by 

paragraphs (b) and (c)? 

15. Is the scope of the safe harbor 

provisions in paragraph (d) adequate? If 

not, what changes would you suggest? 

16. Do the provisions of paragraph 

(d)(4) adequately address concerns 

about the receiver’s monetary default 

under the securitization document or 

repudiation of the transaction? 

17. Could transactions be structured 

on a de-linked basis given the 

clarification provided in paragraph 

(d)(4)? 

18. Do the provisions of paragraph (e) 

provide adequate clarification of the 

receiver’s agreement to pay monies due 

under the securitization until monetary 

default or repudiation? 

VI. Regulatory Procedure 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act, 5 

U.S.C. 601–612, requires an agency to 

provide an Initial Regulatory Flexibility 

Analysis with a proposed rule, unless 

the agency certifies that the rule would 

not have a significant economic impact 

on a substantial number of small 

entities. 5 U.S.C. 603–605. The FDIC 

hereby certifies that this proposed rule 

would not have a significant economic 

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Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 27483 

impact on a substantial number of small 

entities, as that term applies to insured 

depository institutions. 

B. Paperwork Reduction Act 

This proposed rule contains new 

information collection requirements 

subject to the Paperwork Reduction Act 

(PRA). The FDIC will submit a request 

for review and approval of a collection 

of information to the Office of 

Management and Budget (OMB) 

regulation, 5 CFR 1320.13. 

The proposed burden estimates for 

the applications are as follows: 

1. 10K annual report 

Non Reg AB Compliant: 

Estimated Number of Respondents: 

473. 

Affected Public: FDIC-insured 

depository institutions. 

Frequency of Response: 1 time per 

year. 

Average time per response: 36 hours. 

Estimated Annual Burden: 17,028 

hours. 

Reg AB Compliant: 

Estimated Number of Respondents: 

203. 

Affected Public: FDIC-insured 

depository institutions. 

Frequency of Response: 1 time per 

year. 

Average time per response: 6 hours. 

Estimated Annual Burden: 1,218 

hours. 

2. 8K—Disclosure Form 

Non Reg AB Compliant: 

Estimated Number of Respondents: 

473. 

Affected Public: FDIC-insured 

depository institutions. 

Frequency of Response: 2 times per 

year. 

Estimated Number of Annual 

Responses: 946. 

Average time per response: 6 hours. 

Estimated Annual Burden: 5,676 

hours. 

Reg AB Compliant: 

Estimated Number of Respondents: 

203. 

Affected Public: FDIC-insured 

depository institutions. 

Frequency of Response: 2 times per 

year. 

Estimated Number of Annual 

Responses: 406. 

Average time per response: 1 hour. 

Estimated Annual Burden: 406 hours. 

3. 10D Reports 

Non Reg AB Compliant: 

Estimated Number of Respondents: 

473. 

Affected Public: FDIC-insured 

depository institutions. 

Frequency of Response: 5 times per 

year. 

Estimated Number of Annual 

Responses: 2,365. 

Average time per response: 36 hours. 

Estimated Annual Burden: 85,140 

hours. 

Reg AB Compliant: 

Estimated Number of Respondents: 

203. 

Affected Public: FDIC-insured 

depository institutions. 

Frequency of Response: 5 times per 

year. 

Estimated Number of Annual 

Responses: 1,015. 

Average time per response: 36 hours. 

Estimated Annual Burden: 36,540 

hours. 

The FDIC invites the general public to 

comment on: (1) Whether this collection 

of information is necessary for the 

proper performance of the FDIC’s 

functions, including whether the 

information has practical utility; (2) the 

accuracy of the estimates of the burden 

of the information collection, including 

the validity of the methodologies and 

assumptions used; (3) ways to enhance 

the quality, utility, and clarity of the 

information to be collected; and (4) 

ways to minimize the burden of the 

information collection on respondents, 

including through the use of automated 

collection techniques or other forms of 

information technology; and (5) 

estimates of capital or start up costs, and 

costs of operation, maintenance and 

purchase of services to provide the 

information. In the interim, interested 

parties are invited to submit written 

comments by any of the following 

methods. All comments should refer to 

the name and number of the collection: 

• http://www.FDIC.gov/regulations/ 

laws/federal/propose.html. 

