Contents

Structured Finance

SCI Start the Week - 8 August

A look at the major activity in structured finance over the past seven days.

Pipeline
A further 11 deals joined the pipeline last week. This was split into three ABS, three RMBS, four CMBS and a CLO.

US$200m Avant Loans Funding Trust 2016-C, US$178.15m Foundation Finance Trust 2016-1 and US$785m Hyundai Auto Lease Securitization Trust 2016-C accounted for the ABS. The RMBS were US$380.7m Agate Bay Mortgage Trust 2016-3, £2.25bn Hawksmoor Mortgages 2016-1 and Mortgage Agent Absolut 4.

US$512.5m BBCMS 2016-ETC, US$580m CD 2016-CD1 Mortgage Trust, US$181m CSMC 2016-BDWN and US$600m Hudson Yards 2016-10HY constituted the CMBS. The CLO was US$345.8m Canyon CLO 2016-2.

Pricings
There were even more prints last week than there had been in the week before. A total of 11 ABS, four RMBS, three CMBS and two CLOs priced.

The ABS were: US$1.3bn AmeriCredit Automobile Receivables Trust 2016-3; €310m Aurorus 2016; US$1.35bn Chase Issuance Trust 2016-5; US$440m Flagship Credit Auto Trust 2016-3; €1.3bn Golden Bar 2016-1; US$250m MVW Owner Trust 2016-1; US$1.25bn Nissan Auto Receivables 2016-C Owner Trust; US$265m Ocwen Master Advance Receivables Trust Series 2016-T1; US$235m Ocwen Master Advance Receivables Trust Series 2016-T2; US$864.7m Toyota Auto Receivables 2016-C Owner Trust; and US$497.3m Wheels SPV 2 Series 2016-1.

US$1.182bn CAS 2016-C05, A$750m RESIMAC Bastille Series 2016-1NC, US$348.5m Sequoia Mortgage Trust 2016-2 and US$975m Towd Point Mortgage Trust 2016-3 were the RMBS, while the CMBS were US$1.2bn FREMF 2016-K56, US$1.137bn FREMF 2016-KF19 and US$870.6m WFCM 2016-BNK1. The CLOs were US$411.5m Babson CLO 2016-II, €1.75bn IM Sabadell PYME 10 and €648m Sinepia,

Markets
Overwhelming demand for US ABS paper allowed primary issuers to tighten spreads and yet remain oversubscribed last week, say JPMorgan analysts. They add: "We have seen no signs of the typical supply pressure pattern, where weeks of heavy supply weaken spreads. More volume this summer has only pressured spreads narrower as net supply remains down across securitised products."

The US CLO secondary market also maintained strong activity levels last week, as SCI reported on Thursday (SCI 4 August). "The market is very strong, with this continuing to centre on mezzanine where a real curve is developing," says one trader. "Sellers saw the strong execution in BWICs early in the summer and have found little reason to stop testing liquidity."

Editor's picks
NPL renaissance: Banca Monte dei Paschi di Siena (MPS) announced last week that it plans to offload its entire portfolio of sofferenze (bad debt) loans into a securitisation vehicle. The move is a significant landmark in the recovery of the Italian non-performing loan ABS market, which the national government has worked hard to revive...
COLT confidence: The issuance of Lone Star Fund's COLT 2016-1 in June marked a turning point for the US non-prime RMBS space, as the deal was the first of its kind to be rated post-financial crisis (SCI 10 June). The sector still faces a number of hurdles, but the transaction has sparked optimism that more could soon follow...
MBS hedge funds rebounding: Preqin's 2Q16 Hedge Fund Survey shows that hedge funds in the credit strategy category experienced four consecutive quarters of outflows since the beginning of 2015, with about US$17bn of outflows in 2016 alone, mostly concentrated in Q1. A Wells Fargo analysis of the data suggests that amid this outflow, ABS-focused hedge funds saw declines in AUM in 4Q15 (by 6%) and 1Q16 (17%). In contrast, while MBS-focused fund AUM declined by 15% in 4Q15, it increased by 20% in 1Q16...

Deal news
• Initial price thoughts have been released for the first post-Brexit UK non-conforming RMBS, Hawksmoor Mortgages 2016-1. At an expected £2.25bn, the deal is also noteworthy for its size, especially given the August print.
• Babson Capital has brought its latest US CLO to the market, with the senior tranche pricing at the tightest spreads seen since September last year. Babson CLO 2016-II's class A notes were registered at 145bp last Friday, coinciding with the ongoing rally in the market.
• The first CMBS to include a retained interest intended to meet the definition of an eligible vertical interest under US risk retention rules has hit the pipeline. The US$870.6m WFCM 2016-BNK1 will be issued with sponsors Wells Fargo, Bank of America Merrill Lynch and Morgan Stanley retaining a combined 5% vertical slice in the deal.
• Bain Capital has acquired three Spanish NPL portfolios for €1.15bn, extending the firm's holdings to six Spanish portfolios. The purchases include a €415m pool from Banco Sabadell, which comprises defaulted first-lien bilateral Spanish loans to real estate developers, primarily secured on residential and commercial real estate assets.

Regulatory update
• The Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) are to begin to insure mortgages on homes encumbered by PACE obligations that meet certain requirements. Moody's believes the FHA's acceptance of PACE is credit positive for PACE ABS and will have mixed effects on RMBS.

RMBS

Investors rally to Ocwen

RMBS investors in deals serviced by Ocwen are holding meetings in the wake of the publication of an open letter from United Capital Markets ceo John Devaney to S&P. The letter and investors argue that Ocwen has outperformed its peers and that any transfer of servicing away from Ocwen would be seriously detrimental, strongly criticising Gibbs & Bruns for pursuing such an outcome.

The purpose of the letter, besides providing public support for Ocwen, is to urge S&P to upgrade Ocwen's rating to average. "The S&P upgrade back to average is critical to the entire servicing industry, the Ocwen-serviced RMBS bondholders since they are benefiting from Ocwen's expertise, and of course the homeowners," it says.

The letter argues that there is "a negative feedback loop hurting Ocwen" and RMBS bondholders, as a result of uncertainty regarding the servicing business, which is down to the fact that NRZ will be able to transfer servicing from Ocwen if it does not have its ratings upgraded by S&P by April 2017. Devaney states in the letter that he does not believe NRZ will move servicing because it would hurt returns, but that there is a chicken-and-egg situation as regulators are waiting for S&P to act but S&P is waiting for regulators to clear Ocwen to buy MSRs.

