Source: https://www.ecfr.gov/cgi-bin/retrieveECFR?gp=&mc=true&r=PART&n=pt12.1.43
Timestamp: 2020-08-05 22:35:02
Document Index: 709363996

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Title 12 → Chapter I → Part 43
PART 43—CREDIT RISK RETENTION
§43.1 Authority, purpose, scope, and reservation of authority.
§43.2 Definitions.
§43.3 Base risk retention requirement.
§43.4 Standard risk retention.
§43.5 Revolving pool securitizations.
§43.6 Eligible ABCP conduits.
§43.7 Commercial mortgage-backed securities.
§43.8 Federal National Mortgage Association and Federal Home Loan Mortgage Corporation ABS.
§43.9 Open market CLOs.
§43.10 Qualified tender option bonds.
§43.11 Allocation of risk retention to an originator.
§43.12 Hedging, transfer and financing prohibitions.
§43.13 Exemption for qualified residential mortgages.
§43.14 Definitions applicable to qualifying commercial loans, qualifying commercial real estate loans, and qualifying automobile loans.
§43.15 Qualifying commercial loans, commercial real estate loans, and automobile loans.
§43.16 Underwriting standards for qualifying commercial loans.
§43.17 Underwriting standards for qualifying CRE loans.
§43.18 Underwriting standards for qualifying automobile loans.
§43.19 General exemptions.
§43.20 Safe harbor for certain foreign-related transactions.
§43.21 Additional exemptions.
§43.22 Periodic review of the QRM definition, exempted three-to-four unit residential mortgage loans, and community-focused residential mortgage exemption.
Authority: 12 U.S.C. 1 et seq., 93a, 161, 1464, 1818, 5412(b)(2)(B), and 15 U.S.C. 78o-11.
Source: 79 FR 77740, 77764, Dec. 24, 2014, unless otherwise noted.
(a) Authority. This part is issued under the authority of 12 U.S.C. 1 et seq., 93a, 161, 1464, 1818, 5412(b)(2)(B), and 15 U.S.C. 78o-11.
(b) Purpose. (1) This part requires securitizers to retain an economic interest in a portion of the credit risk for any asset that the securitizer, through the issuance of an asset-backed security, transfers, sells, or conveys to a third party. This part specifies the permissible types, forms, and amounts of credit risk retention, and it establishes certain exemptions for securitizations collateralized by assets that meet specified underwriting standards.
(2) Nothing in this part shall be read to limit the authority of the OCC to take supervisory or enforcement action, including action to address unsafe or unsound practices or conditions, or violations of law.
(c) Scope. This part applies to any securitizer that is a national bank, a Federal savings association, a Federal branch or agency of a foreign bank, or a subsidiary thereof.
(d) Compliance dates. Compliance with this part is required:
(1) With respect to any securitization transaction collateralized by residential mortgages, on and after December 24, 2015; and
(2) With respect to any other securitization transaction, on and after December 24, 2016.
[79 FR 77764, Dec. 24, 2014]
Commercial real estate loan has the same meaning as in §43.14.
Eligible horizontal cash reserve account means an account meeting the requirements of §43.4(b).
(a) Base risk retention requirement. Except as otherwise provided in this part, the sponsor of a securitization transaction (or majority-owned affiliate of the sponsor) shall retain an economic interest in the credit risk of the securitized assets in accordance with any one of §§43.4 through 43.10. Credit risk in securitized assets required to be retained and held by any person for purposes of compliance with this part, whether a sponsor, an originator, an originator-seller, or a third-party purchaser, except as otherwise provided in this part, may be acquired and held by any of such person's majority-owned affiliates (other than an issuing entity).
(b) Multiple sponsors. If there is more than one sponsor of a securitization transaction, it shall be the responsibility of each sponsor to ensure that at least one of the sponsors of the securitization transaction (or at least one of their majority-owned or wholly-owned affiliates, as applicable) retains an economic interest in the credit risk of the securitized assets in accordance with any one of §43.4, §43.5, §43.8, §43.9, or §43.10.
(a) General requirement. Except as provided in §§43.5 through 43.10, the sponsor of a securitization transaction must retain an eligible vertical interest or eligible horizontal residual interest, or any combination thereof, in accordance with the requirements of this section.
