Treatment by the Federal Deposit Insurance Corporation as Conservator or Receiver of Financial Assets Transferred by an Insured Depository Institution in Connection With a Securitization or Participation After September 30, 2010, 60287-60302 [2010-24595]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 75, Number 189 (Thursday, September 30, 2010)]
[Rules and Regulations]
[Pages 60287-60302]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-24595]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 360

RIN 3064-AD55


Treatment by the Federal Deposit Insurance Corporation as 
Conservator or Receiver of Financial Assets Transferred by an Insured 
Depository Institution in Connection With a Securitization or 
Participation After September 30, 2010

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation (``FDIC'') has 
adopted an amended regulation regarding the treatment by the FDIC, as 
receiver or conservator of an insured depository institution, of 
financial assets transferred by the institution in connection with a 
securitization or a participation (the ``Rule''). The Rule continues 
the safe harbor for financial assets transferred in connection with 
securitizations and participations in which the financial assets were 
transferred in compliance with the existing regulation. The Rule also 
imposes further conditions for a safe harbor for securitizations or 
participations issued after a transition period. On March 11, 2010, the 
FDIC established a transition period through September 30, 2010. In 
order to provide for a transition to the new conditions for the safe 
harbor, the Rule provides for an extended transition period through 
December 31, 2010 for securitizations and participations. The Rule 
defines the conditions for safe harbor protection for securitizations 
and participations for which transfers of financial assets are made 
after the transition period; and clarifies the application of the safe 
harbor to transactions that comply with the new accounting standards 
for off balance sheet treatment as well as those that do not comply 
with those accounting standards. The conditions contained in the Rule 
will serve to protect the Deposit Insurance Fund (``DIF'') and the 
FDIC's interests as deposit insurer and receiver by aligning the 
conditions for the safe harbor with better and more sustainable 
securitization practices by insured depository institutions (``IDIs'').

DATES: Effective September 30, 2010.

FOR FURTHER INFORMATION CONTACT: Michael Krimminger, Office of the 
Chairman, 202-898-8950; George Alexander, Division of Resolutions and 
Receiverships, (202) 898-3718; Robert Storch, Division of Supervision 
and Consumer Protection, (202) 898-8906; or R. Penfield Starke, Legal 
Division, (703) 562-2422, Federal Deposit Insurance Corporation, 550 
17th Street, NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

    In 2000, the FDIC clarified the scope of its statutory authority as 
conservator or receiver to disaffirm or repudiate contracts of an 
insured depository institution with respect to transfers of financial 
assets by an IDI in connection with a securitization or participation 
when it adopted a regulation codified at 12 CFR 360.6 (the 
``Securitization Rule''). This rule provided that the FDIC as 
conservator or receiver would not use its statutory authority to 
disaffirm or repudiate contracts to reclaim, recover, or recharacterize 
as property of the institution or the receivership any financial assets 
transferred by an IDI in connection with a securitization or in the 
form of a participation, provided that such transfer met all conditions 
for sale accounting treatment under generally accepted accounting 
principles (``GAAP''). The rule was a clarification, rather than a 
limitation, of the repudiation power. Such power authorizes the 
conservator or receiver to breach a contract or lease entered into by 
an IDI and be legally excused from further performance, but it is not 
an avoiding power enabling the conservator or receiver to recover 
assets that were previously sold and no longer reflected on the books 
and records on an IDI.
    The Securitization Rule provided a ``safe harbor'' by confirming 
``legal isolation'' if all other standards for off balance sheet 
accounting treatment, along with some additional conditions focusing on 
the enforceability of the transaction, were met by the transfer in 
connection with a securitization or a participation. Satisfaction of 
``legal isolation'' was vital to securitization transactions because of 
the risk that the pool of financial assets transferred into the 
securitization trust could be recovered in bankruptcy or in a bank 
receivership. If the transfer satisfied this condition, the 
Securitization Rule confirmed that the transferred assets were 
``legally isolated'' from the IDI in an FDIC conservatorship or 
receivership. The Securitization Rule, thus, addressed only purported 
sales which met the conditions for off balance sheet accounting 
treatment under GAAP.
    Since its adoption, the Securitization Rule has been relied on by 
securitization participants as assurance that investors could look to 
securitized financial assets for payment without concern that the 
financial assets would be interfered with by the FDIC as conservator or 
receiver. However, the implementation of new accounting rules has 
created uncertainty for securitization participants.

Modifications to GAAP Accounting Standards

    On June 12, 2009, the Financial Accounting Standards Board 
(``FASB'') finalized modifications to GAAP through Statement of 
Financial Accounting Standards No. 166, Accounting for Transfers of 
Financial Assets, an Amendment of FASB Statement No. 140 (``FAS 166'') 
and Statement of Financial Accounting Standards No. 167, Amendments to 
FASB Interpretation No. 46(R) (``FAS 167'') (the ``2009 GAAP 
Modifications''). The 2009 GAAP Modifications are effective for annual 
financial statement reporting periods that begin after November 15, 
2009. The 2009 GAAP Modifications made changes that affect whether a 
special purpose entity (``SPE'') must be consolidated for financial 
reporting purposes, thereby subjecting many SPEs to GAAP consolidation 
requirements. These accounting changes may require some IDIs to 
consolidate an issuing entity to which financial assets have been 
transferred for securitization onto their balance sheets for financial 
reporting purposes primarily because an affiliate of the IDI retains 
control over

[[Page 60288]]

the financial assets.\1\ Given the 2009 GAAP Modifications, legal and 
accounting treatment of a transaction may no longer be aligned. As a 
result, the safe harbor provision of the Securitization Rule may not 
apply to a transfer in connection with a securitization that does not 
qualify for off balance sheet treatment.
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    \1\ Of particular note, Paragraph 26A of FAS 166 introduces a 
new concept that was not in FAS 140, as follows: ``* * * the 
transferor must first consider whether the transferee would be 
consolidated by the transferor. Therefore, if all other provisions 
of this Statement are met with respect to a particular transfer, and 
the transferee would be consolidated by the transferor, then the 
transferred financial assets would not be treated as having been 
sold in the financial statements being presented.''
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    FAS 166 also affects the treatment of participations issued by an 
IDI, in that it defines participating interests as pari-passu pro-rata 
interests in financial assets, and subjects the sale of a participation 
interest to the same conditions as the sale of financial assets. 
Statement FAS 166 provides that transfers of participation interests 
that do not qualify for sale treatment will be viewed as secured 
borrowings. While the GAAP modifications have some effect on 
participations, most participations are likely to continue to meet the 
conditions for sale accounting treatment under GAAP.

