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Mortgage Bankers Association
Presentation to the Securities and Exchange Commission on the Proposed Asset-Backed
Securities Rule
September 23, 2004
04/18/23 2
AGENDA
I. INTRODUCTIONS
II. MORTGAGE SECURITIZATION MODELS
III. ABS RULE DEFINITIONS
IV. PROPOSED DISCLOSURES
V. PROPOSED RESPONSIBLE PARTY ROLE
VI. PROPOSED ATTESTATION ENGAGEMENT
VII. GENERAL MBA COMMENTS
VIII. RECAP OF MBA RECOMMENDATIONS
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I. Introductions
A. Mortgage Bankers Association:• The national association representing the real estate
finance industry, with membership of over 2,700 companies• For 2003, an estimated $98.7 billion of CMBS were issued
and $586 billion of RMBS (exclusive of agency guaranteed securities) were issued; the top 100 CMBS issuers and the top 25 RMBS issuers are all MBA members
B. Participant IntroductionsC. General MBA View:
• Benefits of Cohesive Set of Rules• Disclosures Generally Already Made Today• Industry has a Vested Interest in Serving Investors’ Needs
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II. Mortgage Securitization Models
A. Residential Mortgage Securitization Models1. Master Servicer Without Servicing
Responsibilities2. Master Servicing With Servicing
Responsibilities 3. Non-Master Servicer
B. Commercial Mortgage Securitization Model1. Master Servicer 2. Multiple Master Servicer
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RMBS MODELMaster Servicer Without Primary Servicing Responsibility
Flow of Information & Documentation
PRIMARYSERVICER
Borrowers
Loan Docs
PRIMARYSERVICER
Borrowers
Loan Docs
PRIMARYSERVICER
Borrowers
Loan Docs
OutsourceVendor Contract
Contract
MASTERSERVICER
ServicingAgreement
PSAServicingAgreement
TRUSTEE
PSA
TRUST
INVESTORS
Securities
PSA = Pooling and Servicing Agreement
ISSUER / DEPOSITOR
PSAPSA
PSA
Subservicer
04/18/23 6
RMBS MODELMaster Servicer With Primary Servicing Responsibility
Flow of Information & Documentation
PRIMARYSERVICER
Borrowers
Loan Docs
Borrowers
Loan Docs
PRIMARYSERVICER
Borrowers
Loan Docs
OutsourceVendor SubservicerContract Contract
MASTERSERVICER
AND PRIMARY SERVICER
ServicingAgreement
PSA
TRUSTEE
PSA
TRUST
INVESTORS
Securities
PSA = Pooling and Servicing Agreement
ISSUER / DEPOSITOR
PSAPSA
PSA
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RMBS MODELNo Master Servicer
Flow of Information & Documentation
PRIMARYSERVICER
Borrowers
Loan Docs
PRIMARYSERVICER
Borrowers
Loan Docs
PRIMARYSERVICER
Borrowers
Loan Docs
OutsourceVendor SubservicerContract Contract
BONDADMINISTRATOR
ServicingAgreement
PSAServicingAgreement
TRUSTEE
PSA
TRUST
INVESTORS
Securities
PSA = Pooling and Servicing Agreement
ISSUER / DEPOSITOR
PSAPSA
04/18/23 8
CMBS MODEL – Master ServicerFLOW OF INFORMATION & DOCUMENTATION
PRIMARYSERVICER
Borrowers
Loan Docs
Borrowers
Loan Docs
PRIMARYSERVICER
Borrowers
Loan Docs
OutsourceVendor
OutsourceVendor
Contract
Contract
Sub-ServicingAgreement
Sub-ServicingAgreement
SPECIALSERVICER
PSA
TRUSTEE
PSA
TRUST
INVESTORS
Securities
PSA = Pooling and Servicing Agreement
ISSUER / DEPOSITOR
PSAPSA
Contract
OutsourceVendor
MASTERSERVICER
AND PRIMARY SERVICER
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CMBS MODEL – Multiple Master ServicerFLOW OF INFORMATION & DOCUMENTATION
PRIMARYSERVICER
Borrowers
Loan Docs
PRIMARYSERVICER
Borrowers
Loan Docs
PRIMARYSERVICER
Borrowers
Loan Docs
OutsourceVendor
OutsourceVendor
Contract
Contract
MASTERSERVICER
Sub-ServicingAgreement
Sub-ServicingAgreement
Sub-ServicingAgreement
SPECIALSERVICER
PSA
TRUSTEE
PSA
TRUST
INVESTORS
Securities
PSA = Pooling and Servicing Agreement
ISSUER / DEPOSITOR
PSAPSA
MASTERSERVICER
PSA
Contract
OutsourceVendor
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III. ABS Rule Definition & Actual Roles of Participants
A. ABS Rule Definition
“Servicer means any person responsible for the management or collection of the pool assets or making allocations or distributions to holders of the asset backed securities. The term servicer does not include a trustee …”
B. Industry Definitions
1. Master servicer - Contractual agent with oversight of primary servicers, reporting responsibilities to the trustee, and may provide liquidity to the trust through servicing advances.