• E-mail: comments@fdic.gov. 

Include the name and number of the 

collection in the subject line of the 

message. 

• Mail: Gary A. Kuiper (202–898– 

3877), Counsel, Federal Deposit 

Insurance Corporation, 550 17th Street, 

NW., Washington, DC 20429. 

• Hand Delivery: Comments may be 

hand-delivered to the guard station at 

the rear of the 550 17th Street Building 

(located on F Street), on business days 

between 7 a.m. and 5 p.m. 

A copy of the comments may also be 

submitted to the OMB Desk Officer for 

the FDIC, Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, New 

Executive Office Building, Room 3208, 

Washington, DC 20503. 

List of Subjects in 12 CFR 360.6 

Banks, Banking, Bank deposit 

insurance, Holding companies, National 

banks, Participations, Reporting and 

recordkeeping requirements, Savings 

associations, Securitizations. 

For the reasons stated above, the 

Board of Directors of the Federal 

Deposit Insurance Corporation proposes 

to amend 12 CFR part 360 as follows: 

PART 360—RESOLUTION AND 

RECEIVERSHIP RULES 

1. The authority citation for part 360 

continues to read as follows: 

Authority: 12 U.S.C. 1821(d)(1), 

1821(d)(10)(C), 1821(d)(11), 1821(e)(1), 

1821(e)(8)(D)(i), 1823(c)(4), 1823(e)(2); Sec. 

401(h), Pub. L. 101–73, 103 Stat. 357. 

2. Revise § 360.6 to read as follows: 

§ 360.6 Treatment of financial assets 

transferred in connection with a 

securitization or participation. 

(a) Definitions. (1) Financial asset 

means cash or a contract or instrument 

that conveys to one entity a contractual 

right to receive cash or another financial 

instrument from another entity. 

(2) Investor means a person or entity 

that owns an obligation issued by an 

issuing entity. 

(3) Issuing entity means an entity 

created at the direction of a sponsor that 

owns a financial asset or financial assets 

or has a perfected security interest in a 

financial asset or financial assets and 

issues obligations supported by such 

asset or assets. Issuing entities may 

include, but are not limited to, 

corporations, partnerships, trusts, and 

limited liability companies and are 

commonly referred to as special purpose 

vehicles or special purpose entities. To 

the extent a securitization is structured 

as a two-step transfer, the term issuing 

entity would include both the issuer of 

the obligations and any intermediate 

entities that may be a transferee. 

(4) Monetary default means a default 

in the payment of principal or interest 

when due following the expiration of 

any cure period. 

(5) Obligation means a debt or equity 

(or mixed) beneficial interest or security 

that is primarily serviced by the cash 

flows of one or more financial assets or 

financial asset pools, either fixed or 

revolving, that by their terms convert 

into cash within a finite time period, or 

upon the disposition of the underlying 

financial assets, any rights or other 

assets designed to assure the servicing 

or timely distributions of proceeds to 

the security holders issued by an issuing 

entity. The term does not include any 

instrument that evidences ownership of 

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27484 Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 

the issuing entity, such as LLC interests, 

common equity, or similar instruments. 

(6) Participation means the transfer or 

assignment of an undivided interest in 

all or part of a financial asset, that has 

all of the characteristics of a 

‘‘participating interest,’’ from a seller, 

known as the ‘‘lead,’’ to a buyer, known 

as the ‘‘participant,’’ without recourse to 

the lead, pursuant to an agreement 

between the lead and the participant. 

‘‘Without recourse’’ means that the 

participation is not subject to any 

agreement that requires the lead to 

repurchase the participant’s interest or 

to otherwise compensate the participant 

upon the borrower’s default on the 

underlying obligation. 

(7) Securitization means the issuance 

by an issuing entity of obligations for 

which the investors are relying on the 

cash flow or market value 

characteristics and the credit quality of 

transferred financial assets (together 

with any external credit support 

permitted by this section) to repay the 

obligations. 

(8) Servicer means any entity 

responsible for the management or 

collection of some or all of the financial 

assets on behalf of the issuing entity or 

making allocations or distributions to 

holders of the obligations, including 

reporting on the overall cash flow and 

credit characteristics of the financial 

assets supporting the securitization to 

enable the issuing entity to make 

payments to investors on the 

obligations. 