LL Funds last month released a white paper in defence of Ocwen, comparing Ocwen subprime to Select Portfolio Servicing (SPS) subprime. That white paper shows Ocwen had 6% lower losses than SPS over the study period, saving RMBS bondholders a considerable amount of money.

Devaney's open letter argues that the LL Funds study, combined with recent news - such as Ocwen's settlement with the California monitor, the Qui Tam settlement and a recent Moody's report stating that Ocwen is number one for cure rate and cashflow - confirms Ocwen's status as an above average servicer. Furthermore, the letter says that a report from Duff & Phelps (SCI 26 May) shows that Gibbs & Bruns has made material misrepresentations and lacks evidence for its claims that Ocwen is underperforming (SCI 27 January 2015).

"A powerful lobby I feel has had bad behaviour. They were wrong in thinking that transferring servicing would enhance the RMBS returns, as the numbers now prove they were wrong on this point. I know that members of the Gibbs & Bruns Group were short Ocwen equity and I have this in writing," says Devaney in the letter. "I believe it is not ethical for members of that group to pretend to be concerned RMBS bondholders sending very serious allegations (misrepresentations) to the trustees, when they were really conflicted and short the Ocwen equity."

The letter claims "a pretty decent list of institutional accounts" want to support Ocwen and "are not interested in any transfer of servicing". Devaney believes 35%-50% of all Ocwen-serviced private label bondholders have explicitly stated support for this position.

As well as Devaney's efforts, another large holder of Ocwen RMBS is drawing like-minded investors together in order to approach trustees, as a group, to assert that Ocwen is their preferred servicer. The letter states: "Ocwen has far more financial stability and expertise in servicing over most other non-bank servicers. The RMBS investors overwhelmingly want to keep Ocwen as the servicer for their investments."

JL

Structured Finance

Optimistic outlook

Investors bullish on MPL, but changes needed

Many interesting topics were raised about the current state and potential future of marketplace lending at SCI's Marketplace Lending and Securitisation Seminar in New York in June. During a panel on investor perspectives, several matters that concern buyers of marketplace loans were discussed.

The turmoil at Lending Club was initially touched upon during the panel, as well as the subsequent dip in marketplace lending as a whole. Brian Weinstein, managing partner at Blue Elephant Capital Management, felt that while the industry has taken a few knocks, strong signs remain.

He says: "At the start of last year, there were a lot of assumptions made about the industry, about how big it will grow and so on. Now we've seen a few road bumps and a bit of a public breakdown in trust. However, there was still US$1bn of securitisation activity in Q1 in the consumer space."

While Weinstein was honest about the limitations facing the sector, he also expected it to remain growing, even if it doesn't "double in size". Although there may have been a slowdown in securitisation activity and a pull-back from some firms, like Prosper, he added that deals will continue to be executed.

"There might be warehouse lines trapped because they don't want to securitise right now as the price isn't right. Eventually, though, they'll be forced to at some point," he said.

Additionally, there have been some signs of improvements in the industry in terms of investor confidence, as exemplified by the long-awaited securitisation of Lending Club loans.

However, one issue remains for investors and others in the sector - skin in the game. Lending Club, for example, still sticks fairly closely to its original model by not retaining many loans on balance sheet.

Aaron Goldman, principal at General Atlantic, suggested that this is a question that may need to be answered before the industry can become truly comfortable with marketplace lending as an asset class. "Lack of skin in the game causes loan buyers to be sceptical; Lending Club's recent issues have exacerbated this scepticism. We will see how the market responds going forwards, although it's possible all platforms will be required either by regulators or loan purchasers to eat their own cooking and have skin in the game to build investor confidence," he added.

Another potential bump in the road that has become more pressing recently is that of loan stacking. Several questions were asked throughout the seminar about the potential negative impact loan stacking could have on marketplace lending platforms, and what it might mean in terms of their ability to accurately assess a borrower's ability to repay.

Weinstein said: "For an investor, there is a concern about how you get rid of stacking. There are ways to mitigate it, but ultimately the investor has to make the decisions about the quality of the loans offered before investing."

Loan stacking could obviously have an impact further down the line on securitisation, if it negatively impacts default rates, for example. One way that marketplace lending securitisations could perhaps be made more attractive to investors is through increased diversification of platform, product or even location.

Weinstein mooted such an idea: "In order for things to develop or improve, you need pressure and time. Pressure comes from us, investors and other figures with a stake. Only with time can you see it play out. Perhaps what would be more interesting in terms of securitisation now - or what could be needed - is for a mixed securitisation from different platforms, of different asset classes and potentially different geographies," he said.

One area that the panel had confidence in is the likelihood of banks or more niche companies becoming involved. With banks still unable to make the loans that they essentially need to, they have a problem that marketplace lending platforms may be able to solve.

Goldman suggested that they are likely to become much more heavily involved at some point. He concluded: "Every bank we see has an asset origination problem. Big banks may mimic platforms or may acquire them, or, indeed, we may see banks buy the loans up rather than make total acquisitions."

RB

ABS

ABS syndicate head poached

Mick Wiedrick is set to join BNP Paribas in October as head of ABS syndicate in New York. In the new role, he will help the bank build its client relationships in areas that include auto, equipment and fleet lease ABS.

Wiedrick joins from JPMorgan, where he was an executive director on the bank's ABS and CMBS syndicate desk. Prior to that, he was an associate in ABS at Morgan Stanley.

Structured Finance

Treasury successor named

John Frishkopf is set to retire from NewStar Financial next month, but will remain involved with the firm as an external advisor to provide decision support to the management committee and to advise the board's risk committee on strategic funding matters. He was a founding member of the firm and has served as treasurer and head of its asset management group since NewStar's inception in 2004.

Frishkopf will be succeeded as treasurer by Michael Eisenstein, an md in the treasury group. Eisenstein joined NewStar in 2005 and has served as assistant treasurer since 2011, playing key roles in all treasury management activities, including building the firm's securitisation platform.

He has more than 16 years of treasury management and debt capital markets experience. Prior to joining NewStar, Eisenstein worked in Bank of Tokyo-Mitsubishi UFJ Capital Corporation's investment banking group, covering non-investment grade commercial finance companies in the transportation sector.

Structured Finance

High yield team expanded

Royal London Asset Management (RLAM) has expanded its global high yield team with four new hires in preparation for the launch of its Multi Asset Credit Fund. The appointments are headed by Khuram Sharih as a fund manager, focusing on leveraged loans and alternative credit.