(b) General requirement. A sponsor satisfies the risk retention requirements of §43.3 with respect to a securitization transaction for which the issuing entity is a revolving pool securitization if the sponsor maintains a seller's interest of not less than 5 percent of the aggregate unpaid principal balance of all outstanding investor ABS interests in the issuing entity.
(ii) Funds in that account are invested only in the types of assets in which funds held in an eligible horizontal cash reserve account pursuant to §43.4 are permitted to be invested;
(e) Holding and retention of the seller's interest; legacy trusts. (1) Notwithstanding §43.12(a), the seller's interest, and any offsetting horizontal retention interest retained pursuant to paragraph (g) of this section, must be retained by the sponsor or by one or more wholly-owned affiliates of the sponsor, including one or more depositors of the revolving pool securitization.
(2) Is invested only in the types of assets in which funds held in a horizontal cash reserve account pursuant to §43.4 are permitted to be invested; and
(g) Combined seller's interests and horizontal interest retention. The 5 percent seller's interest required on each measurement date by paragraph (c) of this section may be reduced to a percentage lower than 5 percent to the extent that, for all series of investor ABS interests issued after the applicable effective date of this §43.5, the sponsor, or notwithstanding §43.12(a) a wholly-owned affiliate of the sponsor, retains, at a minimum, a corresponding percentage of the fair value of ABS interests issued in each series, in the form of one or more of the horizontal residual interests meeting the requirements of paragraphs (h) or (i).
(i) Offsetting eligible horizontal residual interest. The sponsor may take the offset described in paragraph (g) of this section for ABS interests that would meet the definition of eligible horizontal residual interests in §43.2 but for the sponsor's simultaneous holding of subordinated seller's interests, residual ABS interests in excess interests and fees, or a combination of the two, if:
(j) Specified dates. A sponsor using data about the revolving pool securitization's collateral, or ABS interests previously issued, to determine the closing-date percentage of a seller's interest, residual ABS interest in excess interest and fees, or eligible horizontal residual interest pursuant to this §43.5 may use such data prepared as of specified dates if:
(k) Disclosure and record maintenance—(1) Disclosure. A sponsor relying on this section shall provide, or cause to be provided, to potential investors, under the caption “Credit Risk Retention” the following disclosure in written form and within the time frames set forth in this paragraph (k):
(i) A reasonable period of time prior to the sale of an asset-backed security, a description of the material terms of the seller's interest, and the percentage of the seller's interest that the sponsor expects to retain at the closing of the securitization transaction, measured in accordance with the requirements of this §43.5, as a percentage of the aggregate unpaid principal balance of all outstanding investor ABS interests issued, or as a percentage of the aggregate unpaid principal balance of outstanding investor ABS interests for one or more series issued, as required by the terms of the securitization transaction;
(iv) Disclosure of the fair value of those horizontal residual interests retained by the sponsor for the series being offered to investors and described in the disclosures, as a percentage of the fair value of the outstanding investor ABS interests issued, described in the same manner and within the same timeframes required for disclosure of the fair values of eligible horizontal residual interests specified in §43.4(c).
(l) Early amortization of all outstanding series. A sponsor that organizes a revolving pool securitization that relies on this §43.5 to satisfy the risk retention requirements of §43.3, does not violate the requirements of this part if its seller's interest falls below the level required by §43. 5 after the revolving pool securitization commences early amortization, pursuant to the terms of the securitization transaction documents, of all series of outstanding investor ABS interests, if:
(1)(i) Is a direct or indirect wholly-owned affiliate of the originator-seller; or
Originator-seller means an entity that originates assets and sells or transfers those assets, directly or through a majority-owned affiliate, to an intermediate SPV, and includes (except for the purposes of identifying the sponsorship and affiliation of an intermediate SPV pursuant to this §43.6) any affiliate of the originator-seller that, directly or indirectly, majority controls, is majority controlled by or is under common majority control with, the originator-seller. For purposes of this definition, majority control means ownership of more than 50 percent of the equity of an entity, or ownership of any other controlling financial interest in the entity, as determined under GAAP.
