Mortgage Bankers Association

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Mortgage Bankers Association 

Presentation to the Securities and Exchange Commission on the Proposed Asset-Backed Securities Rule

September 23, 2004

 

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AGENDA 

INTRODUCTIONS  
MORTGAGE SECURITIZATION MODELS  
ABS RULE DEFINITIONS  
PROPOSED DISCLOSURES  
PROPOSED RESPONSIBLE PARTY ROLE  
PROPOSED ATTESTATION ENGAGEMENT  
GENERAL MBA COMMENTS  
RECAP OF MBA RECOMMENDATIONS  

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I. Introductions 

Mortgage Bankers Association: The national association representing the real estate finance industry, with membership of over 2,700 companies For 2003, an estimated $98.7 billion of CMBS were issued and $586 billion of RMBS (exclusive of agency guaranteed securities) were issued; the top 100 CMBS issuers and the top 25 RMBS issuers are all MBA members Participant Introductions General MBA View: Benefits of Cohesive Set of Rules Disclosures Generally Already Made Today Industry has a Vested Interest in Serving Investors00Needs

 

 

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II. Mortgage Securitization Models  

Residential Mortgage Securitization Models Master Servicer Without Servicing Responsibilities Master Servicing With Servicing Responsibilities Non-Master Servicer

    

Commercial Mortgage Securitization Model Master Servicer Multiple Master Servicer  

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RMBS MODEL 
Master Servicer Without Primary Servicing Responsibility 
Flow of Information & Documentation 

PRIMARY

SERVICER 

Borrowers 

Loan  Docs 

PRIMARY

SERVICER 

Borrowers 

Loan  Docs 

PRIMARY

SERVICER 

Borrowers 

Loan  Docs 

Outsource

Vendor 

Contract 

Contract 

MASTER

SERVICER 

Servicing

Agreement 

PSA 

Servicing

Agreement 

TRUSTEE 

PSA 

TRUST 

INVESTORS 

Securities 

PSA = Pooling and Servicing Agreement 

ISSUER / DEPOSITOR 

PSA 

PSA 

PSA 

Subservicer

 

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RMBS MODEL 
Master Servicer With Primary Servicing Responsibility 
Flow of Information & Documentation 

PRIMARY

SERVICER 

Borrowers 

Loan  Docs 

Borrowers 

Loan  Docs 

PRIMARY

SERVICER 

Borrowers 

Loan  Docs 

Outsource

Vendor 

Subservicer 

Contract 

Contract 

MASTER

SERVICER

AND PRIMARY SERVICER 

Servicing

Agreement 

PSA 

TRUSTEE 

PSA 

TRUST 

INVESTORS 

Securities 

PSA = Pooling and Servicing Agreement 

ISSUER / DEPOSITOR 

PSA 

PSA 

PSA

 

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RMBS MODEL 
No Master Servicer  
Flow of Information & Documentation 

PRIMARY

SERVICER 

Borrowers 

Loan  Docs 

PRIMARY

SERVICER 

Borrowers 

Loan  Docs 

PRIMARY

SERVICER 

Borrowers 

Loan  Docs 

Outsource

Vendor 

Subservicer 

Contract 

Contract 

BOND

ADMINISTRATOR 

Servicing

Agreement 

PSA 

Servicing

Agreement 

TRUSTEE 

PSA 

TRUST 

INVESTORS 

Securities 

PSA = Pooling and Servicing Agreement 

ISSUER / DEPOSITOR 

PSA 

PSA

 

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CMBS MODEL 00Master Servicer 
FLOW OF INFORMATION & DOCUMENTATION 

PRIMARY

SERVICER 

Borrowers 

Loan  Docs 

Borrowers 

Loan  Docs 

PRIMARY

SERVICER 

Borrowers 

Loan  Docs 

Outsource

Vendor 

Outsource

Vendor 

Contract 

Contract 

Sub-Servicing

Agreement 

Sub-Servicing

Agreement 

SPECIAL

SERVICER 

PSA 

TRUSTEE 

PSA 

TRUST 

INVESTORS 

Securities 

PSA = Pooling and Servicing Agreement 

ISSUER / DEPOSITOR 

PSA 

PSA 

Contract 

Outsource

Vendor 
 

MASTER

SERVICER

AND PRIMARY SERVICER

 

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CMBS MODEL 00Multiple Master Servicer 
FLOW OF INFORMATION & DOCUMENTATION 

PRIMARY

SERVICER 

Borrowers 

Loan  Docs 

PRIMARY

SERVICER 

Borrowers 

Loan  Docs 

PRIMARY

SERVICER 

Borrowers 

Loan  Docs 

Outsource

Vendor 

Outsource

Vendor 

Contract 

Contract 

MASTER

SERVICER 

Sub-Servicing

Agreement 

Sub-Servicing

Agreement 

Sub-Servicing

Agreement 

SPECIAL

SERVICER 

PSA 

TRUSTEE 

PSA 

TRUST 

INVESTORS 

Securities 

PSA = Pooling and Servicing Agreement 

ISSUER / DEPOSITOR 

PSA 

PSA 

MASTER

SERVICER 

PSA 

Contract 

Outsource

Vendor

 

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III.   ABS Rule Definition & Actual Roles of Participants  

ABS Rule Definition  

   00ervicer means any person responsible for the management or collection of the pool assets or making allocations or distributions to holders of the asset backed securities.  The term servicer does not include a trustee 000 

B. Industry Definitions 

Master servicer  - Contractual agent with oversight of primary servicers, reporting responsibilities to the trustee, and may provide liquidity to the trust through servicing advances. Primary servicer - Collateral administrator that performs mortgage loan servicing functions.  May also be a master servicer or an affiliate of a master servicer. Special servicer - The servicer of defaulted mortgage loans. Subservicer - In CMBS, synonymous with the role of a primary servicer; in RMBS, a servicer that is under contract with a primary servicer. Outsource vendor - In RMBS, sometimes referred to as subservicer.  A third party hired by a servicer to perform select functions. Bond administrator - In CMBS, synonymous with the trustee.  In RMBS, can be a separate role from the trustee.  Performs security payment calculations and distributes funds to investors.  