The new fund will comprise a directly invested, globally diversified portfolio concentrating on the alternative credit universe. Asset classes will include secured and unsecured high yield debt, loans, ABS and emerging market debt.

The other appointments include Sebastien Poulin as a senior credit analyst, with a remit split between high yield and leveraged loans. He is accompanied by assistant credit analysts Gary Ewen and Tom Elliott to bolster RLAM's multi-asset credit capabilities.

Prior to joining, Sharih worked with the fixed income and global multi-asset teams at Newton Investment Management, while Poulin previously covered high yield and leveraged loans at Principal Global Investors. Finally, Ewen was an investment analyst at Mercer and Elliott was a high yield credit analyst at Debtwire.

Structured Finance

Direct lending team acquired

A partnership managed by CVC Credit Partners, supported by a fund advised by Coller Capital, has acquired Northport Capital TRS from Resource Capital Corp. The move will increase assets under management in CVC Credit Partners' global direct lending strategy to approximately US$1bn and complement its existing European strategy.

Northport is a direct lender that specialises in providing credit facilities to private middle market and lower middle market companies across North America. The firm has a strong investment track record and is expected to transform CVC Credit Partners' direct lending strategy into a transatlantic platform.

The team - led by David DeSantis - consists of experienced lending and deal-making professionals with backgrounds from institutions that include Antares Capital, Ares, GE Capital, Lehman Brothers, Medley Capital and Nomura. Each of the Northport senior employees has over 15 years of experience within direct middle market lending.

Structured Finance

Permanent capital accessed

HIG Capital has sold a minority stake to Dyal Capital Partners III, a permanent capital vehicle managed by Neuberger Berman. Under the terms of the transaction, Dyal has acquired a passive non-voting stake, representing less than 15% of the economic interests of the firm.

Proceeds will be primarily used to increase HIG's investments in its own funds and to seed and fund a number of growth initiatives, in order to further capitalise on its unique position in the small and mid-cap market. In particular, access to permanent capital should allow the firm to achieve its strategic growth objectives more quickly and effectively.

Evercore served as financial advisor to HIG in this transaction.

Structured Finance

Charlesbank branches out

Charlesbank Capital Partners is broadening its mandate to encompass credit markets, beginning with the recruitment of Sandor Hau as principal and Matthew Jacobson as md. The pair join the company's investment team to help lead the initiative as a supplemental pursuit from its primary focus on private equity.

Hau joins from Nomura, where he was md and head of corporate credit and special situations. In the role, he managed a team that worked on sales, trading and research for high yield, bank loans and distressed debt.

Jacobson was most recently a senior credit analyst and executive director at Palmer Square Capital Management.

CDO

Third manager nominated

A third collateral manager has been put forward to replace CWCapital Investments as manager of Gramercy Real Estate CDO 2007-1 (SCI passim). The holders of a majority of the CRE CDO's controlling class have nominated Cairn Capital Management North America as successor collateral manager on the deal. Noteholders that wish to object to the appointment are requested to notify the trustee by 7 September 2016.

Insurance-linked securities

Broker hires for Americas team

RFIB Group has appointed Glenn Jackson as md of RFIB Americas. He will be based in the firm's Tampa office, reporting to Nick Foden-Pattinson.

Jackson joins from Beach Re, where he served as svp, providing expertise in ILS. Specifically, he advised capital market participants, as well as insurance and reinsurance companies in structuring, modelling and executions of alternative reinsurance transactions.

Risk Management

SEF acquisition agreed

Bats Global Markets is set to acquire swap execution facility Javelin SEF. The purchase is intended to accelerate Bats' plans to offer trading of non-deliverable forwards (NDFs) for the FX market.

Javelin currently offers trade execution for swaps through a combination of an anonymous limit order book and a request for quote model. The transaction is pending regulatory approval, at which point the SEF will be integrated into Bats Hotspot.

RMBS

MSR pro picked up

Incenter has hired capital markets expert Al Qureshi as md, analytics, to build upon its existing mortgage servicing rights analytics platform. He arrives from US Bank, where he was head of mortgage servicing hedging and hedging analytics. Qureshi joins a platform that was purchased as Interactive Mortgage Advisors and rebranded earlier this year.  

RMBS

MSR partnership inked

New Residential Investment Corp and Walter Investment Management Corp have entered into a strategic partnership, encompassing MSR purchase and sale agreements, as well as a forward flow arrangement. The move is designed to help both firms achieve their shared objectives of growth and improved earnings with lower risk.

Under the agreement, New Residential is set to purchase from Walter approximately US$35bn UPB of seasoned conventional MSRs for a purchase price of approximately US$231m. It will also acquire substantially all of the assets of Walter Capital Opportunity (WCO) and its subsidiaries, along with certain related assets owned by Walter, which collectively represent approximately US$37bn UPB of MSRs for a purchase price of approximately US$283m.

The forward flow arrangement involves New Residential Mortgage (NRM) acquiring from Walter MSRs of newly-originated residential mortgage loans, subject to the parties' mutual agreement on pricing. This agreement is intended to have an initial term of three years, subject to an extension at the option of the parties and earlier termination date in accordance with its terms.

NRM has also entered into a subservicing agreement with Walter subsidiary Ditech Financial, pursuant to which Ditech will subservice the mortgage loans underlying the MSRs acquired by NRM.

The transactions are expected to close in the third or fourth quarter of 2016 and are subject to regulatory approvals and customary closing conditions.

ABS

VW settlement to boost prepays?

Volkswagen's offer to buy back or terminate the leases on US vehicles affected by its emissions violations could boost prepayments for outstanding VW US auto loan and lease ABS, which Moody's believes would be credit positive for the deals. However, a number of uncertainties mean that it is difficult to assess the overall credit effect on VW's ABS from the proposed partial settlement of its emission-violations issues in the US.

The proposed settlement was filed in court on 28 June and received preliminary approval from the judge hearing the case on 26 July. "The accord will likely lead to a flurry of consumers returning diesel vehicles financed via Volkswagen Credit loans and leases," says Moody's analyst Jody Shenn. "VW's repurchase of the vehicles would then result in the retirement of the related financing in VW ABS, accelerating cashflows to the securitisations and boosting their credit enhancement."

The beneficial effects of such buybacks are likely to begin affecting transactions by year-end. In addition, buybacks could have credit benefits for Volkswagen Credit's dealer floorplan ABS transactions, if consumers who sell affected vehicles back to the company via its dealerships then buy replacement cars from these same dealers.