FDI Act Changes

    In 2005 Congress enacted Section 11(e)(13)(C) \2\ of the Federal 
Deposit Insurance Act (the ``FDI Act'').\3\ In relevant part, this 
paragraph provides that generally no person may exercise any right or 
power to terminate, accelerate, or declare a default under a contract 
to which the IDI is a party, or obtain possession of or exercise 
control over any property of the IDI, or affect any contractual rights 
of the IDI, without the consent of the conservator or receiver, as 
appropriate, during the 45-day period beginning on the date of the 
appointment of the conservator or the 90-day period beginning on the 
date of the appointment of the receiver. If a securitization is treated 
as a secured borrowing, Section 11(e)(13)(C) could prevent the 
investors from recovering monies due to them for up to 90 days. 
Consequently, securitized assets that remain property of the IDI (but 
subject to a security interest) would be subject to the stay, raising 
concerns that any attempt by securitization noteholders to exercise 
remedies with respect to the IDI's assets would be delayed. During the 
stay, interest and principal on the securitized debt could remain 
unpaid. The FDIC has been advised that this 90-day delay would cause 
substantial downgrades in the ratings provided on existing 
securitizations and could prevent planned securitizations for multiple 
asset classes, such as credit cards, automobile loans, and other 
credits, from being brought to market.
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    \2\ 12 U.S.C. 1821(e)(13)(C).
    \3\ 12 U.S.C. 1811 et seq.
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 Analysis

    The FDIC believes that several of the issues of concern for 
securitization participants regarding the impact of the 2009 GAAP 
Modifications on the eligibility of transfers of financial assets for 
safe harbor protection can be addressed by clarifying the position of 
the conservator or receiver under established law. Under Section 
11(e)(12) of the FDI Act,\4\ the conservator or receiver cannot use its 
statutory power to repudiate or disaffirm contracts to avoid a legally 
enforceable and perfected security interest in transferred financial 
assets. This provision applies whether or not the securitization meets 
the conditions for sale accounting. The Rule clarifies that prior to 
repudiation or, in the case of a monetary default, prior to the date on 
which the FDIC's consent to the exercise of remedies becomes effective, 
required payments of principal and interest and other amounts due on 
the securitized obligations will continue to be made. In addition, if 
the FDIC decides to repudiate the securitization transaction, the FDIC 
will pay damages equal to the par value of the outstanding obligations, 
less prior payments of principal received, plus unpaid, accrued 
interest through the date of repudiation. The payment of such damages 
will discharge the lien on the securitization assets. This 
clarification in paragraphs (d)(4) and (e) of the Rule addresses 
certain questions that were raised about the scope of the stay codified 
in Section 11(e)(13)(C).
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    \4\ 12 U.S.C. 1821(e)(12).
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    An FDIC receiver generally makes a determination of what 
constitutes property of an IDI based on the books and records of the 
failed IDI. Given the 2009 GAAP Modifications, there may be 
circumstances in which a sale transaction will continue to be reflected 
on the books and records of the IDI because the IDI or one of its 
affiliates continues to exercise control over the assets either 
directly or indirectly. The Rule provides comfort that conforming 
securitizations which do not qualify for off balance sheet treatment 
will have access to the assets in a timely manner irrespective of 
whether a transaction is viewed as a legal sale.
    If a transfer of financial assets by an IDI to an issuing entity in 
connection with a securitization is not characterized as a sale and is 
properly perfected, the securitized assets will be viewed as subject to 
a perfected security interest. This is significant because the FDIC as 
conservator or receiver is prohibited by statute from avoiding a 
legally enforceable and perfected security interest, except where such 
an interest is taken in contemplation of insolvency or with the intent 
to hinder, delay, or defraud the institution or the creditors of such 
institution.\5\ Consequently, the ability of the FDIC as conservator or 
receiver to reach financial assets transferred by an IDI to an issuing 
entity in connection with a securitization, if such transfer is 
characterized as a transfer for security, is limited by the combination 
of the status of the entity as a secured party with a perfected 
security interest in the transferred assets and the statutory provision 
that prohibits the conservator or receiver from avoiding a legally 
enforceable and perfected security interest.
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    \5\ 12 U.S.C. 1821(e)(12).
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    Thus, for securitizations that are consolidated on the books of an 
IDI, the Rule provides a safe harbor in a conservatorship or 
receivership. There are two situations in which consent to expedited 
access to transferred assets will be given--(i) monetary default under 
a securitization by the FDIC as conservator or receiver or (ii) 
repudiation by the FDIC of the securitization agreements pursuant to 
which the financial assets were transferred. The Rule provides that in 
the event the FDIC is in monetary default under the securitization 
documents due to its failure to pay or apply collections from the 
financial assets received by it in accordance with the securitization 
documents and the default continues for a period of ten (10) business 
days after written notice to the FDIC, the FDIC will be deemed to 
consent pursuant to Sections 12 U.S.C. 1821(e)(13)(C) and 12 U.S.C. 
1825(b)(2) to the exercise of contractual rights under the documents on 
account of such monetary default, and such consent shall constitute 
satisfaction in full of obligations of the IDI and the FDIC as 
conservator or receiver to the holders of the securitization 
obligations.
    The Rule also provides that in the event the FDIC repudiates the 
securitization asset transfer agreement, the FDIC shall have the right 
to discharge the lien on the financial assets included in the 
securitization by paying damages in an amount equal to the par value of 
the obligations in the securitization on the date of the