(9) Sponsor means a person or entity 

that organizes and initiates a 

securitization by transferring financial 

assets, either directly or indirectly, 

including through an affiliate, to an 

issuing entity, whether or not such 

person owns an interest in the issuing 

entity or owns any of the obligations 

issued by the issuing entity. 

(10) Transfer means: 

(i) The conveyance of a financial asset 

or financial assets to an issuing entity; 

or 

(ii) The creation of a security interest 

in such asset or assets for the benefit of 

the issuing entity. 

(b) Coverage. This section shall apply 

to securitizations that meet the 

following criteria: 

(1) Capital structure and financial 

assets. The documents creating the 

securitization must clearly define the 

payment structure and capital structure 

of the transaction. 

(i) The following requirement applies 

to all securitizations: 

(A) The securitization shall not 

consist of re-securitizations of 

obligations or collateralized debt 

obligations unless the disclosures 

required in paragraph (b)(2) of this 

section are available to investors for the 

underlying assets supporting the 

securitization at initiation and while 

obligations are outstanding; and 

(B) The payment of principal and 

interest on the securitization obligation 

must be primarily based on the 

performance of financial assets that are 

transferred to the issuing entity and, 

except for interest rate or currency 

mismatches between the financial assets 

and the obligations, shall not be 

contingent on market or credit events 

that are independent of such financial 

assets. The securitization may not be an 

unfunded securitization or a synthetic 

transaction. 

(ii) The following requirements apply 

only to securitizations in which the 

financial assets include any residential 

mortgage loans: 

(A) The capital structure of the 

securitization shall be limited to no 

more than six credit tranches and 

cannot include ‘‘sub-tranches,’’ grantor 

trusts or other structures. 

Notwithstanding the foregoing, the most 

senior credit tranche may include timebased sequential pay or planned 

amortization sub-tranches; and 

(B) The credit quality of the 

obligations cannot be enhanced at the 

issuing entity or pool level through 

external credit support or guarantees. 

However, the temporary payment of 

principal and/or interest may be 

supported by liquidity facilities, 

including facilities designed to permit 

the temporary payment of interest 

following appointment of the FDIC as 

conservator or receiver. Individual 

financial assets transferred into a 

securitization may be guaranteed, 

insured or otherwise benefit from credit 

support at the loan level through 

mortgage and similar insurance or 

guarantees, including by private 

companies, agencies or other 

governmental entities, or governmentsponsored enterprises, and/or through 

co-signers or other guarantees. 

(2) Disclosures. The documents shall 

require that the sponsor, issuing entity, 

and/or servicer, as appropriate, shall 

make available to investors, information 

describing the financial assets, 

obligations, capital structure, 

compensation of relevant parties, and 

relevant historical performance data as 

follows: 

(i) The following requirements apply 

to all securitizations: 

(A) The documents shall require that, 

prior to issuance of obligations and 

monthly while obligations are 

outstanding, information about the 

obligations and the securitized financial 

assets shall be disclosed to all potential 

investors at the financial asset or pool 

level, as appropriate for the financial 

assets, and security-level to enable 

evaluation and analysis of the credit risk 

and performance of the obligations and 

financial assets. The documents shall 

require that such information and its 

disclosure, at a minimum, shall comply 

with the requirements of Securities and 

Exchange Commission Regulation AB, 

17 CFR 229.1100 through 229.1123, or 

any successor disclosure requirements 

for public issuances, even if the 

obligations are issued in a private 

placement or are not otherwise required 

to be registered. Information that is 

unknown or not available to the sponsor 

or the issuer after reasonable 

investigation may be omitted if the 

issuer includes a statement in the 

offering documents disclosing that the 

specific information is otherwise 

unavailable; 

(B) The documents shall require that, 

prior to issuance of obligations, the 

structure of the securitization and the 

credit and payment performance of the 

obligations shall be disclosed, including 

the capital or tranche structure, the 

priority of payments and specific 

subordination features; representations 

and warranties made with respect to the 

financial assets, the remedies for and 

the time permitted for cure of any 

breach of representations and 

warranties, including the repurchase of 

financial assets, if applicable; liquidity 

facilities and any credit enhancements 

permitted by this rule, any waterfall 

triggers or priority of payment reversal 

features; and policies governing 

delinquencies, servicer advances, loss 

mitigation, and write-offs of financial 

assets; 