"If consumers view the settlement offers from VW as generous, it would help encourage these customers to replace their VWs with new ones," says Moody's analyst Henry Chen.

However, separate potentially negative effects from the emissions violations could emerge for its securitisations under certain scenarios - although VW will likely seek to insulate its ABS from bearing unusual costs. For instance, it is unclear how cars repossessed after loan defaults will be handled.

Overall, the modest share of affected vehicles in VW's auto loan, lease and floorplan securitisations limits the degree that the settlement would affect deal performance. Since the US Environmental Protection Agency issued its findings on VW's diesel vehicles last year (SCI 23 September 2015), performance of its US ABS have weakened only somewhat.

Structured Finance

Japan stimulus to boost SMEs

A new ¥28trn stimulus package introduced by the Japanese government is credit positive for SME structured finance deals, says Moody's in its latest Credit Outlook. The package includes measures to help ease SME refinancing and provide them with greater flexibility for borrowing.

According to Moody's, diversification and funding alternatives will help a variety of SME deals, including CLOs and ABS backed by loan and equipment leasing receivables. Of the ¥28trn in funding announced last Tuesday, the government has earmarked ¥10.9trn for assisting SMEs, micro businesses and local revitalisation - ¥1.3trn of which is new fiscal spending.

The measures include lowering the interest rate of loans to SMEs and micro businesses under a government-based safety-net lending scheme through Japan Finance Corporation and The Shoko Chukin Bank. The government will also provide credit guarantees to assist SMEs to refinance current loans from banks and it plans to support SMEs' overseas expansion, which would open lending facilities available through Japan Bank for International Cooperation.

The broader aim of the package is to help shore up the Japanese economy, particularly in the current mixed financing environment for Japanese SMEs. However, Japanese financial institutions are increasingly willing to lend to SMEs, according to a survey by JFC.

The number of applications to reschedule SME loans because of financial difficulty increased to approximately 500,095 over the six months ending 31 March, which is up from 498,293 over the previous six month period. This was the first time in six and a half years that the number of such applications had increased over a six-month period.

Structured Finance

Investment property underwriting eyed

Investment property mortgages underwritten to property cashflows pose unique risks relative to similar loans underwritten to borrower personal income, Moody's notes. However, the agency adds that they also have distinct potential strengths.

Some lenders are originating mortgages secured by individual single-family rental (SFR) properties using underwriting based on mortgage payments relative to property-level rental incomes - property debt-to-income ratios - rather than the personal DTIs of borrowers (SCI 12 May). "Although focusing on the metric could potentially prove a better gauge of default probability than focusing on a borrower's financials, there is limited historical information to assess the new risks that such underwriting also introduces," says Moody's analyst Jody Shenn. "The trade-offs versus traditional underwriting can include greater insight into landlords' incentive to default, but also a lessened ability to assess borrower creditworthiness."

Lenders appear to be contemplating several options that could partially address the lack of borrower financial information. These include incorporating in their guidelines additional equity, higher credit scores or more reserves requirements, well-defined in-place lease/tenant eligibility criteria and/or reviews of property owners/third-party managers for proficiency in overseeing rentals.

"The extent to which lenders effectively address the risks will drive the overall credit quality and performance of such loans," says Sang Shin, a Moody's senior analyst.

Lenders already use debt service coverage ratios, a form of property DTI, to assess loans backed by pools of SFR properties. However, the diversity of the collateral securing those loans and the potentially greater sophistication and scale of their borrowers also creates differences between those loans and the new product.

CDS

Isolux Corsan bankruptcy determined

ISDA's EMEA Credit Derivatives Determinations Committee has resolved that a bankruptcy credit event occurred in respect of Grupo Isolux Corsan Finance. The move follows a restructuring agreement entered into by the firm that includes a suspension of payments proceeding relating to its €850m unsecured notes due 2021 and the bankruptcy of four of its Spanish subsidiaries.

Specifically, under the restructuring, the Amsterdam District Court has issued a preliminary suspension of payments order that imposes a moratorium and appoints an administrator to oversee the firm's activities pending the proceeding. Additionally, petitions for 'homologación' of a refinancing agreement were filed in the Mercantile Court of Madrid and the four Spanish subsidiaries that guarantee the unsecured notes filed chapter 15 cases in the US Bankruptcy Court for the Southern District of New York.

As part of its deliberations, the DC says it obtained Dutch legal advice as to the nature of a moratorium and the effect it has on a debtor and its creditors. The law under which the filing was made was confirmed as the Dutch Bankruptcy Act.

An auction in respect of outstanding CDS transactions referencing Grupo Isolux Corsan Finance will be held in due course.

CDS

CDS portfolio switch

Credit Suisse recently announced in its 2Q16 earnings that it offloaded a portfolio of approximately 54,000 CDS trades during the quarter. The buyer, unnamed in the bank's earnings report, is believed to be Citi.

According to Credit Suisse, the sale reduced its leverage exposure by US$5bn, as its strategic resolution unit decreased its risk-weighted assets by 13% and leverage exposure by 12%. Overall, the bank was able to reduce its risk-weighted assets by US$58bn - a decrease of US$9bn and US$19bn compared to its 1Q15 and 2Q15 results respectively.

CLOs

Retail risks weighed

Exposure to the retail sector poses idiosyncratic risk to US CLO performance rather than widespread challenges, according Fitch. The inclusion of loans from challenged retailers like J Crew and Tailored Brands (Men's Wearhouse) in portfolios remains a concern (SCI 9 June), but is not expected to significantly impact CLO performance.

Retail is the third largest sector in Fitch's CLO database, representing approximately 7.5% of assets on average. The outlook for brick and mortar retail stores is dimmer than the outlook for overall consumer retail spending for two reasons: shifts in consumer spending to ecommerce models versus in-store sales, and to services and experiences versus products.

"Given the challenging backdrop, J Crew and Tailored Brands are among the retailers either muddling along or donating market share," says David Silverman, senior director, US corporates at Fitch.

Retail has joined energy and metals/mining as sectors that CLO investors are most concerned over. Energy and metals/mining collectively only account for just over 4% of CLO exposure.

While retail exposure averages 7.5%, individual CLO portfolio exposures range between 2% and 15%. Retail loans also account for the second largest amount of Fitch's loans of concern, behind energy.