[[Page 60289]]

appointment of the FDIC as conservator or receiver, less any principal 
payments received by the investors through the date of repudiation, 
plus unpaid, accrued interest through the date of repudiation. The 
payment of accrued interest is dependent on whether the FDIC has 
received those funds through payments on the financial assets. If such 
damages are not paid within ten (10) business days of repudiation, the 
FDIC will be deemed to consent pursuant to Sections 12 U.S.C. 
1821(e)(13)(C) and 12 U.S.C. 1825(b)(2) to the exercise of contractual 
rights under the securitization agreements.
    The Rule also confirms that, if the transfer of the assets in a 
securitization is viewed as a sale for accounting purposes (and thus 
the assets are not reflected on the books of an IDI), the FDIC as 
receiver will not, in the exercise of its authority to disaffirm or 
repudiate contracts, reclaim, recover, or recharacterize as property of 
the institution or the receivership the transferred assets. However, 
this safe harbor only applies if the transactions comply with the 
requirements set forth in paragraphs (b) and (c) of the Rule.
    Pursuant to 12 U.S.C. 1821(e)(13)(C), no person may exercise any 
right or power to terminate, accelerate, or declare a default under a 
contract to which the IDI is a party, or to obtain possession of or 
exercise control over any property of the IDI, or affect any 
contractual rights of the IDI, without the consent of the conservator 
or receiver, as appropriate, during the 45-day period beginning on the 
date of the appointment of the conservator or the 90-day period 
beginning on the date of the appointment of the receiver. In order to 
address concerns that the statutory stay could delay repayment of 
investors in a securitization or delay a secured party from exercising 
its rights with respect to securitized financial assets, the Rule 
provides for consent by the conservator or receiver or, if the FDIC is 
acting as servicer, for the agreement of the FDIC in that capacity, to 
continue making required payments under the securitization documents 
and continued servicing of the assets. In addition, the Rule allows for 
the exercise of self-help remedies during the stay period of 12 U.S.C. 
1821(e)(13)(C) ten (10) business days after notice is given following a 
monetary default by the FDIC or, in the event that the FDIC does not 
timely pay repudiation damages.
    The FDIC recognizes that, as a practical matter, the scope of the 
comfort that is provided by the Rule is more limited than that provided 
in the Securitization Rule. However, the FDIC believes that the 
requirements are necessary to support sustainable securitizations. The 
safe harbor is not exclusive, and it does not address any transactions 
that fall outside the scope of the safe harbor or that fail to comply 
with one or more safe harbor conditions. The FDIC believes that its 
safe harbor should promote responsible financial asset underwriting and 
increase transparency in the market.

Previous Rulemakings

    On November 12, 2009, the FDIC issued an Interim Final Rule 
amending 12 CFR 360.6, Treatment by the Federal Deposit Insurance 
Corporation as Conservator or Receiver of Financial Assets Transferred 
by an Insured Depository Institution in Connection With a 
Securitization or Participation, to provide for safe harbor treatment 
for participations and securitizations until March 31, 2010, which was 
further amended, on March 11, 2010, by a Final Rule extending the safe 
harbor until September 30, 2010 (as so amended, the ``Transition 
Rule''). Under the Transition Rule, all existing securitizations as 
well as those for which transfers were made or, for revolving trusts, 
for which beneficial interests were issued, on or prior to September 
30, 2010, were permanently ``grandfathered'' so long as they complied 
with the pre-existing Section 360.6.
    At its December 15, 2009 meeting, the Board adopted an Advance 
Notice of Proposed Rulemaking (``ANPR'') and, at its May 11, 2010 
meeting, the Board adopted a Notice of Proposed Rulemaking (``NPR''), 
each of which sought public comment on the scope of amendments to 
Section 360.6 as well as on the requirements for the application of the 
safe harbor. The FDIC considered all of the comments received in 
response to the ANPR in formulating the NPR. The NPR and the public 
comments received are discussed below in Sections III and IV.

Purpose of the Rule

    The FDIC, as deposit insurer and receiver for failed IDIs, has a 
unique responsibility and interest in ensuring that residential 
mortgage loans and other financial assets originated by IDIs are 
originated for long-term sustainability. The supervisory interest in 
origination of quality loans and other financial assets is shared with 
other bank and thrift supervisors. Nevertheless, the FDIC's 
responsibilities to protect insured depositors and resolve failed 
insured banks and thrifts and its responsibility to the DIF require 
that when the FDIC provides a safe harbor consenting to special relief 
from the application of its receivership powers, it must do so in a 
manner that fulfills these responsibilities.
    The evident defects in many subprime and other mortgages originated 
and sold into securitizations requires attention by the FDIC to fulfill 
its responsibilities as deposit insurer and receiver in addition to its 
role as a supervisor. The defects and misalignment of incentives in the 
securitization process for residential mortgages were a significant 
contributor to the erosion of underwriting standards throughout the 
mortgage finance system. While many of the troubled mortgages were 
originated by non-bank lenders, insured banks and thrifts also made 
many troubled loans as underwriting standards declined under the 
competitive pressures created by the returns achieved by lenders and 
service providers through the ``originate to distribute'' model.
    Defects in the incentives provided by securitization through 
immediate gains on sale for transfers into securitization vehicles and 
fee income directly led to material adverse consequences for insured 
banks and thrifts. Among these consequences were increased repurchase 
demands under representations and warranties contained in 
securitization agreements, losses on purchased mortgage and asset-
backed securities, severe declines in financial asset values and in 
mortgage- and asset-backed security values due to spreading market 
uncertainty about the value of structured finance investments, and 
impairments in overall financial prospects due to the accelerated 
decline in housing values and overall economic activity. These 
consequences, and the overall economic conditions, directly led to the 
failures of many IDIs and to significant losses to the DIF. In this 
context, it would be imprudent for the FDIC to provide consent or other 
clarification of its application of its receivership powers without 
imposing requirements designed to realign the incentives in the 
securitization process to avoid these devastating effects.
    The FDIC's adoption of 12 CFR 360.6 in 2000 facilitated legal and 
accounting analyses that supported securitization. In view of the 
accounting changes and the effects they have upon the application of 
the Securitization Rule, it is crucial that the FDIC provide 
clarification of the application of its receivership powers in a way 
that reduces the risks to the DIF by better aligning the incentives in 
securitization to support sustainable lending and structured finance 
transactions.
    The Rule is fully consistent with the position of the FDIC in the 
Final Covered Bond Policy Statement of July 15, 2008. In that Policy 
Statement, the

[[Page 60290]]