(b) In general. An ABCP conduit sponsor satisfies the risk retention requirement of §43.3 with respect to the issuance of ABCP by an eligible ABCP conduit in a securitization transaction if, for each ABS interest the ABCP conduit acquires from an intermediate SPV:
(1) An originator-seller of the intermediate SPV retains an economic interest in the credit risk of the assets collateralizing the ABS interest acquired by the eligible ABCP conduit in the amount and manner required under §43.4 or §43.5; and
(b) Third-party purchaser. A sponsor may satisfy some or all of its risk retention requirements under §43.3 with respect to a securitization transaction if a third party (or any majority-owned affiliate thereof) purchases and holds for its own account an eligible horizontal residual interest in the issuing entity in the same form, amount, and manner as would be held by the sponsor under §43.4 and all of the following conditions are met:
(v) The fair value (expressed as a percentage of the fair value of all of the ABS interests issued in the securitization transaction and dollar amount (or corresponding amount in the foreign currency in which the ABS interests are issued, as applicable)) of the eligible horizontal residual interest in the securitization transaction that the sponsor would have retained pursuant to §43.4 if the sponsor had relied on retaining an eligible horizontal residual interest in that section to meet the requirements of §43.3 with respect to the transaction;
(vi) A description of the material terms of the eligible horizontal residual interest retained by each initial third-party purchaser, including the same information as is required to be disclosed by sponsors retaining horizontal interests pursuant to §43.4;
(8) Hedging, transfer and pledging—(i) General rule. Except as set forth in paragraph (b)(8)(ii) of this section, each third-party purchaser and its affiliates must comply with the hedging and other restrictions in §43.12 as if it were the retaining sponsor with respect to the securitization transaction and had acquired the eligible horizontal residual interest pursuant to §43.4; provided that, the hedging and other restrictions in §43.12 shall not apply on or after the date that each CRE loan (as defined in §43.14) that serves as collateral for outstanding ABS interests has been defeased. For purposes of this section, a loan is deemed to be defeased if:
(A) cash or cash equivalents of the types permitted for an eligible horizontal cash reserve account pursuant to §43.4 whose maturity corresponds to the remaining debt service obligations, have been pledged to the issuing entity as collateral for the loan and are in such amounts and payable at such times as necessary to timely generate cash sufficient to make all remaining debt service payments due on such loan; and
(b) Certain provisions not applicable. The provisions of §43.12(b), (c), and (d) shall not apply to a sponsor described in paragraph (a)(1) or (2) of this section, its affiliates, or the issuing entity with respect to a securitization transaction for which the sponsor has retained credit risk in accordance with the requirements of this section.
(i) Is active in the origination, structuring and syndication of commercial loan transactions (as defined in §43.14) and has played a primary role in the structuring, underwriting and distribution on the primary market of the CLO-eligible loan tranche.
(b) In general. A sponsor satisfies the risk retention requirements of §43.3 with respect to an open market CLO transaction if:
(1) A minimum of 5 percent of the face amount of the CLO-eligible loan tranche is retained by the lead arranger thereof until the earliest of the repayment, maturity, involuntary and unscheduled acceleration, payment default, or bankruptcy default of such CLO-eligible loan tranche, provided that such lead arranger complies with limitations on hedging, transferring and pledging in §43.12 with respect to the interest retained by the lead arranger.
(v) For each loan tranche, the full legal name of the lead arranger subject to the sales and hedging restrictions of §43.12; and
(v) Such entity has a legally binding commitment from a regulated liquidity provider as defined in §43.6(a), to provide a 100 percent guarantee or liquidity coverage with respect to all of the issuing entity's outstanding tender option bonds.
(b) Risk retention options. Notwithstanding anything in this section, the sponsor with respect to an issuance of tender option bonds may retain an eligible vertical interest or eligible horizontal residual interest, or any combination thereof, in accordance with the requirements of §43.4. In order to satisfy its risk retention requirements under this section, the sponsor with respect to an issuance of tender option bonds by a qualified tender option bond entity may retain:
(1) An eligible vertical interest or an eligible horizontal residual interest, or any combination thereof, in accordance with the requirements of §43.4; or
(2) A description of the form and subordination features of such retained interest in accordance with the disclosure obligations in §43.4(c);
(3) To the extent any portion of the retained interest is claimed by the sponsor as an eligible horizontal residual interest (including any interest held in compliance with §43.10(c)), the fair value of that interest (expressed as a percentage of the fair value of all of the ABS interests issued in the securitization transaction and as a dollar amount);
(4) To the extent any portion of the retained interest is claimed by the sponsor as an eligible vertical interest (including any interest held in compliance with §43.10(c)), the percentage of ABS interests issued represented by the eligible vertical interest; and
(f) Prohibitions on Hedging and Transfer. The prohibitions on transfer and hedging set forth in §43.12, apply to any interests or municipal securities retained by the sponsor with respect to an issuance of tender option bonds by a qualified tender option bond entity pursuant to of this section.