Nevertheless, the risk of negative rating migration remains limited, according to Fitch md Kevin Kendra. In the agency's most recent CLO portfolio review, it affirmed all ratings with a stable outlook.

CLOs

Post-crisis Greek CLO emerges

National Bank of Greece (NBG) has completed the first Greek SME securitisation since 2007. The transaction, Sinepia, will enable the bank to raise up to €300m of medium-term financing.

The senior tranches of the CLO were placed with the European Investment Bank, European Investment Fund and European Bank for Reconstructions and Development (EBRD). The senior notes - rated double-B by S&P and single-B minus by Fitch - comprise A1s (sized at €150m), A2s (€35m), A3s (€50m) and A4s (€89m). All four tranches priced at three-month Euribor plus 185bp.

The subordinate M (€259m) and Z (€65m) notes priced at plus 300bp, but were unrated.

NBG says that the transaction's primary aim is to enhance the access of Greek SMEs and mid-caps to affordable financing. The bank will be launching a new financing scheme in November that seeks to contribute to these efforts, as well as provide new lending for investment projects in Greece in the next two years. The project, with the support of the European Fund for Strategic Investments and the EBRD, aims to help over 2000 SMEs and midcaps.

HSBC and NBG acted as joint arrangers on the deal, with the former also acting as transaction coordinator. Clifford Chance and Zepos & Yannopoulos acted as legal counsels on behalf of HSBC and the investors, whilst Orrick, Herrington & Sutcliffe and Dracopoulos & Vassalakis were NBG's legal counsels.

CLOs

Mixed quarter for Euro CLOs

The European CLO market came to a brief halt at the end of June, notes S&P in its 2Q16 European CLO performance index report, as investors absorbed the uncertainty created by the result of the UK's referendum on EU membership. Issuance still managed to climb year-on-year, however.

The second quarter saw market pricing tighten from 150bp to 128bp, and it has since tightened even further. In other report findings, S&P notes that the credit performance of European CLO 2.0 transactions has remained stable, while 1.0 transactions showed a mixed performance, with some upgrades but also one transaction failing to pay in full on its legal final maturity.

The agency believes that the speculative-grade default rate could rise to 2.4% by year-end.

CMBS

Euro default rate up

The 12-month rolling loan maturity default rate for the European CMBS in S&P's rated universe increased to 11.9% from 7.3% at the end of July. The delinquency rate for continental European senior loans increased to 59.6% from 58.4%, while the rate for the UK increased to 21.8% from 19.6%. Overall, the senior loan delinquency rate increased to 46.1% from 44.6%.

CMBS

CRE secondary markets ranked

Austin, Texas is ranked top MSA in a recent Trepp study of US CRE secondary markets. Out of the markets measured by the data firm, Austin provides the lowest unemployment rate and highest average DSCR.

Denver, Colorado came second in the study, as the market generated the highest growth in CMBS originations and third-highest net operating income (NOI) growth for area properties in Trepp's top 20 list. The firm says its data was accumulated by focusing on smaller markets that show "exceptional growth for their size".

The firm used eight factors to rank these secondary markets. The criteria measure absolute growth and relative growth, with each factor given equal weighting. In addition to key data, such as employment numbers and population growth, Trepp used CMBS criteria that included CMBS originations from 1H16 and the change from 1H15.

"Our secondary market rankings not only identify the fastest growing of these smaller markets, [they] also pinpoint underserved markets that are rapidly budding. With this analysis, one may be able to identify metro areas where capital for real estate investment is perhaps less readily available," says Trepp senior director of research Susan Persin.

Trepp finds that the top markets boast strong job and population growth, as well healthy NOI progression. Markets in the middle, such as San Diego and Charlotte, generate healthy job growth while experiencing a significant decrease in CMBS originations this year. The markets at the bottom of Trepp's ranking are characterised by slow growth and mostly declining CMBS activity.

CMBS

Pay-offs continue to decline

The percentage of US CMBS loans that paid off on their balloon date last month dropped to 55.6%, over five points lower than the June level, according to Trepp. This marks the fourth straight month that the rate has declined and is the lowest reading since last December.

The July tally is below the 12-month moving average of 67.0%. By loan count as opposed to balance, 72.5% of loans paid off last month.

On this basis, the pay-off rate was above June's level of 67.9%. The 12-month rolling average by loan count now stands at 69.1%.

Trepp suggests that the falling pay-off rate is a function of the fact that many 10-year loans from 2006 have not been able to be prepaid during their open period. As this year and next progress, maturing loans are expected to possess lower credit quality than at origination, due to having been originated later in the 2006/2007 lending boom.

Most higher quality properties will likely prepay or defease prior to reaching their balloon date. Consequently, Trepp says that it would not be surprising to see the pay-off rate sag further in the coming months.

CMBS

Sustainability affecting leasing decisions

Sustainability is becoming an increasingly important factor in the leasing decisions of US office building tenants, which in turn has made it an increasingly important factor in assessing the credit quality of the office collateral that backs commercial mortgage loans, Moody's reports. The agency says that 'green' building features are credit positive for US CMBS backed by those loans, as they help ensure a property maintains occupancy and value, thereby increasing the likelihood of debt repayment.

"Green office buildings are easier to lease, with tenants seeking them out both to reduce their operating costs and to meet their corporate sustainability objectives," says Moody's director of commercial real estate research Tad Philipp. "Given heightened awareness of the risks of climate change, updated building codes are among the factors prompting growth in green office building initiatives."

Currently, green office certifications are most common for class A buildings in large metropolitan areas. Tenants that lease these buildings expect state-of-the-art systems, which increasingly are defined as including green certification. When taking on a lease, these tenants also tend to negotiate the maintenance of that certification.

Green office development has been slower to take off in secondary and tertiary metro areas, but is expected to catch up over time.

Green construction costs vary by market, contractor and project size - due to economies of scale - but run at slightly above non-green costs to achieve a low level of certification and by 10% or more above for higher levels of certification, according to Moody's. However, as green technology for building construction and maintenance is more widely adopted and supply chains ramp up to meet demand, it will become cheaper for office landlords to build to green standards.

CMBS

Hotels raise CMBS concerns

The days of strong RevPAR growth and occupancy rates are over for US hotels, says Fitch. This could impair loan performance for CMBS as interest rates rise.

Fitch maintains a favourable outlook for the hotel sector, but the rating agency believes demand has peaked and several key industry metrics could turn negative by 2018. "We are now at the top of the cycle looking down," says Fitch senior director Stephen Boyd. "The trajectory of the economy, geopolitical shocks and the US dollar will be key factors in shaping the market going forward."

