Financial Industry Developments
HUDProposal on QM Definition
On September 30, HUD issued a proposed rule that would define a Qualified Mortgage (QM) that would be insured, guaranteed or administered by HUD, including single-family forward mortgages insured by FHA. In order to meet HUD's QM definition, mortgage loans must: (i) require periodic payments; (ii) have terms not to exceed 30 years; (iii) except in certain circumstances, limit upfront points and fees to no more than 3% with adjustments to facilitate smaller loans; and (iv) be insured or guaranteed by FHA or HUD. Comments on the proposed rule must be submitted by October 30. HUD Release. HUD Proposed Rule.
Rating Agency Developments
On October 3, DBRS released its methodology for rating entities in the real estate industry. DBRS Report.
On October 2, Moody's released its methodology for assessing set-off risk for securitization and covered bonds transactions in EMEA.
Note: Free registration is required for rating agency releases and reports.
RMBS and Other Securities Litigation
FDIC's$388M MBS Suit Brought On Behalf Of Colonial Bank Survives Motion to Dismiss
On September 27, Judge Louis L. Stanton of the Southern District of New York denied a motion by JPMorgan, Citigroup and several other banks to dismiss a lawsuit filed by the FDIC, as receiver for Colonial Bank, involving $388 million in RMBS. Judge Stanton rejected the defendants' arguments that the claims were barred by the statute of limitations, finding that publicly available information about troubles in the mortgage industry in 2007 did not put the plaintiff on notice of facts constituting an alleged violation of federal securities laws in connection with the specific transactions at issue. Judge Stanton also held that the FDIC's allegations of misstatements in the offering documents were sufficiently detailed to survive the pleading stage. The court concluded that it was premature to rule on whether a defendant may be liable under Section 11 of the Securities Act of 1933 when it did not underwrite the particular tranche of a securitization that the plaintiff purchased. Opinion.
MinnesotaFederal Court Dismisses, In Part, Put-Back Claims Against Mortgage Originators
On September 30, a Minnesota federal judge granted in part and denied in part WMC's and EquiFirst's motions to dismiss three suits brought by U.S. Bank, as Trustee for an RMBS trust, alleging that WMC and EquiFirst breached representations and warranties in the purchase agreements relevant to each securitization. As to U.S. Bank's breach of contract claims, Judge John R. Tunheim concluded that the contracts' sole remedy provisions barred claims for monetary damages and limited the Trustee to specific performance of the contractual repurchase provision. The court also granted the motions to dismiss with respect to the Trustee's claims for contractual indemnification and declaratory relief. However, Judge Tunheim denied the motion to dismiss the Trustee's claim that the defendants were liable as a result of their failure to notify the Trustee of breaches when the defendants discovered them. The court also permitted the Trustee's claim for damages based on gross negligence to proceed. Finally, in the same order the court granted, in part, WMC's motion for summary judgment in a fourth related action. Opinion.
SecondCircuit to Issuers: You Need Not Disclose Every Single Asset in Your Registration Statements
On September 25, the Second Circuit upheld dismissal of claims against defendant Royal Bank of Scotland (RBS) for alleged failure to disclose enough information about its exposure to subprime mortgages. In so doing, the Court reaffirmed longstanding principles at the heart the securities laws and issued an opinion as applicable to technology companies as it is to banks. RBS had issued five offering documents in 2005 and 2006, which plaintiff alleged contained a number of misstatements and omissions. Among others, the complaint alleged RBS had misstated its exposure to subprime mortgages, falsely claimed it had effective risk controls, and failed to disclose an inadequate capital base. For more information and to read our Securities Litigation blog, please click here. Order.
SECIssues Huge Bounty Award of $14 Million to Whistleblower under Dodd-Frank
On October 1, the SEC announced that it is issuing a whistleblower award of over $14 million to a whistleblower who provided information that resulted in the recovery of investor funds. The significant whistleblower award comes after many critics have questioned the success of the SEC's whistleblower award program which, to date, has only issued two much smaller awards since the program's inception in 2011. The first award payment was issued in August 2012 for approximately $50,000. The second award, paid to three whistleblowers for information that stopped a sham hedge fund, has paid out approximately $25,000 with an expected total payout of $125,000. For more information and to read our Securities Litigation blog, please click here. First Award Payment. Second Award Payment.
ESMA Produces Guideline on AIFMD Reporting Obligations
On October 1, the European Securities and Markets Authority (ESMA) published guidelines on reporting obligations under Articles 3 and 24 of the Alternative Investment Fund Managers Directive (AIFMD) in Annex II of its final report. The aim of the guidelines is to provide clarification on:
- the information that alternative investment fund managers (AIFMs) should report to national competent authorities (NCAs);
- the timing of the reports; and
- the procedures to be followed when AIFMs move from one reporting obligation to another.
Following translation of the guidelines into the official languages of the EU, a two-month notification period will be triggered during which NCAs must notify ESMA whether they comply, or intend to comply, with the guidelines. Final Report.
European Financial Industry Developments
ESMA Publishes Advice on Equivalence of Regulatory Regimes
On October 2, ESMA published its second round of advice on the equivalence of regulatory regimes under EMIR (the Regulation on OTC derivative transactions, central counterparties and trade repositories) to the European Commission.
The advice includes equivalence assessments of the regulatory regimes of India, Canada and South Korea and the existing equivalence assessments of Australia, Switzerland, Hong Kong and Singapore.
Comparisons were made between the third-country rules and EMIR requirements for trade repositories and/or central clearing, CCPs, reporting, non-financial counterparties and risk mitigation techniques for uncleared trades.
European Commission Consults on Crowdfunding
On October 3, the European Commission published a consultation paper on crowdfunding in the EU alongside a set of FAQs. In launching the consultation, the Commission aims to explore how EU action could promote crowdfunding in Europe. A range of soft-law measures, such as awareness raising, public funding and coordination of self-regulatory or national regulatory best practices will be considered. Responses can be submitted via an online questionnaire until December 20, and the consultation closes on December 31. Consultation Paper. FAQs.
Events
The Politics of Restructuring
Please join us on October 24 for an afternoon discussion looking at the intersection of distressed debt and political decision making. Our first panel, Restructuring Infrastructure, will discuss the unique issues raised by the challenging task of restructuring distressed infrastructure projects. Our keynote panel, The Politics of Restructuring, will look at the impact that politics has on a range of entities, including municipalities, corporations and tribal entities. We will also focus on the increasing role of governments – federal, state and local – in the restructuring process. The discussion will be followed by a networking reception. For more information and to register for this event, please click here.
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