(a) In general. A sponsor choosing to retain an eligible vertical interest or an eligible horizontal residual interest (including an eligible horizontal cash reserve account), or combination thereof under §43.4, with respect to a securitization transaction may offset the amount of its risk retention requirements under §43.4 by the amount of the eligible interests, respectively, acquired by an originator of one or more of the securitized assets if:
(i) The originator acquires the eligible interest from the sponsor and retains such interest in the same manner and proportion (as between horizontal and vertical interests) as the sponsor under §43.4, as such interest was held prior to the acquisition by the originator;
(ii) The ratio of the percentage of eligible interests acquired and retained by the originator to the percentage of eligible interests otherwise required to be retained by the sponsor pursuant to §43.4, does not exceed the ratio of:
(iii) The originator acquires and retains at least 20 percent of the aggregate risk retention amount otherwise required to be retained by the sponsor pursuant to §43.4; and
(2) Disclosures. In addition to the disclosures required pursuant to §43.4(c), the sponsor provides, or causes to be provided, to potential investors a reasonable period of time prior to the sale of the asset-backed securities as part of the securitization transaction and, upon request, to the Commission and its appropriate Federal banking agency, if any, in written form under the caption “Credit Risk Retention”, the name and form of organization of any originator that will acquire and retain (or has acquired and retained) an interest in the transaction pursuant to this section, including a description of the form and amount (expressed as a percentage and dollar amount (or corresponding amount in the foreign currency in which the ABS interests are issued, as applicable)) and nature (e.g., senior or subordinated) of the interest, as well as the method of payment for such interest under paragraph (a)(1)(iv) of this section.
(3) Hedging, transferring and pledging. The originator and each of its affiliates complies with the hedging and other restrictions in §43.12 with respect to the interests retained by the originator pursuant to this section as if it were the retaining sponsor and was required to retain the interest under subpart B of this part.
(a) Transfer. Except as permitted by §43.7(b)(8), and subject to §43.5, a retaining sponsor may not sell or otherwise transfer any interest or assets that the sponsor is required to retain pursuant to subpart B of this part to any person other than an entity that is and remains a majority-owned affiliate of the sponsor and each such majority-owned affiliate shall be subject to the same restrictions.
(4) Revolving pool securitizations. The provisions of paragraphs (f)(1) and (2) are not available to sponsors of revolving pool securitizations with respect to the forms of risk retention specified in §43.5.
The following definitions apply for purposes of §§43.15 through 43.18:
(1) For acquisition funding, the lesser of the purchase price or the estimated market value of the real property based on an appraisal that meets the requirements set forth in §43.17(a)(2)(ii); or
(2) For refinancing, the estimated market value of the real property based on an appraisal that meets the requirements set forth in §43.17(a)(2)(ii).
(1) The assets meet the underwriting standards set forth in §43.16 (qualifying commercial loans), §43.17 (qualifying CRE loans), or §43.18 (qualifying automobile loans) of this part, as applicable;
(b) Risk retention requirement. For any securitization transaction described in paragraph (a) of this section, the percentage of risk retention required under §43.3(a) is reduced by the percentage evidenced by the ratio of the unpaid principal balance of the qualifying commercial loans, qualifying CRE loans, or qualifying automobile loans (as applicable) to the total unpaid principal balance of commercial loans, CRE loans, or automobile loans (as applicable) that are included in the pool of assets collateralizing the asset-backed securities issued pursuant to the securitization transaction (the qualifying asset ratio); provided that:
(d) Record maintenance. A sponsor must retain the disclosures required in paragraphs (a) and (b) of this section and the certifications required in §§43.16(a)(8), 43.17(a)(10), and 43.18(a)(8), as applicable, in its records until three years after all ABS interests issued in the securitization are no longer outstanding. The sponsor must provide the disclosures and certifications upon request to the Commission and the sponsor's appropriate Federal banking agency, if any.