(C) The documents shall require that 

while obligations are outstanding, the 

issuing entity shall provide to investors 

information with respect to the credit 

performance of the obligations and the 

financial assets, including periodic and 

cumulative financial asset performance 

data, delinquency and modification data 

for the financial assets, substitutions 

and removal of financial assets, servicer 

advances, as well as losses that were 

allocated to such tranche and remaining 

balance of financial assets supporting 

such tranche, if applicable; and the 

percentage of each tranche in relation to 

the securitization as a whole; and 

(D) In connection with the issuance of 

obligations, the nature and amount of 

compensation paid to the originator, 

sponsor, rating agency or third-party 

advisor, any mortgage or other broker, 

and the servicer(s), and the extent to 

which any risk of loss on the underlying 

assets is retained by any of them for 

such securitization shall be disclosed. 

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Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 27485 

The securitization documents shall 

require the issuer to provide to investors 

while obligations are outstanding any 

changes to such information and the 

amount and nature of payments of any 

deferred compensation or similar 

arrangements to any of the parties. 

(ii) The following requirements apply 

only to securitizations in which the 

financial assets include any residential 

mortgage loans: 

(A) Prior to issuance of obligations, 

sponsors shall disclose loan level 

information about the financial assets 

including, but not limited to, loan type, 

loan structure (for example, fixed or 

adjustable, resets, interest rate caps, 

balloon payments, etc.), maturity, 

interest rate and/or Annual Percentage 

Rate, and location of property; and 

(B) Prior to issuance of obligations, 

sponsors shall affirm compliance with 

all applicable statutory and regulatory 

standards for origination of mortgage 

loans, including that the mortgages are 

underwritten at the fully indexed rate 

relying on documented income, and 

comply with existing supervisory 

guidance governing the underwriting of 

residential mortgages, including the 

Interagency Guidance on NonTraditional Mortgage Products, October 

5, 2006, and the Interagency Statement 

on Subprime Mortgage Lending, July 10, 

2007, and such additional guidance 

applicable at the time of loan 

origination. Sponsors shall disclose a 

third party due diligence report on 

compliance with such standards and the 

representations and warranties made 

with respect to the financial assets; and 

(C) The documents shall require that 

prior to issuance of obligations and 

while obligations are outstanding, 

servicers shall disclose any ownership 

interest by the servicer or an affiliate of 

the servicer in other whole loans 

secured by the same real property that 

secures a loan included in the financial 

asset pool. The ownership of an 

obligation, as defined in this regulation, 

shall not constitute an ownership 

interest requiring disclosure. 

(3) Documentation and 

recordkeeping. The documents creating 

the securitization must clearly define 

the respective contractual rights and 

responsibilities of all parties and 

include the requirements described 

below and use as appropriate any 

available standardized documentation 

for each different asset class. 

(i) The following requirements apply 

to all securitizations: 

(A) The documents shall set forth all 

necessary rights and responsibilities of 

the parties, including but not limited to 

representations and warranties and 

ongoing disclosure requirements, and 

any measures to avoid conflicts of 

interest. The contractual rights and 

responsibilities of each party to the 

transaction, including but not limited to 

the originator, sponsor, issuing entity, 

servicer, and investors, must provide 

sufficient authority for the parties to 

fulfill their respective duties and 

exercise their rights under the contracts 

and clearly distinguish between any 

multiple roles performed by any party. 

(ii) The following requirements apply 

only to securitizations in which the 

financial assets include any residential 

mortgage loans: 

