Moving in synch with regulators from other countries, Mexico's National Banking and Securities Commission (CNBV) has taken measures to boost transparency in the housing finance markets. In addition, the capital-markets regulator may soon push ahead on measures that are on the agenda elsewhere, such as retention requirements.
Before the holidays, ASR caught up with CNBV Technical Vice-President Alan Elizondo to discuss what the regulator is working on in areas pertinent to the asset-backed market.
ABS has been on the minds of CNBV officials for some time. For more than a year now, the agency has been working on getting players in the market more accurate and homogenized information on housing-related assets.
The housing crisis abroad and issues at home stemming from poor oversight of ABS vehicles have also led to a rethinking of regulations, but so far at least, the CNBV has moved timidly on this front. A couple of areas where the agency is mulling changes are "skin in the game" retention rules and greater responsibilities, and by extension, more accountability, for trustees.
The consensus remains fairly grim for a robust return next year to market-based RMBS and bridge loan deals from nonbank originators. But the measures being put in place are likely to provide a strong foundation for transactions when activity does come back in earnest.
ASR:
Could you talk a bit about how the CNBV is trying to improve the quality of information in the real estate asset sector and disseminate it to market participants?
Elizondo:
We've split this into two action items. One we started in October of 2008, and it basically seeks to increase transparency of information in the flows and portfolios in [securitization] trusts containing mortgages and construction bridge loans. We're now uploading this information to the Internet.
The second item is different from the first in that the effort is focused on analyzing portfolios on balance sheet, and not in [ABS] vehicles. Also, on balance sheet we're only collecting information on mortgages, whereas with the vehicles we're including bridge loans for construction as well. What we're going to do [with both] is put out figures and curves on [stats such as] delinquencies and prepayments, which are crucial for investors.
ASR:
Did you look to any regulatory agencies or organizations abroad for how to approach this matter?
Elizondo:
[Our approach] to the second action item has been similar to that of Project RESTART by the American Securitization Forum. We're asking for information on each of these assets and having issuers fill in 100 to 120 fields of information. This will lead to a much more precise and detailed picture of the quality of the underlying assets in these structures. The information will be released periodically, but the most work will be put into the first batch.
ASR:
When will this be available?
Elizondo:
Our Web site www.cnbv.gob.mx should have the information on the first action item - [the details on bridge loan and mortgage issuing trusts] - at the latest in the second quarter of 2010. The second item is going to take longer because we just came out with this rule, and in my experience it takes a lot of effort to ensure quality data. Because we've already asked banks for this information, it will be speedy in their case; for the [nonbank originators] sofoles and sofomes, it will take longer.
ASR:
What motivated the CNBV to become more involved in aggregating and disseminating information on assets in this sector?
Elizondo:
We saw that there were companies [such as Bloomberg] that were evaluating instruments and many times didn't have the sufficient elements to provide a full analysis of deals backed by mortgages [because] there wasn't systemic information on the behavior of mortgages by loan-to-value, by type of borrower, by real estate values or by construction company. These types of statistics haven't really been there. So you can't do a refined analysis of the content of mortgages, and this, at the end of the day, is reflected in pricing. We hope that by giving these parameters, [players] can perform a more refined pricing and evaluation of those instruments.
ASR:
Mexico's Sociedad Hipotecaria Federal (SHF), a government overseer and piggybank for the mortgage sector, has instituted a skin-in-the-game requirement for issuers that fall under its purview (see p. 28). Pension fund regulator Consar has also passed a measure that effectively favors deals where the originator has retained a portion. Where does the CNBV stand on this matter, given that all issuers in the country are required to follow your rules, regardless of whether they're courting pension fund investors or, in the case of real estate companies, looking for the SHF's stamp of approval? Do you think it's important to have mortgage issuers retain a slice of their deals?
Elizondo:
We've seen the initiatives taken at the international level, and we view them positively. We think it's a rule we'll be pushing for, but it still hasn't come out. The idea would be to establish that the originator retain 5%. It could be 5% of a preferential bond, 5% of a subordinated tranche or 5% of a mezzanine piece. We're inclined to think that the originator should be left with a percentage of a subordinated tranche so it takes the first loss.
ASR:
When might the CNBV implement a skin-in-the-game regulation?
Elizondo:
We're waiting for an international consensus, although based on events in the U.K. it appears that it's an inevitable [event]. But we're still evaluating the changes made by Basel and Europe on retention [as well as on] due diligence, master servicers and best practices of revealing information.
[The U.K.'s Financial Services Authority has passed a rule allowing banks to invest only in ABS in which the originator has retained 5%. In the U.S., the Financial Stability Act, currently before the Senate, sets a minimum risk retention of 10%, without, apparently, specifying the form of risk retention.]
ASR:
Any other regulatory items on the CNBV's agenda?
Elizondo:
There's an action item regarding the responsibilities of participants in a securitization. The recent history in Mexico shows that we could define more clearly the responsibilities of the trustee in the transactions. We want to give the trustees more powers in the management of the trust to have someone responsible for certain events within the trust. Today that's not so clear in the regulation.
ASR:
What about master servicing? Is this going to be a requirement for ABS trusts?
Elizondo:
We don't have in mind any changes in terms of master servicers, at least not in the short term.
ASR:
In other countries, there's been resistance to tighter rules and more oversight because, critics argue, they'll end up making deals more expensive, perhaps too expensive in some sectors to justify their existence. What is the CNBV's take on this?
Elizondo:
We think it's more expensive to have a default like in the case of Metrofinanciera (see ASR Sept. 2009). There are areas in which the trustee can subcontract responsibilities. This could involve kinds of servicing or auditing. [But what we want] is for the responsibilities to be clearly delineated. Indeed, we're looking to strengthen our supervision of ABS vehicles. We feel that there are holes in our capacity to oversee these vehicles. So we think in giving trustees more and clearer responsibilities, we're [also] giving ourselves greater powers to supervise their fiduciary activities.
(c) 2010 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.
http://www.structuredfinancenews.com http://www.sourcemedia.com