FDIC Board of Directors acted to clarify how the FDIC would treat 
covered bonds in the case of a conservatorship or receivership with the 
express goal of thereby facilitating the development of the U.S. 
covered bond market. As noted in that Policy Statement, it served to 
``define the circumstances and the specific covered bond transactions 
for which the FDIC will grant consent to expedited access to pledged 
covered bond collateral.'' The Policy Statement further specifically 
referenced the FDIC's goal of promoting development of the covered bond 
market, while protecting the DIF and prudently applying its powers as 
conservator or receiver.\6\
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    \6\ FDIC Covered Bond Policy Statement, 73 FR 43754 et seq. 
(July 28, 2008).
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    The Rule is also consistent with the amendments to Regulation AB 
proposed by the Securities and Exchange Commission (``SEC'') on April 
7, 2010 (as so proposed to be amended, ``New Regulation AB''). The 
proposed amendments represent a significant overhaul of Regulation AB 
and related rules governing the offering process, disclosure 
requirements and ongoing reporting requirements for securitizations. 
New Regulation AB would establish extensive new requirements for both 
SEC registered publicly offered securitization and many private 
placements, including disclosure of standardized financial asset level 
information, enhanced investor cash flow modeling tools and on-going 
information reporting requirements. In addition New Regulation AB 
requires certain certifications to the quality of the financial asset 
pool, retention by the sponsor or an affiliate of a portion of the 
securitization securities and third party reports on compliance with 
the sponsor's obligation to repurchase assets for breach of 
representations and warranties as a precondition to an issuer's ability 
to use a shelf registration. The disclosure and retention requirements 
of New Regulation AB are consistent with and support the approach of 
the Rule.
    To ensure that IDIs are sponsoring securitizations in a responsible 
and sustainable manner, the Rule imposes certain conditions on 
securitizations that are not grandfathered by the Rule's transition 
provision and additional conditions on non-grandfathered 
securitizations that include residential mortgages (``RMBS''), 
including those that qualify as true sales, as a prerequisite for the 
FDIC to grant consent to the exercise of the rights and powers listed 
in 12 U.S.C. 1821(e)(13)(C) with respect to such financial assets. To 
qualify for the safe harbor provision of the Rule, the conditions must 
be satisfied for any securitization (i) for which transfers of 
financial assets were made on or after December 31, 2010 or (ii) from a 
master trust or revolving trust established after adoption of the Rule, 
or from an open commitment not in effect on the date of adoption of the 
Rule or which otherwise does not qualify to be grandfathered under the 
transition provisions.

II. The NPR

    On January 7, 2010, the FDIC published its Advance Notice of 
Proposed Rulemaking Regarding Treatment by the FDIC as Conservator or 
Receiver of Financial Assets Transferred by an IDI in Connection with a 
Securitization or Participation After March 31, 2010 in the Federal 
Register (75 FR 935 (Jan. 7, 2010)) soliciting public comment to 
proposed amendments to the Securitization Rule. On May 17, 2010, the 
FDIC published its Notice of Proposed Rulemaking Regarding Treatment by 
the FDIC as Conservator or Receiver of Financial Assets Transferred by 
an IDI in Connection with a Securitization or Participation After 
September 30, 2010 (75 FR 27471 (May 17, 2010)). The NPR solicited 
public comment on the Proposed Rule for 45 days.

III. Summary of Comments on the NPR

    The FDIC received 22 comment letters on the Proposed Rule and held 
one teleconference at which details of the NPR were discussed. The 
letters included comments from trade associations, banks and rating 
agencies, among others.
    Several entities commented specifically on the need for greater 
disclosure, and the comments included support for the requirement of 
loan level data for residential mortgage loans. In addition, support 
was expressed for risk retention; however, there were differing views 
as to the level of required risk retention.
    A number of commenters had objections to the Proposed Rule. 
Objections fell mainly into the following categories: (1) With the 
passage of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, the FDIC should only adopt conditions jointly with the other 
federal regulators; (2) certain criteria were deemed to be too 
qualitative in nature; (3) certain conditions were viewed as 
potentially increasing costs to IDIs; and (4) the remedies available 
under the safe harbor and legal isolation were perceived as lacking 
clarity.
    Joint action by the agencies. The FDIC undertook to revise its safe 
harbor in light of accounting changes that came into effect for 
reporting periods after November 15, 2009. At that point in time, the 
outcome of financial regulatory reform proposals was unclear. The FDIC 
did not delay its efforts because the accounting and legal bases for 
the pre-existing safe harbor did not apply after November 2009. Given 
the changed facts, industry urged the FDIC to evaluate the safe harbor 
and provide guidance in light of the 2009 GAAP Modifications.
    Beginning in the fall of 2009, FDIC staff discussed differing 
approaches to the safe harbor regulation with the staff of all relevant 
federal financial regulators and the Department of Treasury. 
Accordingly, earlier this year the Securities and Exchange Commission 
proposed New Regulation AB to govern required disclosures for shelf 
registrations and private placements that were fully consistent with 
the additional transparency requirements contained in the Proposed 
Rule. As a result, the Rule and the SEC's proposed regulations are 
fully consistent.
    Nothing in the Rule is inconsistent with the Dodd-Frank 
legislation. The provisions of the Dodd-Frank legislation substantively 
address only the risk retention requirements and, pending further 
regulatory action, require five percent risk retention. This is fully 
consistent with the Rule as well.
    Section 941 of Dodd-Frank requires the federal banking agencies, 
including the FDIC, and the SEC to jointly prescribe regulations to 
require any securitizer to retain an economic interest in a portion of 
the credit risk for any assets involved in a securitization. Dodd-Frank 
also requires regulations addressing retention of credit risk for 
residential mortgages, and requires the agencies to define ``qualified 
residential mortgages'' which are exempt from risk retention. Section 
941 authorizes the rulemaking agencies to consider whether additional 
exemptions, exceptions, or adjustments are appropriate. The regulations 
covering securitizations involving residential mortgages must be 
jointly issued by the foregoing agencies along with the Secretary of 
the Department of Housing and Urban Development and the Federal Housing 
Finance Agency. These regulations must be adopted within 270 days of 
enactment of the Dodd-Frank legislation. In order to assure consistency 
between the Rule and these required interagency regulations, the Rule 
provides that upon the effective date of final regulations required by

[[Page 60291]]