(A) Servicing and other agreements 

must provide servicers with full 

authority, subject to contractual 

oversight by any master servicer or 

oversight advisor, if any, to mitigate 

losses on financial assets consistent 

with maximizing the net present value 

of the financial asset. Servicers shall 

have the authority to modify assets to 

address reasonably foreseeable default, 

and to take such other action necessary 

to maximize the value and minimize 

losses on the securitized financial assets 

applying industry best practices for 

asset management and servicing. The 

documents shall require the servicer to 

act for the benefit of all investors, and 

not for the benefit of any particular class 

of investors. The servicer must 

commence action to mitigate losses no 

later than ninety (90) days after an asset 

first becomes delinquent unless all 

delinquencies on such asset have been 

cured. A servicer must maintain 

sufficient records of its actions to permit 

appropriate review; and 

(B) The servicing agreement shall not 

require a primary servicer to advance 

delinquent payments of principal and 

interest for more than three payment 

periods, unless financing or 

reimbursement facilities are available, 

which may include, but are not limited 

to, the obligations of the master servicer 

or issuing entity to fund or reimburse 

the primary servicer, or alternative 

reimbursement facilities. Such 

‘‘financing or reimbursement facilities’’ 

under this paragraph shall not depend 

on foreclosure proceeds. 

(4) Compensation. The following 

requirements apply only to 

securitizations in which the financial 

assets include any residential mortgage 

loans. Compensation to parties involved 

in the securitization of such financial 

assets must be structured to provide 

incentives for sustainable credit and the 

long-term performance of the financial 

assets and securitization as follows: 

(i) The documents shall require that 

any fees or other compensation for 

services payable to credit rating 

agencies or similar third-party 

evaluation companies shall be payable, 

in part, over the five (5) year period after 

the first issuance of the obligations 

based on the performance of 

surveillance services and the 

performance of the financial assets, with 

no more than sixty (60) percent of the 

total estimated compensation due at 

closing; and 

(ii) Compensation to servicers shall 

provide incentives for servicing, 

including payment for loan 

restructuring or other loss mitigation 

activities, which maximizes the net 

present value of the financial assets. 

Such incentives may include payments 

for specific services, and actual 

expenses, to maximize the net present 

value or a structure of incentive fees to 

maximize the net present value, or any 

combination of the foregoing that 

provides such incentives. 

(5) Origination and Retention 

Requirements. (i) The following 

requirements apply to all 

securitizations: 

(A) The sponsor must retain an 

economic interest in a material portion, 

defined as not less than five (5) percent, 

of the credit risk of the financial assets. 

This retained interest may be either in 

the form of an interest of not less than 

five (5) percent in each of the credit 

tranches sold or transferred to the 

investors or in a representative sample 

of the securitized financial assets equal 

to not less than five (5) percent of the 

principal amount of the financial assets 

at transfer. This retained interest may 

not be transferred or hedged during the 

term of the securitization. 

(ii) The following requirements apply 

only to securitizations in which the 

financial assets include any residential 

mortgage loans: 

(A) The documents shall require the 

establishment of a reserve fund equal to 

at least five (5) percent of the cash 

proceeds of the securitization payable to 

the sponsor to cover the repurchase of 

any financial assets required for breach 

of representations and warranties. The 

balance of such fund, if any, shall be 

released to the sponsor one year after 

the date of issuance. 

(B) The assets shall have been 

originated in compliance with all 

statutory, regulatory, and originator 

underwriting standards in effect at the 

time of origination. Residential 

mortgages included in the securitization 

shall be underwritten at the fully 

indexed rate, based upon the borrowers’ 

ability to repay the mortgage according 

to its terms, and rely on documented 

income and comply with all existing 

supervisory guidance governing the 

underwriting of residential mortgages, 

including the Interagency Guidance on 

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27486 Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 

Non-Traditional Mortgage Products, 

October 5, 2006, and the Interagency 

Statement on Subprime Mortgage 

Lending, July 10, 2007, and such 

additional regulations or guidance 

applicable to insured depository 

institutions at the time of loan 

origination. Residential mortgages 

originated prior to the issuance of such 

guidance shall meet all supervisory 

guidance governing the underwriting of 

residential mortgages then in effect at 

the time of loan origination. 