Most hotel brands are expected to see occupancy rates fall this year, with RevPAR declining in 2018. Fitch says that differentiations among hotel REITs may emerge, depending on their market exposure.

With the hotel sector now at the top of its current cycle, loans maturing in 10 years will do so in a higher interest rate environment. Fitch notes that rising construction levels are an early warning indicator that a peak in the cycle has arrived, with New York City providing evidence of this, as it is now the worst-performing market in the country with regard to RevPAR growth. The rating agency adds that Miami, Houston and Seattle also have hotel construction in excess of 15% of current supply.

CMBS

Maturity wall diminishing

Approximately US$23bn of Fitch's US CMBS fixed-rate loan universe is still scheduled to mature during 2H16, excluding loans that have already been defeased, with an additional US$61bn in 2017. The remaining 2016 maturities include US$8bn in Q3 and US$15bn in Q4. At the same time last year, however, US$54bn was scheduled to mature in 2016 and US$69bn in 2017.

Among the largest performing loans scheduled to mature in Q3 are the US$376.3m DRA/Colonial Office Portfolio (securitised in BSCMS 2007-PWR17, BSCMS 2007-PWR18 and MLMT 2007-C1), US$232.7m Atrium Hotel Portfolio (MLCFC 2006-3) and US$183m 1441 Broadway (GSMS 2006-GG8). The maturity date for the DRA/Colonial Office Portfolio was extended by an additional year to July 2017. Another loan, the US$124.1m Metropolitan Square (WBCMT 2005-C21), is expected to have its maturity date extended as well.

Two other loans - the US$165.6m CA Headquarters (GSMS 2006-GG8) and US$130m The Alhambra (GSMS 2006-GG8) - have transferred to special servicing for imminent maturity default (see SCI's CMBS loan events database).

Meanwhile, the US$458m Gas Company Tower (WBCMT 2006-C28 and JPMCC 2006-LDP8), US$165m 1875 Pennsylvania Avenue (JPMCC 2006-LDP7), US$132.3m Times Square Hotel Portfolio (DBUBS 2011-LC3) and US$125m 1410 Broadway (GSMS 2006-GG8) loans were due to mature in Q3, but repaid in full at or prior to their scheduled maturity dates.

The average loan size for the remaining loans scheduled to mature in 2016 is US$10m, ranging from less than US$1m to US$456m, with 12 loans over US$100m maturing in Q3 and 11 loans over US$100m maturing in Q4. The average loan size for loans maturing in 2017 is US$13m, ranging from less than US$1m to US$697m, with 87 loans over US$100m, according to Fitch.

CMBS

CMLS 2014-1 affirmed after wildfires

Fitch has affirmed all rated tranches of Canadian CMBS CMLS Issuer Corp series 2014-1, including the class G notes, which have been removed from rating watch negative. The rating action reflects the overall stable performance of the pool, in addition to the Clearwater Suites property becoming fully operational after the Fort McMurray, Alberta area was evacuated due to wildfires in May (SCI 11 May).

The C$269.7m transaction is backed by 36 loans secured by 40 commercial properties. There have been no delinquent or specially serviced loans since issuance, according to Fitch. The agency notes that its ratings reflect strong historical Canadian commercial real estate loan performance, including a low delinquency rate and low historical losses of less than 0.1%, as well as positive loan attributes, such as short amortisation schedules, recourse to the borrower and additional guarantors.

The rating outlooks on all classes remain stable as the pool seasons and the Fort McMurray property recovers. However, Fitch warns that if there are significant performance declines or a prolonged impact on loan performance and property values from the downturn in energy prices, downgrades could be possible.

Insurance-linked securities

Bermudan ILS players 'optimistic'

Bermudan ILS participants are 'optimistic' that the market will continue to grow and diversify, according to a recent survey by the Bermuda Business Development Agency (BDA). Respondents averaged a mark of four out of five in confidence for the market going forwards and pinpoint new products as the best opportunity.

These potential products include securitising new 'short-tail' lines other than property catastrophe, exploring new avenues for life, cyber-risk and moving risk from the public sector to the private sector. There is also enthusiasm for branching into new geographic boundaries, such as Asia, with China seen as the main focus.  

In contrast, the supply-demand imbalance in the catastrophe bond market is considered the biggest risk currently. In particular, the market is seen as suffering from excess capital, which is keeping rates soft and leading to depressed returns for investors. The insurance fund space is also in general perceived to be becoming overcrowded.

Nonetheless, all but one respondent in the survey ranked Bermuda as their number-one location for ILS. Managers ranked London and Zurich in joint-second place, while service providers said that Cayman and the US were the next best locations.

In 2015, Bermuda's ILS market was responsible for an estimated 397 jobs, around 30% more than 12 months earlier, notes the BDA. Over 50% were employed by insurance-linked funds, with the remainder working for the various service providers.

NPLs

NPL sales exceed 2015 levels

Sales of European NPLs and non-core assets (NCAs) stand at €112bn of completed and ongoing deals at the end of 1H16, says Deloitte. This already exceeds the €104.3bn for all of 2015.

Activity has been driven by increased loan sale transactions in continental Europe, particularly in Italy and central and eastern Europe. There has been €14.4bn in completed deals from these regions and €11.4bn completed in Italy.

Deloitte believes European financial institutions will continue to deleverage as they tackle around €2trn of non-core and non-performing assets. Debt investors have around €110bn in cash reserves targeted for Europe, equating to firepower of more than €350bn.

"We anticipate most of the sales to conclude and the pipeline of deals to reopen in the second half of 2016. NPLs remain a significant drag on a bank's overall performance, both financially and operationally, and most European institutions are focused on exiting their NPL stocks on an accelerated basis," says David Edmonds, global head of portfolio lead advisory services at Deloitte.

He adds: "While sales of non-performing loans in Italy are strong and lead the market in terms of volume, bank NPL and impaired stock levels are still enormous, at around €360bn. However, the Italian government has increased its involvement in the NPL market and taken important steps to ensure that it remains open to portfolio investors [SCI 5 August]."

Last year, the UK had the largest value of non-performing sales in Europe at £39.9bn, but in the first half of 2016 only reached £900m. UK loan sale activity is expected to rise in 2H16, with UKAR being a key seller, but activity is not expected to reach the levels of 2014 and 2015.