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IV. Disclosures 

MBA Concerns  
Static Pool Data/Collateral Considerations APR, Points and Fees: Irrelevant to Investor Cash Flow Servicing Disclosure Issues Timeline Issues  
MBA Recommendations  
Eliminate Static Pool Data Requirement Eliminate Disclosure of APR, Points and Fees Utilize PSA Summary of Servicing Practices Provide Guidance on Disclosure and Transaction Timeline  

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Timeline of CMBS Transactions 
 
 
 

Issuers offer a tentative pool of assets for the transaction & determine the depositor for the transaction Depositor offers the pool of assets to the market, investors pledge to purchase the rated class of assets 00the non-rated class investor chooses the special servicer Each potential master servicer submits a bid letter, offering a price to service the loans, to the depositor Depositor notifies one of the servicers that they have won the bid & will be named as the master servicer on the deal The 00ed00prospectus (draft copy) is written & approved by all named parties, the depositor, issuers, master servicer, special servicer, trustee, & rating agencies (the primary servicers are typically not a signing party to the document) Issuers finalizes the pool of assets; the 00lack00prospectus (final) is printed & disbursed to the investors. The Pooling and Servicing Agreement (PSA) is drafted based on the special servicer provisions, trustee provisions, rating agency requirements, master servicer bid letter terms & the general industry standards for a transaction PSA is finalized by agreement of the named parties in the document Master servicer completes negotiations with each individual primary servicer & finalizes the Primary Servicing Agreements Depositor offers the pool assets as securities to the market & files the official documents to complete the transaction with the Commission  

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Timeline of RMBS Transactions 
 
 
 

The owner of the assets to be securitized (the 00eller00 identifies a tentative pool of assets Seller determines the underwriter & the depositor for the transaction. Each potential master servicer submits a bid letter to the Seller Seller notifies the master servicer that they have won the bid & will be named as the master servicer Seller determines which party or parties will act as servicer of the assets.  The assets may be serviced by the Seller, another originator of the assets or another party selected by the Seller The collateral term sheets & structural term sheets are written & approved by the Seller, the depositor, underwriter & rating agencies, then distributed to investors for feedback on potential deal structure & pricing The Seller & the underwriter finalize the pool of assets, transaction structure & terms of the securities; The Prospectus is drafted & reviewed by all parties to the transaction including the Seller, depositor, underwriter, master servicer, servicers, trustee & rating agencies The Pooling and Servicing Agreement (00SA00 is drafted based on the final structure described in the Prospectus & also incorporates rating agency requirements & the general industry standards for a transaction The Prospectus is finalized & distributed to investors prior to the closing date The PSA & servicing agreements are finalized by agreement of the named parties in the document & rating agencies The Seller offers the pool of assets as securities to the market & documents are filed with the Commission  

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 V. Responsible Party Role 

Responsible Party would sign: 10-K Report Sarbanes-Oxley Section 302 Certification Assertion of universal compliance with criteria in attestation engagement  

B. MBA concerns:

Does not reflect roles of participants in CMBS and RMBS worlds 00transactions are structured to diversify risk, decision-making and responsibility RP faces uncertainty and risk when determining 00aterial compliance,00without additional guidance from the Commission Would create conflicts and raise transaction costs as deals would have to be renegotiated/repriced Would the proposed RP effectively be a guarantor as to performance of transaction parties00responsibilities?  

C. MBA Recommendation:

    Division of responsibility for signing 10-K Report, Sarbanes-Oxley Certification and Assertion of Compliance should be a point of negotiation between the depositor and the master servicer

 

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VI. Proposed Attestation Engagement  
 

MBA Views Proposed attestation engagement strong start Preferable to separate industry engagements Workable with some changes   
MBA Concerns Overlapping servicer roles RP could place conflicting demands on same primary servicers RP (including master servicers) controls generally do not provide assurance to level of detail covered by servicing criteria Timeline issues Some criteria too transaction specific Some criteria related to trustee functions  
MBA Recommendation Master servicers, and primary servicers that meet a certain threshold, should be required to engage an independent accountant to render an opinion on their individual compliance with servicing criteria at the platform level.  Then, the RP collects the attestation reports from each servicer and attaches a statement to the 10-K Report without rendering a judgment as to any servicers00compliance.  

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VII. General MBA Comments 

Materiality Guidance  
Costs Associated with Compliance  
Transition Period  
Reissue Proposed Rule for Additional Comment  

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VIII.  Recap of Industry Recommendations 

DEFINITIONS  
DISCLOSURES  
RESPONSIBLE PARTY  
ATTESTATION ENGAGEMENT  
REISSUE PROPOSED RULE FOR ADDITIONAL COMMENT

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