(c) Other requirements. (1) The 

transaction should be an arms length, 

bona fide securitization transaction, and 

the obligations shall not be sold to an 

affiliate or insider; 

(2) The securitization agreements are 

in writing, approved by the board of 

directors of the bank or its loan 

committee (as reflected in the minutes 

of a meeting of the board of directors or 

committee), and have been, 

continuously, from the time of 

execution in the official record of the 

bank; 

(3) The securitization was entered 

into in the ordinary course of business, 

not in contemplation of insolvency and 

with no intent to hinder, delay or 

defraud the bank or its creditors; 

(4) The transfer was made for 

adequate consideration; 

(5) The transfer and/or security 

interest was properly perfected under 

the UCC or applicable state law; 

(6) The transfer and duties of the 

sponsor as transferor must be evidenced 

in a separate agreement from its duties, 

if any, as servicer, custodian, paying 

agent, credit support provider or in any 

capacity other than the transferor; and 

(7) The sponsor shall separately 

identify in its financial asset data bases 

the financial assets transferred into any 

securitization and maintain an 

electronic or paper copy of the closing 

documents for each securitization in a 

readily accessible form, a current list of 

all of its outstanding securitizations and 

issuing entities, and the most recent 

Form 10–K, if applicable, or other 

periodic financial report for each 

securitization and issuing entity. To the 

extent the sponsor serves as servicer, 

custodian or paying agent provider for 

the securitization, the sponsor shall not 

comingle amounts received with respect 

to the financial assets with its own 

assets except for the time necessary to 

clear any payments received and in no 

event greater than a two day period. The 

sponsor shall make these records readily 

available for review by the FDIC 

promptly upon written request. 

(d) Safe harbor. (1) Participations. 

With respect to transfers of financial 

assets made in connection with 

participations, the FDIC as conservator 

or receiver shall not, in the exercise of 

its statutory authority to disaffirm or 

repudiate contracts, reclaim, recover, or 

recharacterize as property of the 

institution or the receivership any such 

transferred financial assets provided 

that such transfer satisfies the 

conditions for sale accounting treatment 

set forth by generally accepted 

accounting principles, except for the 

‘‘legal isolation’’ condition that is 

addressed by this paragraph. 

(2) Transition period safe harbor. 

With respect to any participation or 

securitization for which transfers of 

financial assets were made or, for 

revolving trusts, for which obligations 

were issued, on or before September 30, 

2010, the FDIC as conservator or 

receiver shall not, in the exercise of its 

statutory authority to disaffirm or 

repudiate contracts, reclaim, recover, or 

recharacterize as property of the 

institution or the receivership any such 

transferred financial assets 

notwithstanding that such transfer does 

not satisfy all conditions for sale 

accounting treatment under generally 

accepted accounting principles as 

effective for reporting periods after 

November 15, 2009, provided that such 

transfer satisfied the conditions for sale 

accounting treatment set forth by 

generally accepted accounting 

principles in effect for reporting periods 

before November 15, 2009, except for 

the ‘‘legal isolation’’ condition that is 

addressed by this paragraph (d)(2) and 

the transaction otherwise satisfied the 

provisions of this section (Rule 360.6) in 

effect prior to [EFFECTIVE DATE OF 

FINAL RULE]. 

(3) For securitizations meeting sale 

accounting requirements. With respect 

to any securitization for which transfers 

of financial assets were made, or for 

revolving trusts for which obligations 

were issued, after September 30, 2010, 

and which complies with the 

requirements applicable to that 

securitization as set forth in paragraphs 

(b) and (c) of this section, the FDIC as 

conservator or receiver shall not, in the 

exercise of its statutory authority to 

disaffirm or repudiate contracts, 

reclaim, recover, or recharacterize as 

property of the institution or the 

receivership such transferred financial 

assets, provided that such transfer 

satisfies the conditions for sale 

accounting treatment set forth by 

generally accepted accounting 

principles in effect for reporting periods 

after November 15, 2009, except for the 

‘‘legal isolation’’ condition that is 

addressed by this paragraph (d)(3). 

(4) For securitization not meeting sale 

accounting requirements. With respect 

to any securitization for which transfers 

of financial assets made, or for revolving 

trusts for which obligations were issued, 

after September 30, 2010, and which 

complies with the requirements 

applicable to that securitization as set 

forth in paragraphs (b) and (c) of this 

section, but where the transfer does not 

satisfy the conditions for sale 

accounting treatment set forth by 

generally accepted accounting 

principles in effect for reporting periods 

after November 15, 2009: 

(i) Monetary default. If at any time 

after appointment, the FDIC as 

conservator or receiver is in a monetary 

default under a securitization, as 

defined above, and remains in monetary 

default for ten (10) business days after 

actual delivery of a written request to 

the FDIC pursuant to paragraph (f) of 

this section hereof to exercise 

contractual rights because of such 

monetary default, the FDIC hereby 

consents pursuant to 12 U.S.C. 