Section 941(b), such final regulations shall exclusively govern the 
requirement to retain an economic interest in a portion of the credit 
risk of the financial assets under the Rule.
    An important consideration is that different regulatory agencies 
have different regulatory jurisdiction. The FDIC has regulatory 
jurisdiction over the rules applied in the resolution of failed IDIs, 
as the SEC has jurisdiction over disclosure requirements under the 
securities laws. In exercising their different responsibilities, the 
agencies may have to adopt rules addressing the same issues within 
their regulatory mandate. In those cases, those rules should be 
harmonized except where differences are appropriate to accomplish their 
different regulatory missions. For the FDIC's safe harbor rule, the 
FDIC is setting the conditions that define how it will apply its 
receivership powers and, thereby, what types of transactions will be 
entitled to the safe harbor protecting them from application of certain 
of those powers. This was precisely what the FDIC did in 2000 when it 
adopted the original version of Section 360.6. The interagency risk 
retention rule required by the Dodd-Frank legislation will not address 
all of the issues relevant to the application of those receivership 
rules or to the availability of the safe harbor. In exercising the 
FDIC's regulatory jurisdiction, the Rule addresses risk retention as 
well as the other components of the safe harbor whereas the interagency 
rule will solely address risk retention.
    Certain criteria were too qualitative in nature. A number of 
commenters noted that reliance on qualitative criteria or requirements 
for continuing actions, such as ongoing disclosures, would make it more 
difficult to de-link the rating of a securitization from that of the 
sponsor. It is a debatable proposition that rating agencies cannot 
evaluate qualitative information when they must rely on changing, 
qualitative information in any ongoing surveillance of a rating. 
Nonetheless, the Rule reflects revisions from the text of the Proposed 
Rule and ties disclosures and many other requirements solely to the 
contractual terms of the securitization documents. This will permit a 
clearer assessment of whether a transaction meets the conditions in the 
Rule. Certain other conditions included in the Proposed Rule that were 
asserted to be vague were also modified to clarify terminology and 
respond to the concerns expressed in comments.
    Conditions potentially increase costs for IDIs. Comments received 
in opposition to the conditions included disagreement that such 
requirements would serve to promote more long-term sustainability for 
loans and other financial assets originated by IDIs and assertions that 
the conditions would impose additional costs on IDIs and competitively 
disadvantage IDIs in relation to non-regulated securitization sponsors.
    These comments reflect a misunderstanding of the purpose of the 
conditions. The conditions are designed to provide greater clarity and 
transparency to allow a better ongoing evaluation of the quality of 
lending by banks and reduce the risks to the DIF from opaque 
securitization structures and the poorly underwritten loans that led to 
the onset of the financial crisis. In addition, these comments fail to 
recognize that securitization as a viable liquidity tool in mortgage 
finance will not return without greater transparency and clarity 
because investors have experienced the difficulties provided by the 
existing model of securitization. However, greater transparency is not 
solely for investors, but will serve to more closely tie the 
origination of loans to their long-term performance by requiring 
disclosures of that performance. These conditions are supported by New 
Regulation AB.
    Remedies available under the safe harbor and legal isolation. A 
number of commenters were concerned that damages payable for 
repudiation of securitization transfer agreements would not include 
payment of interest to the date of repudiation. The Rule has been 
revised to specifically include in the calculation of repudiation 
damages accrued interest through the date of repudiation, to the extent 
received through payments on financial assets through the date of 
repudiation.
    Credit rating agencies expressed concern that in the absence of 
clarification by the FDIC regarding the continuation of payments after 
an IDI's failure and the payment of damages in the event of 
repudiation, an IDI securitization might need to be linked to the IDI's 
credit rating. The Rule addresses these issues in its provisions 
consenting to payments being made prior to repudiation and in its 
provisions relating to the amount of damages payable in the event of 
repudiation by a conservator or receiver.
    Some commenters also objected to the safe harbor's reliance on the 
accounting treatment of the transfers of financial assets being 
securitized and were critical of the Rule's treatment of financial 
assets that did not obtain off balance sheet accounting treatment as 
property of an insolvent IDI. Commenters suggested that the FDIC focus 
instead on a legal sale analysis in determining whether a transfer of 
assets was eligible for the safe harbor.
    The FDIC has rejected this position because the Securitization Rule 
as adopted in 2000, as well as the FDIC's longstanding evaluation of 
the assets potentially subject to receivership powers, has been based 
on the treatment of those assets as on or off balance sheet. This was 
explicitly stated in the Securitization Rule. Moreover, it is 
appropriate for the FDIC to rely on the books and records of a failed 
IDI in administering a conservatorship or receivership and consider how 
to apply a safe harbor for assets that are deemed part of the IDI's 
balance sheet under GAAP.
    Objections to the treatment of securitization transfers that do not 
meet the requirements for off balance sheet treatment under the new 
accounting rules are misplaced. Prior to the Securitization Rule, 
securitization transactions were typically treated as secured 
transactions or sales. As a result, under the Rule, if the transfer 
does not meet the standards for off balance sheet treatment, the FDIC 
will consider the transaction as a secured transaction if it meets the 
requirements imposed on such transactions under the Rule and state law. 
In this way, investors in securitization transactions that do not 
qualify for off balance sheet treatment may still receive benefits of 
expedited access to the securitized financial assets if they meet the 
conditions specified in the Rule.
    Comments relating to specific provisions of the NPR are discussed 
below in the description of the Rule.

IV. The Rule

    The Rule replaces the Securitization Rule as amended by the 
Transition Rule. Paragraph (a) of the Rule sets forth definitions of 
terms used in the Rule. It retains many of the definitions previously 
used in the Securitization Rule but modifies or adds definitions to the 
extent necessary to accurately reflect current industry practice in 
securitizations. Pursuant to these definitions, the safe harbor does 
not apply to certain government sponsored enterprises (``Specified 
GSEs''), affiliates of certain such enterprises, or any entity 
established or guaranteed by those GSEs. In addition, the Rule is not 
intended to apply to the Government National Mortgage Association 
(``Ginnie Mae'') or Ginnie Mae-guaranteed securitizations. When Ginnie 
Mae guarantees a security, the mortgages backing the security are 
assigned to Ginnie Mae, an entity owned entirely by the United States 
government. Ginnie

[[Page 60292]]

Mae's statute contains broad authority to enforce its contract with the 
lender/issuer and its ownership rights in the mortgages backing Ginnie 
Mae-guaranteed securities. In the event that an entity otherwise 
subject to the Rule issues both guaranteed and non-guaranteed 
securitizations, the securitizations guaranteed by a Specified GSE are 
not subject to the Rule.
    Paragraph (b) of the Rule imposes conditions to the availability of 
the safe harbor for transfers of financial assets to an issuing entity 
in connection with a securitization. These conditions make a clear 
distinction between the conditions imposed on RMBS from those imposed 
on securitizations for other asset classes. In the context of a 
conservatorship or receivership, the conditions applicable to all 
securitizations will improve overall transparency and clarity through 
disclosure and documentation requirements along with ensuring effective 
incentives for prudent lending by requiring that the payment of 
principal and interest be based primarily on the performance of the 
financial assets and by requiring retention of a share of the credit 
risk in the securitized loans.
    The conditions applicable to RMBS are more detailed and include 
additional capital structure, disclosure, documentation and 
compensation requirements as well as a requirement for the 
establishment of a reserve fund. These requirements are intended to 
address the factors that caused significant losses in current RMBS 
securitization structures as demonstrated in the recent crisis. 
Confidence can be restored in RMBS markets only through greater 
transparency and other structures that support sustainable mortgage 
origination practices and require increased disclosures. These 
standards respond to investor demands for greater transparency and 
alignment of the interests of parties to the securitization. In 
addition, they are generally consistent with industry efforts while 
taking into account proposed legislative and regulatory initiatives.