(8)(i) The depositor of the asset-backed security certifies that it has evaluated the effectiveness of its internal supervisory controls with respect to the process for ensuring that all qualifying commercial loans that collateralize the asset-backed security and that reduce the sponsor's risk retention requirement under §43.15 meet all of the requirements set forth in paragraphs (a)(1) through (7) of this section and has concluded that its internal supervisory controls are effective;
(b) Cure or buy-back requirement. If a sponsor has relied on the exception provided in §43.15 with respect to a qualifying commercial loan and it is subsequently determined that the loan did not meet all of the requirements set forth in paragraphs (a)(1) through (7) of this section, the sponsor shall not lose the benefit of the exception with respect to the commercial loan if the depositor complied with the certification requirement set forth in paragraph (a)(8) of this section and:
(10)(i) The depositor of the asset-backed security certifies that it has evaluated the effectiveness of its internal supervisory controls with respect to the process for ensuring that all qualifying CRE loans that collateralize the asset-backed security and that reduce the sponsor's risk retention requirement under §43.15 meet all of the requirements set forth in paragraphs (a)(1) through (9) of this section and has concluded that its internal supervisory controls are effective;
(b) Cure or buy-back requirement. If a sponsor has relied on the exception provided in §43.15 with respect to a qualifying CRE loan and it is subsequently determined that the CRE loan did not meet all of the requirements set forth in paragraphs (a)(1) through (9) and (a)(11) of this section, the sponsor shall not lose the benefit of the exception with respect to the CRE loan if the depositor complied with the certification requirement set forth in paragraph (a)(10) of this section, and:
(8)(i) The depositor of the asset-backed security certifies that it has evaluated the effectiveness of its internal supervisory controls with respect to the process for ensuring that all qualifying automobile loans that collateralize the asset-backed security and that reduce the sponsor's risk retention requirement under §43.15 meet all of the requirements set forth in paragraphs (a)(1) through (7) of this section and has concluded that its internal supervisory controls are effective;
(b) Cure or buy-back requirement. If a sponsor has relied on the exception provided in §43.15 with respect to a qualifying automobile loan and it is subsequently determined that the loan did not meet all of the requirements set forth in paragraphs (a)(1) through (7) of this section, the sponsor shall not lose the benefit of the exception with respect to the automobile loan if the depositor complied with the certification requirement set forth in paragraph (a)(8) of this section, and:
(e) Reduced requirement for certain student loan securitizations. The 5 percent risk retention requirement set forth in §43.4 shall be modified as follows:
(2) For any securitization transaction that includes both community-focused residential mortgages and residential mortgages that are not exempt from risk retention under this part, the percent of risk retention required under §43.4(a) is reduced by the ratio of the unpaid principal balance of the community-focused residential mortgages to the total unpaid principal balance of residential mortgages that are included in the pool of assets collateralizing the asset-backed securities issued pursuant to the securitization transaction (the community-focused residential mortgage asset ratio); provided that:
(ii) The asset-backed securities issued in the transaction are collateralized solely by qualifying three-to-four unit residential mortgage loans, qualified residential mortgages as defined in §43.13, and servicing assets.
(2) The depositor with respect to the securitization provides the certifications set forth in §43.13(b)(4) with respect to the process for ensuring that all assets that collateralize the asset-backed securities issued in the transaction are qualifying three-to-four unit residential mortgage loans, qualified residential mortgages, or servicing assets; and
(3) The sponsor of the securitization complies with the repurchase requirements in §43.13(c) with respect to a loan if, after closing, it is determined that the loan does not meet all of the criteria to be either a qualified residential mortgage or a qualifying three-to-four unit residential mortgage loan, as appropriate.
(a) The Federal banking agencies and the Commission, in consultation with the Federal Housing Finance Agency and the Department of Housing and Urban Development, shall commence a review of the definition of qualified residential mortgage in §43.13, a review of the community-focused residential mortgage exemption in §43.19(f), and a review of the exemption for qualifying three-to-four unit residential mortgage loans in §43.19(g):