Orrick's Financial Industry Week In Review - March 12, 2012

by Orrick, Herrington & Sutcliffe LLP
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Financial Industry Developments

FHFA Roadmap for Fannie and Freddie

On March 9, the FHFA released a 2012 Conservatorship Scorecard, which provides the implementation roadmap for the FHFA Strategic Plan announced in February and includes specific objectives and timetables for Fannie Mae and Freddie Mac in support of the plan, including: (i) developing a template for enhanced loan-level disclosures for single-family MBS by June 30; (ii) developing a plan for a single securitization platform with multiple future issuers by December 31; and (iii) initiating risk sharing transactions by September 30.  The FHFA also announced 2012 executive compensation programs at Fannie Mae and Freddie Mac.  FHFA Release.

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Fed Mortgage Loan Servicing Action Plans

On March 8, the Fed released action plans from HSBC, Ally and IMB HoldCo. to correct alleged deficiencies in residential mortgage loan servicing and foreclosure processing.  The Fed also released the engagement letter between HSBC and the independent consultant retained to review foreclosures that were in process in 2009 and 2010.  Fed Release.  Action Plans and Engagement Letter.

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Administration Support for Homeowners

On March 6, President Obama announced two steps to support homeowners: (i) the nation's five largest servicers have agreed to provide relief for servicemembers and veterans, including those wrongfully foreclosed upon or denied a lower interest rate on their mortgages and (ii) a reduction of fees for FHA borrowers looking to refinance under the Streamline Refinance Program.  Fact Sheet.

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FHA Price Cuts to the Streamline Refinance Program

On March 6, the FHA announced price cuts to the Streamline Refinance Program.  Beginning June 11, the FHA will lower its Upfront Mortgage Insurance Premium to 0.01% and reduce its annual premium to 0.55% for certain FHA borrowers.  To qualify, borrowers must be current on their existing FHA-insured mortgages which were endorsed on or before May 31, 2009.  FHA Release.

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MSRB Request for Comment on Retail Order Period Proposal

On March 6, the MSRB requested comments on rule amendments that would govern the responsibilities of dealers in the conduct of retail order periods.  The proposed rule changes seek to address concerns about dealers' disregard of municipal securities issuers' terms and conditions for bond sales.  Comments are due by April 13.  MSRB Release.  Request for Comment.

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MSRB Seeks SEC Approval for Broker's Brokers Rule

On March 5, the MSRB requested approval from the SEC to put in place a new rule that would: (i) establish specific obligations for firms that provide secondary market liquidity for municipal securities retail investors and (ii) increase the duties of dealers that use these firms.  The MSRB expects the rules to be effective six months after approval by the SEC.  MSRB Release.  Rule Proposal.

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Rating Agency Developments

On March 9, Fitch updated its dual-party pay criteria for long-term ratings on letter of credit-supported U.S. public finance bonds. 
Fitch Report.

On March 9, Fitch announced that senior secured ratings of corporate property bonds issued by EMEA REITs or property investment companies (PICs) could attract an additional single notch above their senior unsecured ratings.  Fitch Release.

On March 9, S&P gave advance notice of proposed CDO criteria changes for securitizations backed predominantly by emerging market corporate debt.  S&P Release.

On March 8, S&P released its methodology for rating U.S. and Canadian stand-along and large loan CMBSS&P Report.

On March 6, S&P requested comments by June 6 on revised methodology and assumptions for rating U.S. local governments
S&P Report.

On March 5, Fitch updated its non-U.S. public sector entities criteria.  Fitch Report.

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Asset Management

SEC Draft Form PF XML Filing Guide

On March 8, the SEC released a draft Form PF XML Filing Guide to assist investment advisers in filing Form PF through the XML submission process.  The Private Fund Reporting Depository (PRFD) system through which advisers will be able to submit XML versions of Form PF, as well as online versions, is scheduled to "go-live" by July 2012.  Advisers may register to participate in the testing phase of the PRFD system beginning on March 21, 2012.  Form PF XML Filing Guide.  PRFD User Testing.