NPLs

BPB deal rated

Banca Popolare di Bari (BPB) has closed its much-anticipated NPL securitisation, becoming the first bank to make use of the Italian government's GACS guarantee scheme (SCI 30 March). The €150.54m Popolare Bari NPLs 2016 deal is backed by assets with a gross book value (GBV) of €471m and €8.8m of collections.

Rated by Moody's, the transaction comprises €126.5m Baa1 rated class A notes, €14m B2 class Bs and €10.04m unrated class Js. The loans were originated by Banca Tercas, Banca Caripre and BPB. TERCAS and CARIPE were fully merged into BPB last month.

The NPL portfolio was sold to the issuer for a price of €148.2m, or 30.9% of the GBV. The NPLs consist of defaulted mortgage loans, equal to €300.4m, which are backed by residential and commercial properties located in Italy. The loans were extended both to individuals and companies.

Of the defaulted loans, €21.3m are backed by mortgages that are of a second or lower ranking lien.

The pool further contains unsecured loans, for an amount equal to around €174.3m, extended to individuals and companies.

Risk Management

Basel 3 impact analysed

The Global Financial Markets Association (GFMA) has released a new report on the interaction, coherence and overall calibration of post-financial crisis regulatory reform measures agreed upon, or under active consideration, by the Basel Committee. Commissioned from Oliver Wyman, the primary objective of the report is to consolidate and interpret the large and growing base of research on these reforms, in order to assist the Basel Committee, other policymakers and analysts in their consideration of how to optimise the global regulations. GFMA has also put forward recommendations for regulatory action developed from the report findings.

The report finds a broad consensus that the initial Basel 3 package made the banking system more resilient. However, implementation of the rules is creating higher intermediation costs, which are likely to be transmitted to users of the banking system and the broader economy.

Regulation is also fundamentally changing the shape of bank balance sheets and business models, as well as the structure of financial markets, with resulting changes in their liquidity, efficiency and effectiveness. For example, the report notes that banks' trading balance sheets have contracted by 25%-30% since 2010. Its review of existing literature also shows impacts on lending channels, capital markets and economic growth.

Median estimates derived from the literature for potential increases in credit spreads in the long term as a result of Basel 3 reforms are 60bp to 84bp, depending upon region, while bank loan volumes would decline 2.6% for each percentage point increase in required capital ratios. The report suggests that although regulated banks have significantly increased their stability and resiliency, markets could become less stable and more vulnerable to shocks, which - combined with higher transaction costs - could push up liquidity premiums demanded by investors and there is some evidence of this happening already.

In many cases changes to the business models of banks and the structure of markets were intended, but in other areas it is likely that the cumulative impacts go beyond those anticipated and may negatively affect the functioning of the financial system, according to GFMA. Further, there is a concern among some observers that the ongoing Basel workstreams will significantly add to bank capital requirements, may exceed appropriate levels and counter some of the national and regional initiatives to meet G20 growth commitments.

"It is inevitable that some adjustments will need to be made after delivering such a comprehensive and complex programme of regulatory reforms during a period of rapidly changing financial markets. Importantly, Oliver Wyman's report highlights the need for a more thorough understanding of all the impacts of current rules on the functioning of markets and the implications for end-users before finalising any new requirements," comments GFMA ceo Kenneth Bentsen.

He adds: "Indeed, in the absence of a comprehensive assessment of the economic impacts and coherence of the Basel 3 financial reform agenda and the introduction of so-called Basel 4 proposals that will substantially change the basis of measuring capital requirements and potentially affect the supply and pricing of financing for businesses, we urge the Basel Committee to commit to ongoing observation and willingness to make adjustments to rules, given the short timeframe for consideration and completion."

Among the high-level recommendations for regulatory action proposed by GFMA is the need to identify cases where there may be unnecessary duplication or conflicts between specific regulatory requirements and broader policy goals, as well as unintended consequences. Further, an overall assessment of the calibration and timing of the reforms in light of the cumulative impact of the full set of rules should be performed, including detailed empirical analysis to show that such requirements are targeting activities at an appropriate level of risk tolerance consistent with economic growth and lending objectives. In addition, given that Basel 3 is not yet fully implemented and its impact on markets and end-users unknown, a careful observation period of Basel IV should be implemented until such time as the full impact of the Basel 3 programme is considered.

RMBS

Ocwen upgraded to 'average'

S&P has raised its overall rankings on Ocwen Loan Servicing from below average to average as a residential mortgage primary, subprime, special and subordinate-lien servicer, in a move many investors had been calling for (SCI 10 August). Management and organisation sub-rankings have also been raised from below average to average, and loan administration sub-rankings have been affirmed at average.

"The rankings reflect our opinion of Ocwen's strengthened internal control environment, good management and staff experience levels, manageable staff and management turnover rates, improved non-reimbursable tax penalties, and the company's continued monitoring and supervision by the New York Department of Financial Services (NYDFS), California Department of Business Oversight (DBO) and National Mortgage Settlement (NMS)," says S&P.

Ocwen's overall residential rankings were lowered to below average last summer (SCI 24 June 2015), as a result of weaknesses the rating agency noted in the company's internal control environment, as well as the regulatory inquiries by the NYDFS and California DBO. S&P notes that certain high- and medium-risk internal audit findings remain, but that these are consistent with other average servicers.

In changing its ranking of Ocwen, S&P notes: the completion of Ocwen's US$2bn consumer relief obligation; the creation of a risk committee at the board level; the creation of an independent review committee to oversee related party transactions; the addition of three new outside parties to Ocwen Financial's board; the replacement of the coo and other senior management; the hiring of 70 additional compliance staff; and several system and process changes.

"We believe Ocwen has strengthened its internal control environment and reduced the number and criticality of internal audit findings, and we believe the first and second lines of defence will continue to season to provide adequate risk management. In our view, Ocwen also continues to invest in staff, training and technology to further develop its operations. The company's executive and senior management appears focused on the continued improvement of Ocwen's internal controls environment and loan servicing performance," says S&P.

However, the rating agency believes the regulatory outlook remains uncertain as the NYDFS and California DBO are yet to resolve their monitoring activities.

RMBS

Residential delinquencies at decade low

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased by 11bp to 4.66% in 2Q16, according to the Mortgage Bankers Association's latest survey. The rate is 64bp lower than a year ago and the lowest level in exactly ten years.

The percentage of loans on which foreclosure actions were started during the second quarter was 0.32%, a decrease of 3bp from the previous quarter. The rate is the lowest level since the second quarter of 2000.