Capital Structure and Financial Assets.

    For all securitizations, the benefits of the Rule should be 
available only to securitizations that are readily understood by the 
market, increase liquidity of the financial assets and reduce consumer 
costs. Consistent with New Regulation AB, the documents governing the 
securitization will be required to provide that there be financial 
asset level disclosure as appropriate to the securitized financial 
assets for any resecuritizations (securitizations supported by other 
securitization obligations). These disclosures must include full 
disclosure of the obligations, including the structure and the assets 
supporting each of the underlying securitization obligations, and not 
just the obligations that are transferred in the re-securitization. 
This requirement applies to all re-securitizations, including static 
re-securitizations as well as managed collateralized debt obligations.
    The Rule provides that securitizations that are unfunded or 
synthetic transactions are not eligible for expedited consent under the 
Rule. To support sound lending, the documents governing all 
securitizations must require that payments of principal and interest on 
the obligations be primarily dependent on the performance of the 
financial assets supporting the securitization and that such payments 
not be contingent on market or credit events that are independent of 
the assets supporting the securitization, except for interest rate or 
currency mismatches between the financial assets and the obligations to 
investors.
    For RMBS only, the Rule limits the capital structure of the 
securitization to six tranches or less to discourage complex and opaque 
structures. The most senior tranche could include time-based sequential 
pay or planned amortization and companion sub-tranches, which are not 
viewed as separate tranches for the purpose of the six tranche 
requirement. This condition will not prevent an issuer from creating 
the economic equivalent of multiple tranches by re-securitizing one or 
more tranches, so long as they meet the conditions set forth in the 
rule, including adequate disclosure in connection with the re-
securitization. In addition, RMBS cannot include leveraged tranches 
that introduce market risks (such as leveraged super senior tranches). 
Although the financial assets transferred into an RMBS will be 
permitted to benefit from asset level credit support, such as 
guarantees (including guarantees provided by governmental agencies, 
private companies, or government-sponsored enterprises), co-signers, or 
insurance, the RMBS cannot benefit from external credit support at the 
issuing entity or pool level. It is intended that guarantees permitted 
at the asset level include guarantees of payment or collection, but not 
credit default swaps or similar items. The temporary payment of 
principal and interest, however, can be supported by liquidity 
facilities. These conditions are designed to limit both the complexity 
and the leverage of an RMBS and therefore the systemic risks introduced 
by them in the market. In addition, the Rule provides that the 
securitization obligations can be enhanced by credit support or 
guarantees provided by Specified GSEs. However, as noted in the 
discussion of the definitions above, a securitization that is wholly 
guaranteed by a Specified GSE is not subject to the Rule and thus not 
eligible for the safe harbor.
    Comments in response to the NPR expressed concern that a limitation 
on the number of tranches of an RMBS would negatively affect the 
ability of securitizations to meet investor objectives and maximize 
offering proceeds. In addition, commenters argued that there should be 
no restriction on external third party pool level credit support, while 
one commenter stated that guarantees in RMBS transactions should be 
permitted at the loan level only if issued by regulated third parties 
with proven capacity to ensure prudent loan origination and satisfy 
their obligations.
    In formulating the Rule, the FDIC was mindful of the need to permit 
innovation and accommodate financing needs, and thus attempted to 
strike a balance between permitting multi-tranche structures for RMBS 
transactions, on the one hand, and promoting readily understandable 
securitization structures and limiting overleveraging of residential 
mortgage assets, on the other hand.
    The FDIC is of the view that permitting pool level, external credit 
support in an RMBS can lead to overleveraging of assets, as investors 
might focus on the credit quality of the credit support provider as 
opposed to the sufficiency of the financial asset pool to service the 
securitization obligations. However, the Rule has been revised to 
permit pool level credit support by Specified GSEs.
    Finally, although the Rule excludes unfunded and synthetic 
securitizations from the safe harbor, the FDIC does not view the 
inclusion of existing credit lines that are not fully drawn in a 
securitization as causing such securitization to be an ``unfunded 
securitization.'' The provision is intended to emphasize that the Rule 
applies only where there is an actual transfer of financial assets. In 
addition, to the extent an unfunded or synthetic transaction qualifies 
for treatment as a qualified financial contract under Section (11)(e) 
of the FDI Act, it would not need the benefits of the safe harbor 
provided in the Rule in an FDIC receivership.\7\
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    \7\ 12 U.S.C. 1821(e)(10).

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[[Page 60293]]