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FINRA Revised Proposed Amendments to NASD Rule 2340

On March 7, FINRA issued a revised proposal to amend NASD Rule 2340 to address the per share estimated values at which unlisted Direct Participation Programs and unlisted Real Estate Investment Trusts are reported on customer account statements.  Among the changes made to the previous proposed amendments to the rule, the revised proposal no longer requires general securities members to provide a per share estimated value, unless and until the issuer provides an estimate based upon an appraisal of assets and liabilities in a periodic or current report filed under Securities Exchange Act of 1934.  In addition, the revised proposal provides members firms with the option of using a modified net offering price or designating the securities as "not priced" during the initial offering period.  Comments to the revised proposal must be submitted by April 11.  FINRA Regulatory Notice.

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Recent Orrick Alerts

SEC's 2013 Budget Request Sheds Light on its Enforcement and Disclosure Priorities

On February 13, the Obama administration proposed large budget increases for key financial market regulators, including the SEC and CFTC.  The SEC's fiscal year 2013 Congressional Budget request seeks more than $1.56 billion in appropriations, an 18.5% increase over its fiscal year 2012 budget.  On March 6, by a 25- 17 vote largely along party lines, the U.S. House of Representatives' Financial Services Committee rejected an amendment introduced by ranking member Representative Barney Frank to support the administration's budget request. Lost among the publicity is the story behind the numbers, which gives greater insight into the SEC's key enforcement and disclosure priorities in the Dodd-Frank era.  Given the SEC's current understaffing it remains an open question whether the Commission can achieve its objectives.  Click here to read more.

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RMBS Litigation

JPMorgan Sued for $228 Million by Principal Life Insurance

On March 1, 2012, Principal Life Insurance Company filed a summons with notice in New York state court against JPMorgan Chase and related entities.  Principal alleges that it purchased $114 million in RMBS from JPMorgan, and that the offering documents in connection with the sales of those securities contained material misstatements and omissions.  The summons asserts claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, and breach of contract.  Principal is seeking approximately $228 million in damages, including punitive damages, and alternatively seeks rescission.  Summons.

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JPMorgan Sued for $314 Million by Deutsche Zentral-Genossenschaftsbank       

On March 1, 2012, Deutsche-Zentral Genossenschaftsbank ("DZ Bank") filed a summons with notice in New York state court against Bear Stearns, JPMorgan Chase, and related entities.  DZ Bank alleges that it purchased $157 million in RMBS from defendants, and that the offering documents in connection with the sales of those securities contained material misstatements and omissions.  The summons asserts claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, and breach of contract.  DZ Bank is seeking approximately $314 million in damages, including punitive damages, and alternatively seeks rescission.  Summons.

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Asset Management Fund Sues Bank of America, Merrill Lynch, Countrywide, and Others for $478 Million

On March 1, 2012, Asset Management Fund filed a summons with notice in New York state court against Bank of America, Merrill Lynch, Countrywide, Credit Suisse, Goldman Sachs, and others.  Asset Management Fund alleges that it purchased $239 million in RMBS from defendants, and that the offering documents in connection with the sales of those securities contained material misstatements and omissions.  The summons asserts claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, and breach of contract.  Asset Management Fund is seeking approximately $478 million in damages, including punitive damages, and alternatively seeks rescission.  Summons.

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Events

Navigating the Municipal Bankruptcy Minefield

On March 22, The Bond Buyer and Orrick are hosting a detailed web seminar that will explain the fast-changing landscape for municipalities in bankruptcy, and strategies issuers and their professional advisors can employ to streamline the process and avoid violations.  The Orrick partners speaking include George Greer, John Knox, Marc Levinson, Lorraine McGowen, and Larry Sobel.
Click here to register.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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