The serious delinquency rate also posted a decrease of 3.11%, 18bp lower than the previous quarter, and 84bp below last year. This rate is at its lowest since 3Q07.

Marina Walsh, MBA's vp of industry analysis, says: "Mortgage performance improved again in the second quarter, primarily because of the combination of lower unemployment, strong job growth and a continued nationwide housing market recovery."

She points out that the mortgage delinquency rate closely tracks the nation's improving unemployment rate. The former was 4.66% in 2Q16, while the latter was 4.87%. By comparison, at its peak in 1Q10, the delinquency rate was 10.06% and the unemployment rate stood at 9.83%.

Among the various loan types, the delinquency rate improved for conventional loans, as well as FHA loans. The FHA delinquency rate dropped to 8.46%, its lowest level since 2000.

RMBS

FNMA markets more NPLs

Fannie Mae is marketing its latest batch of NPLs, including the fifth community impact pool that the GSE has offered to date. The latter is a small US$20.7m pool of 120 high-occupancy loans, focused in Miami, Florida, while there are four larger pools that comprise approximately 6,900 loans totalling US$1.08bn in unpaid principal balance.

Wells Fargo and The Williams Capital Group are advising on the auction. Bids are due on the four large pools on 30 August and on the community impact pool on 15 September.

RMBS

CRT ratings upgraded

Moody's has upgraded the ratings of 22 tranches from four credit risk transfer RMBS backed by conforming balance loans issued by Fannie Mae and Freddie Mac. The actions are due to the recent performance of the underlying pools and reflect Moody's updated default projections on the collateral and credit enhancement build-up.

The affected transactions are Connecticut Avenue Securities (CAS) Series 2014-C01, as well as Structured Agency Credit Risk (STACR) Debt Notes Series 2013-DN2, Series 2014-DN1 and Series 2015-HQ1. The rating upgrades reflect low serious delinquencies and credit events in the reference pools since issuance. Credit events are currently at or around 1bp of the original pool balances for all deals.

Credit enhancement for the subordinate bonds has also increased due to sustained prepayment rates on the underlying pools, as well as an update in Moody's base-case economic scenario projections. Additionally, the senior subordinate classes in all the transactions benefit from a sequential allocation of payments among the subordinate bonds, which explains the fast pay-down of top mezzanine bonds.

RMBS

MI cancellation rates examined

Mortgage insurance (MI) cancellation rates across GSE credit risk transfer (CRT) RMBS remain low, according to a new KBRA analysis. The agency suggests that this could be due to limited loan seasoning, given the sector's short history.

Nevertheless, KBRA expects MI cancellation rates to occur sooner and at higher rates where significant home price appreciation (HPA) has been or will be realised relative to a flat HPA scenario. Of the cancellations seen so far, three-quarters are attributed to reduced LTVs through loan balance pay-downs, with a material percentage of loans having made substantial curtailment payments to decrease below LTV thresholds required for MI cancellation.

The analysis also shows that borrowers with origination LTVs of 85% were less likely (27.4%) to terminate their policy. In contrast, those with origination LTVs ranging from 90%-95% LTV were more likely (50%-55%) to cancel.

To date, MI policies have been more likely to remain in force for borrowers that may be eligible to cancel due to HPA - potentially due to a combination of practical barriers for optional termination, such as borrower knowledge of cancellation options, borrowers' estimate of their home value or the cost and process to effect such a cancellation.

KBRA's analysis is based on ongoing disclosures that Fannie Mae and Freddie Mac began reporting for certain CRT transactions beginning in late 2015 and early 2016. The disclosures include items, such as the status of MI policies, estimated current LTV information and updated borrower credit scores.

The analysis focuses specifically on the MI disclosures, as MI is an important feature in actual loss CRT transactions with exposure to high LTV loans.

RMBS

Morgan Stanley begins RMBS payments

Morgan Stanley has begun fulfilling its consumer relief obligations under the terms of its settlement with New York State (SCI 12 February). The settlement concerns failed RMBS sold in the lead-up to the financial crisis.

Under the terms of the settlement, Morgan Stanley will pay US$550m - including consumer relief of US$400m - to be distributed by the end of September 2019. Independent monitor Eric Green reports that the consumer relief which Morgan Stanley has submitted for credit under the settlement so far totals US$10.468m.

This initial batch of forgiveness is seen as a 'test drive', allowing the monitor and his team to assess Morgan Stanley's plan for delivering relief, as well as its methodology for calculating how the assistance qualifies for credit under the terms of the settlement agreement. Based on an initial review, Green says Morgan Stanley's approach is "logical and appropriate".

The US$10.468m forgiveness was spread over 19 loans, 18 of which were underwater prior to the forgiveness. All 19 now have LTVs of 100% or lower.

RMBS

CFPB issues final rule on servicing

The CFPB has amended its mortgage servicing rules to ensure mortgage servicers treat homeowners and struggling borrowers fairly. It is also issuing an interpretive rule under the Fair Debt Collection Practices Act relating to servicers' compliance with certain mortgage servicing provisions as amended by the final rule.

The CFPB introduced common-sense rules for servicers in January 2014 (SCI 20 January 2014). Amendments were proposed in November of that year, with this final rule adopting many of those provisions.

The new rule requires servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan. Borrowers who have brought their loans current at any time since submitting the prior complete loss mitigation application will now be eligible for those protections again, which should particularly help borrowers who obtain a permanent loan modification and later suffer an unrelated hardship that could otherwise cause them to face foreclosure.

The new rule also expands consumer protections to surviving family members and other homeowners. The rule establishes a broad definition of 'successor in interest' that generally includes persons who receive property upon the death of a relative or joint tenant, or through certain other means. The rule ensures successors in interest will receive the same protections as the original borrower.

Additionally, the rule provides more information to borrowers in bankruptcy and requires servicers to notify borrowers when loss mitigation applications are complete. It protects struggling borrowers during servicing transfers and clarifies servicers' obligations to avoid dual-tracking and prevent wrongful foreclosures. The rule clarifies when a borrower becomes delinquent.

There are also changes to provide flexibility for servicers to comply with certain force-placed insurance and periodic statement disclosure requirements and clarification of several requirements regarding early intervention, loss mitigation, information requests and prompt crediting of payments, as well as the small servicer exemption. The changes exempt servicers from providing periodic statements under certain circumstances when the servicer has charged-off the mortgage.