Disclosure

    For all securitizations, disclosure serves as an effective tool for 
increasing the demand for high quality financial assets and thereby 
establishing incentives for robust financial asset underwriting and 
origination practices. By increasing transparency in securitizations, 
the Rule will enable investors (which may include banks) to decide 
whether to invest in a securitization based on full information with 
respect to the quality of the asset pool and thereby provide additional 
liquidity only for sustainable origination practices.
    The data must enable investors to analyze the credit quality for 
the specific asset classes that are being securitized. The documents 
governing securitizations must, at a minimum, require disclosure for 
all issuances to include the types of information required under 
current Regulation AB (17 CFR 229.1100-1123) or any successor 
disclosure requirements with the level of specificity that applies to 
public issuances, even if the obligations are issued in a private 
placement or are not otherwise required to be registered.
    The documents governing securitizations that will qualify under the 
Rule must require disclosure of the structure of the securitization and 
the credit and payment performance of the obligations, including the 
relevant capital or tranche structure and any liquidity facilities and 
credit enhancements. The disclosure must be required to include the 
priority of payments and any specific subordination features, as well 
as any waterfall triggers or priority of payment reversal features. The 
disclosure at issuance will also be required to include the 
representations and warranties made with respect to the financial 
assets and the remedies for breach of such representations and 
warranties, including any relevant timeline for cure or repurchase of 
financial assets, and policies governing delinquencies, servicer 
advances, loss mitigation and write offs of financial assets. The 
documents must also require that periodic reports provided to investors 
include the credit performance of the obligations and financial assets, 
including periodic and cumulative financial asset performance data, 
modification data, substitution and removal of financial assets, 
servicer advances, losses that were allocated to each tranche and 
remaining balance of financial assets supporting each tranche as well 
as the percentage coverage for each tranche in relation to the 
securitization as a whole. Where appropriate for the type of financial 
assets included in the pool, reports must also include asset level 
information that may be relevant to investors (e.g. changes in 
occupancy, loan delinquencies, defaults, etc.). The FDIC recognizes 
that for certain asset classes, such as credit card receivables, the 
disclosure of asset level information is less informative and, thus, 
will not be required.
    The securitization documents must also require disclosure to 
investors of the nature and amount of compensation paid to any mortgage 
or other broker, the servicer(s), rating agency or third-party advisor, 
and the originator or sponsor, and the extent to which any risk of loss 
on the underlying financial assets is retained by any of them for such 
securitization. The documents must also require disclosure of changes 
to this information while obligations are outstanding. This disclosure 
should enable investors to assess potential conflicts of interests and 
how the compensation structure affects the quality of the assets 
securitized or the securitization as a whole.
    For RMBS, loan level data as to the financial assets securing the 
mortgage loans, such as loan type, loan structure, maturity, interest 
rate and location of property, will also be required to be disclosed by 
the sponsor. Sponsors of securitizations of residential mortgages will 
be required to affirm compliance in all material respects with 
applicable statutory and regulatory standards for origination of 
mortgage loans, including that the mortgages in the securitization pool 
are underwritten at the fully indexed rate relying on documented income 
\8\ and comply with supervisory guidance governing the underwriting of 
residential mortgages, including the Interagency Guidance on Non-
Traditional Mortgage Products, October 5, 2006, and the Interagency 
Statement on Subprime Mortgage Lending, July 10, 2007, and such other 
or additional guidance applicable at the time of loan origination. None 
of the disclosure conditions should be construed as requiring the 
disclosure of personally identifiable information of obligors or 
information that would violate applicable privacy laws.
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    \8\ Institutions should verify and document the borrower's 
income (both source and amount), assets and liabilities. For the 
majority of borrowers, institutions should be able to readily 
document income using recent W-2 statements, pay stubs, and/or tax 
returns. Stated income and reduced documentation loans should be 
accepted only if there are mitigating factors that clearly minimize 
the need for direct verification of repayment capacity. Reliance on 
such factors also should be documented. Mitigating factors might 
include situations where a borrower has substantial liquid reserves 
or assets that demonstrate repayment capacity and can be verified 
and documented by the lender. A higher interest rate is not 
considered an acceptable mitigating factor.
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    The Rule also requires sponsors to disclose a third party due 
diligence report on compliance with such standards and the 
representations and warranties made with respect to the financial 
assets.
    Finally, the Rule requires that the securitization documents 
require the disclosure by servicers of any ownership interest of the 
servicer or any affiliate of the servicer in other whole loans secured 
by the same real property that secures a loan included in the financial 
asset pool. This provision does not require disclosure of interests 
held by servicers or their affiliates in the securitization securities. 
This provision is intended to give investors information to evaluate 
potential servicer conflicts of interest that might impede the 
servicer's actions to maximize value for the benefit of investors.

Documentation and Recordkeeping

    For all securitizations, the operative agreements are required to 
use as appropriate available standardized documentation for each 
available asset class. It is not possible to define in advance when use 
of standardized documentation will be appropriate, but certainly when 
there is general market use of a form of documentation for a particular 
asset class, or where a trade group has formulated standardized 
documentation generally accepted by the industry, such documentation 
must be used.
    The Rule also requires that the securitization documents define the 
contractual rights and responsibilities of the parties, including but 
not limited to representations and warranties, ongoing disclosure 
requirements and any measures to avoid conflicts of interest. The 
documents are also required to provide authority for the parties to 
fulfill their rights and responsibilities under the securitization 
contracts.
    Additional conditions apply to RMBS to address a significant issue 
that has been demonstrated in the mortgage crisis by requiring that 
servicers have the authority to mitigate losses on mortgage loans 
consistent with maximizing the net present value of the mortgages. 
Therefore, for RMBS, contractual provisions in the servicing agreement 
must provide servicers with the authority to modify loans to address 
reasonably foreseeable defaults and to take other action to maximize 
the value and minimize losses on the securitized financial assets. The 
documents must require servicers to apply industry best

[[Page 60294]]

practices related to asset management and servicing.
    The RMBS documents may not give control of servicing discretion to 
a particular class of investors. The documents must require that the 
servicer act for the benefit of all investors rather for the benefit of 
any particular class of investors. Consistent with the forgoing, the 
documents must require the servicer to commence action to mitigate 
losses no later than ninety (90) days after an asset first becomes 
delinquent unless all delinquencies on such asset have been cured. A 
servicer must also be required to maintain sufficient records of its 
actions to permit appropriate review of its actions.
    The FDIC believes that a prolonged period of servicer advances in a 
market downturn misaligns servicer incentives with those of the RMBS 
investors. Servicing advances also serve to aggravate liquidity 
concerns, exposing the market to greater systemic risk. Occasional 
advances for late payments, however, are beneficial to ensure that 
investors are paid in a timely manner. To that end, the servicing 
agreement for RMBS must not require the primary servicer to advance 
delinquent payments of principal and interest by borrowers for more 
than three (3) payment periods unless financing or reimbursement 
facilities to fund or reimburse the primary servicers are available. 
However, such facilities shall not be dependent for repayment on 
foreclosure proceeds.

Compensation

    The compensation requirements of the Rule apply only to RMBS. Due 
to the demonstrated issues in the compensation incentives in RMBS, in 
this asset class the Rule seeks to realign compensation to parties 
involved in the rating and servicing of residential mortgage 
securitizations.
    The securitization documents are required to provide that any fees 
payable credit rating agencies or similar third-party evaluation 
companies must be payable in part over the five (5) year period after 
the initial issuance of the obligations based on the performance of 
surveillance services and the performance of the financial assets, with 
no more than sixty (60) percent of the total estimated compensation due 
at closing. Thus payments to rating agencies must be based on the 
actual performance of the financial assets, not their ratings.
    A second area of concern is aligning incentives for proper 
servicing of the mortgage loans. Therefore, the documents must require 
that compensation to servicers must include incentives for servicing, 
including payment for loan restructuring or other loss mitigation 
activities, which maximizes the net present value of the financial 
assets in the RMBS.
    Responses to the NPR stated that compensation to rating agencies 
should not be linked to performance of a securitization because such 
linkage will interfere with the neutral ratings process, and a rating 
agency expressed the concern that such linkage might give rating 
agencies an incentive to delay rating actions that would alert the 
market to a deterioration. Concern was also expressed that this 
provision could incentivize a rating agency to rate a transaction at a 
level that is lower than the level that the rating agency believes to 
be the appropriate level.
    The FDIC notes that rating agencies must have procedures in place 
to protect analytic independence and ensure the integrity of their 
ratings. The comments misconstrue the precise terms of the safe harbor 
requirement, which requires that compensation must be linked to the 
performance of the assets, not the ratings. Accordingly, there is no 
incentive to delay ratings actions.

