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U.S. comment letter on credit risk retention

Published on: Oct 30, 2013

An excerpt from the comment letter is shown below:

The proposed rule would require sponsors of securitization transactions (or their majority-owned affiliates) — except for securitization transactions of asset-backed securities (ABSs) that are collateralized exclusively by qualified residential mortgages (QRMs) or other assets that the proposed rule specifically exempts — to retain credit risk in the securitized assets. Such sponsors could elect to retain credit risk on the basis of either an eligible vertical interest or an eligible horizontal residual interest (or any combination thereof) but must retain an amount equal to at least 5 percent of the fair value of all “ABS interests” in the issuing entity issued as part of the securitization transaction.

The fair value of the ABS interests in the issuing entity (including any interests that must be retained) must be determined (1) “as of the day on which the price of the ABS interests to be sold to third parties is determined” and (2) in accordance with U.S. GAAP. The proposal would also require sponsors to provide potential investors with certain information about how fair value was determined, including the method used, key inputs and assumptions, and other quantitative information.

Our comments on the proposal focus on three topics: (1) use of fair value to measure risk retention, (2) consolidation implications for securitization structures, and (3) whether an accountant’s agreed-upon (AUP) procedures report would be issued in conjunction with the fair values to be reported by the sponsor.

Full text of the comment letter is available below.


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