1821(e)(13)(C) to the exercise of any 

contractual rights, including obtaining 

possession of the financial assets, 

exercising self-help remedies as a 

secured creditor under the transfer 

agreements, or liquidating properly 

pledged financial assets by 

commercially reasonable and 

expeditious methods taking into 

account existing market conditions, 

provided no involvement of the receiver 

or conservator is required. The consent 

to the exercise of such contractual rights 

shall serve as full satisfaction of the 

obligations of the insured depository 

institution in conservatorship or 

receivership and the FDIC as 

conservator or receiver for all amounts 

due. 

(ii) Repudiation. If the FDIC as 

conservator or receiver of an insured 

depository institution provides a written 

notice of repudiation of the 

securitization agreement pursuant to 

which the financial assets were 

transferred, and the FDIC does not pay 

damages, defined below, within ten (10) 

business days following the effective 

date of the notice, the FDIC hereby 

consents pursuant to 12 U.S.C. 

1821(e)(13)(C) to the exercise of any 

contractual rights, including obtaining 

possession of the financial assets, 

exercising self-help remedies as a 

secured creditor under the transfer 

agreements, or liquidating properly 

pledged financial assets by 

commercially reasonable and 

expeditious methods taking into 

account existing market conditions, 

provided no involvement of the receiver 

or conservator is required. For purposes 

of this paragraph, the damages due shall 

be in an amount equal to the par value 

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Federal Register / Vol. 75, No. 94 / Monday, May 17, 2010 / Proposed Rules 27487 

of the obligations outstanding on the 

date of receivership less any payments 

of principal received by the investors to 

the date of repudiation. Upon receipt of 

such payment, the investor’s lien on the 

financial assets shall be released. 

(e) Consent to certain actions. During 

the stay period imposed by 12 U.S.C. 

1821(e)(13)(C), and during the periods 

specified in paragraph (d)(4)(i) of this 

section prior to any payment of damages 

or consent pursuant to 12 U.S.C. 

1821(e)(13)(C) to the exercise of any 

contractual rights, the FDIC as 

conservator or receiver of the sponsor 

consents to the making of required 

payments to the investors in accordance 

with the securitization documents, 

except for provisions that take effect 

upon the appointment of the receiver or 

conservator, and to any servicing 

activity required in furtherance of the 

securitization (subject to the FDIC’s 

rights to repudiate such agreements) 

with respect to the financial assets 

included in securitizations that meet the 

requirements applicable to that 

securitization as set forth in paragraphs 

(b) and (c) of this section. 

(f) Notice for consent. Any party 

requesting the FDIC’s consent as 

conservator or receiver under 12 U.S.C. 

1821(e)(13)(C) pursuant to paragraph 

(d)(4)(i) of this section shall provide 

notice to the Deputy Director, Division 

of Resolutions and Receiverships, 

Federal Deposit Insurance Corporation, 

550 17th Street, NW., F–7076, 

Washington DC 20429–0002, and a 

statement of the basis upon which such 

request is made, and copies of all 

documentation supporting such request, 

including without limitation a copy of 

the applicable agreements and of any 

applicable notices under the contract. 

(g) Contemporaneous requirement. 

The FDIC will not seek to avoid an 

otherwise legally enforceable agreement 

that is executed by an insured 

depository institution in connection 

with a securitization or in the form of 

a participation solely because the 

agreement does not meet the 

‘‘contemporaneous’’ requirement of 12 

U.S.C. 1821(d)(9), 1821(n)(4)(I), or 

1823(e). 

(h) Limitations. The consents set forth 

in this section do not act to waive or 

relinquish any rights granted to the 

FDIC in any capacity, pursuant to any 

other applicable law or any agreement 

or contract except the securitization 

transfer agreement or any relevant 

security agreements. Nothing contained 

in this section alters the claims priority 

of the securitized obligations. 