Origination and Retention Requirements

    To provide further incentives for quality origination practices, 
several conditions address origination and retention requirements for 
all securitizations. For all securitizations, the sponsor must retain 
an economic interest in a material portion, defined as not less than 
five (5) percent, of the credit risk of the financial assets. The 
retained interest may be either in the form of an interest of not less 
than five (5) percent in each credit tranche or in a representative 
sample of the securitized financial assets equal to not less than five 
(5) percent of the principal amount of the financial assets at 
transfer. This retained interest cannot be sold, pledged or hedged 
during the life of the transaction, except for the hedging of interest 
rate or currency risk. If required to retain an economic interest in 
the asset pool without hedging the credit risk of such portion, the 
sponsor will be less likely to originate low quality financial assets. 
The Rule provides that upon the effective date of final regulations 
required by Section 941(b) of the Dodd-Frank legislation, such final 
regulations shall exclusively govern the requirement to retain an 
economic interest in a portion of the credit risk of the financial 
assets under the Rule.
    The Rule requires that RMBS securitization documents require that a 
reserve fund be established in an amount equal to at least five (5) 
percent of the cash proceeds due to the sponsor and that this reserve 
be held for twelve (12) months to cover any repurchases required for 
breaches of representations and warranties. This reserve fund will 
ensure that the sponsor bears a significant risk for poorly 
underwritten loans during the first year of the securitization.
    In addition, the securitization documents must include a 
representation that residential mortgage loans in an RMBS have been 
originated in all material respects in compliance with statutory, 
regulatory and originator underwriting standards in effect at the time 
of origination and were underwritten at the fully indexed rate and rely 
on documented income and comply with all existing supervisory guidance 
governing the underwriting of residential mortgages, including the 
Interagency Guidance on Non-Traditional Mortgage Products, October 5, 
2006, and the Interagency Statement on Subprime Mortgage Lending, July 
10, 2007, and such other or additional regulations or guidance 
applicable at the time of loan origination.
    The FDIC believes that requiring the sponsor to retain an economic 
interest in the credit risk relating to each credit tranche or in a 
representative sample of financial assets will help ensure quality 
origination practices. A risk retention requirement that did not cover 
all types of exposure would not be sufficient to create an incentive 
for quality underwriting at all levels of the securitization. The 
recent economic crisis made clear that, if quality underwriting is to 
be assured, it will require true risk retention by sponsors, and that 
the existence of representations and warranties or regulatory standards 
for underwriting will not alone be sufficient.

Additional Conditions

    Paragraph (c) of the Rule includes general conditions for all 
securitizations and the transfer of financial assets. These conditions 
also include requirements that are consistent with good banking 
practices and are necessary to make the transactions comply with 
established banking law.\9\
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    \9\ See, 12 U.S.C. 1823(e).
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    The transaction should be an arms-length, bona fide securitization 
transaction and the documents must limit sales to affiliates, other 
than to wholly-owned subsidiaries which are consolidated with the 
sponsor for accounting and capital purposes, and insiders of the 
sponsor. The securitization agreements must be in

[[Page 60295]]

writing, approved by the board of directors of the bank or its loan 
committee (as reflected in the minutes of a meeting of the board of 
directors or committee), and have been, continuously, from the time of 
execution, in the official record of the bank. The securitization also 
must have been entered into in the ordinary course of business, not in 
contemplation of insolvency and with no intent to hinder, delay or 
defraud the bank or its creditors.
    The Rule applies only to transfers made for adequate consideration. 
The transfer and/or security interest need to be properly perfected 
under the UCC or applicable state law. The FDIC anticipates that it 
will be difficult to determine whether a transfer complying with the 
Rule is a sale or a security interest, and therefore expects that a 
security interest will be properly perfected under the UCC, either 
directly or as a backup.
    The governing documents must require that the sponsor separately 
identify in its financial asset data bases the financial assets 
transferred into a securitization and maintain an electronic or paper 
copy of the closing documents in a readily accessible form, and that 
the sponsor maintain a current list of all of its outstanding 
securitizations and issuing entities, and the most recent Form 10-K or 
other periodic financial report for each securitization and issuing 
entity. The documents must also provide that if acting as servicer, 
custodian or paying agent, the sponsor is not permitted to commingle 
amounts received with respect to the financial assets with its own 
assets except for the time necessary to clear payments received, and in 
event for more than two business days. The documents must require the 
sponsor to make these records available to the FDIC promptly upon 
request. This requirement will facilitate the timely fulfillment of the 
receiver's responsibilities upon appointment and will expedite the 
receiver's analysis of securitization assets. This will also facilitate 
the receiver's analysis of the bank's assets and determination of which 
assets have been securitized and are therefore potentially eligible for 
expedited access by investors.
    In addition, the Rule requires that the transfer of financial 
assets and the duties of the sponsor as transferor be evidenced by an 
agreement separate from the agreement governing the sponsor's duties, 
if any, as servicer, custodian, paying agent, credit support provider 
or in any capacity other than transferor.

The Safe Harbor

    Paragraph (d)(1) of the Rule continues the safe harbor provision 
that was provided by the Securitization Rule with respect to 
participations so long as the participation satisfies the conditions 
for sale accounting treatment set forth by generally accepted 
accounting principles. In addition, last-in first-out participations 
are specifically included in the safe harbor, provided that they 
satisfy requirements for sale accounting treatment other than the pari-
passu, proportionate interest requirement that is not satisfied solely 
as a result of the last-in first-out structure.
    Paragraph (d)(2) of the Rule provides that for (i) any 
participation or securitization for which transfers of financial assets 
are made on or before December 31, 2010 or (ii) obligations of 
revolving trusts or master trusts which issued one or more obligations 
on or before the date of adoption of this Rule, or (iii) obligations 
issued under open commitments up to the maximum amount of such 
commitments as of the date of adoption of this Rule if one or more 
obligations are issued under such commitments by December 31, 2010, the 
FDIC