(i) No waiver. This section does not 

authorize, and shall not be construed as 

authorizing the waiver of the 

prohibitions in 12 U.S.C. 1825(b)(2) 

against levy, attachment, garnishment, 

foreclosure, or sale of property of the 

FDIC, nor does it authorize nor shall it 

be construed as authorizing the 

attachment of any involuntary lien upon 

the property of the FDIC. Nor shall this 

section be construed as waiving, 

limiting or otherwise affecting the rights 

or powers of the FDIC to take any action 

or to exercise any power not specifically 

mentioned, including but not limited to 

any rights, powers or remedies of the 

FDIC regarding transfers taken in 

contemplation of the institution’s 

insolvency or with the intent to hinder, 

delay or defraud the institution or the 

creditors of such institution, or that is 

a fraudulent transfer under applicable 

law. 

(j) No assignment. The right to 

consent under 12 U.S.C. 1821(e)(13)(C) 

may not be assigned or transferred to 

any purchaser of property from the 

FDIC, other than to a conservator or 

bridge bank. 

(k) Repeal. This section may be 

repealed by the FDIC upon 30 days 

notice provided in the Federal Register, 

but any repeal shall not apply to any 

issuance made in accordance with this 

section before such repeal. 

By order of the Board of Directors. 

Dated at Washington, DC, this 11th day of 

May, 2010. 

Robert E. Feldman, 

Executive Secretary, Federal Deposit 

Insurance Corporation. 

[FR Doc. 2010–11680 Filed 5–14–10; 8:45 am] 

BILLING CODE 6714–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2010–0499; Directorate 

Identifier 2010–NE–06–AD] 

RIN 2120–AA64 

Airworthiness Directives; BombardierRotax GmbH 912 F Series and 912 S 

Series Reciprocating Engines 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: We propose to adopt a new 

airworthiness directive (AD) for the 

products listed above. This proposed 

AD results from mandatory continuing 

airworthiness information (MCAI) 

issued by an aviation authority of 

another country to identify and correct 

an unsafe condition on an aviation 

product. The MCAI describes the unsafe 

condition as: 

Due to high fuel pressure, caused by 

exceeding pressure in front of the mechanical 

fuel pump (e.g. due to an electrical fuel 

pump), in limited cases a deviation in the 

fuel supply could occur. This can result in 

exceeding of the fuel pressure and might 

cause engine malfunction and/or massive 

fuel leakage. 

We are proposing this AD to prevent 

the pump from exceeding the fuel 

pressure, which could result in engine 

malfunction or a massive fuel leak. 

These conditions could cause loss of 

control of the airplane or a fire. 

DATES: We must receive comments on 

this proposed AD by July 1, 2010. 

ADDRESSES: You may send comments by 

any of the following methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov and follow 

the instructions for sending your 

comments electronically. 

• Mail: Docket Management Facility, 

U.S. Department of Transportation, 1200 

New Jersey Avenue, SE., West Building 

Ground Floor, Room W12–140, 

Washington, DC 20590–0001. 

• Hand Delivery: Deliver to Mail 

address above between 9 a.m. and 5 

p.m., Monday through Friday, except 

Federal holidays. 

• Fax: (202) 493–2251. 

Contact BRP–Rotax GmbH & Co. KG, 

Welser Strasse 32, A–4623 Gunskirchen, 

Austria, or go to: http://www.rotaxaircraft-engines.com/, for the service 

information identified in this proposed 

AD. 

Examining the AD Docket 

You may examine the AD docket on 

the Internet at http:// 

www.regulations.gov; or in person at the 

Docket Operations office between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. The AD docket 

contains this proposed AD, the 

regulatory evaluation, any comments 

received, and other information. The 

street address for the Docket Operations 

office (telephone (800) 647–5527) is the 

same as the Mail address provided in 

the ADDRESSES section. Comments will 

be available in the AD docket shortly 

after receipt. 

FOR FURTHER INFORMATION CONTACT: Tara 

Chaidez, Aerospace Engineer, Engine 

Certification Office, FAA, Engine and 

Propeller Directorate, 12 New England 

Executive Park, Burlington, MA 01803; 

e-mail: tara.chaidez@faa.gov; telephone 

(781) 238–7773; fax (781) 238–7199. 

SUPPLEMENTARY INFORMATION: 

Comments Invited 

We invite you to send any written 

relevant data, views, or arguments about 

mstockstill on DSKH9S0YB1PROD with PROPOSALS