2. Primary servicer - Collateral administrator that performs mortgage loan servicing functions. May also be a master servicer or an affiliate of a master servicer.
3. Special servicer - The servicer of defaulted mortgage loans.4. Subservicer - In CMBS, synonymous with the role of a primary servicer; in RMBS, a servicer
that is under contract with a primary servicer.5. Outsource vendor - In RMBS, sometimes referred to as subservicer. A third party hired by a
servicer to perform select functions.6. Bond administrator - In CMBS, synonymous with the trustee. In RMBS, can be a separate
role from the trustee. Performs security payment calculations and distributes funds to investors.
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IV. Disclosures
A. MBA Concerns
1. Static Pool Data/Collateral Considerations2. APR, Points and Fees: Irrelevant to Investor Cash Flow3. Servicing Disclosure Issues4. Timeline Issues
B. MBA Recommendations
1. Eliminate Static Pool Data Requirement2. Eliminate Disclosure of APR, Points and Fees3. Utilize PSA Summary of Servicing Practices4. Provide Guidance on Disclosure and Transaction Timeline
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Timeline of CMBS Transactions
1. Issuers offer a tentative pool of assets for the transaction & determine the depositor for the transaction2. Depositor offers the pool of assets to the market, investors pledge to purchase the rated class of
assets – the non-rated class investor chooses the special servicer3. Each potential master servicer submits a bid letter, offering a price to service the loans, to the
depositor4. Depositor notifies one of the servicers that they have won the bid & will be named as the master
servicer on the deal5. The “red” prospectus (draft copy) is written & approved by all named parties, the depositor, issuers,
master servicer, special servicer, trustee, & rating agencies (the primary servicers are typically not a signing party to the document)
6. Issuers finalizes the pool of assets; the “black” prospectus (final) is printed & disbursed to the investors.
7. The Pooling and Servicing Agreement (PSA) is drafted based on the special servicer provisions, trustee provisions, rating agency requirements, master servicer bid letter terms & the general industry standards for a transaction
8. PSA is finalized by agreement of the named parties in the document 9. Master servicer completes negotiations with each individual primary servicer & finalizes the Primary
Servicing Agreements10. Depositor offers the pool assets as securities to the market & files the official documents to complete
the transaction with the Commission
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Timeline of RMBS Transactions
1. The owner of the assets to be securitized (the “Seller”) identifies a tentative pool of assets2. Seller determines the underwriter & the depositor for the transaction.3. Each potential master servicer submits a bid letter to the Seller4. Seller notifies the master servicer that they have won the bid & will be named as the master servicer5. Seller determines which party or parties will act as servicer of the assets. The assets may be
serviced by the Seller, another originator of the assets or another party selected by the Seller6. The collateral term sheets & structural term sheets are written & approved by the Seller, the
depositor, underwriter & rating agencies, then distributed to investors for feedback on potential deal structure & pricing
7. The Seller & the underwriter finalize the pool of assets, transaction structure & terms of the securities;8. The Prospectus is drafted & reviewed by all parties to the transaction including the Seller, depositor,
underwriter, master servicer, servicers, trustee & rating agencies9. The Pooling and Servicing Agreement (“PSA”) is drafted based on the final structure described in the
Prospectus & also incorporates rating agency requirements & the general industry standards for a transaction
10. The Prospectus is finalized & distributed to investors prior to the closing date11. The PSA & servicing agreements are finalized by agreement of the named parties in the document &
rating agencies12. The Seller offers the pool of assets as securities to the market & documents are filed with the
Commission
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V. Responsible Party Role
A. Responsible Party would sign:1. 10-K Report2. Sarbanes-Oxley Section 302 Certification3. Assertion of universal compliance with criteria in attestation engagement
B. MBA concerns:1. Does not reflect roles of participants in CMBS and RMBS worlds – transactions
are structured to diversify risk, decision-making and responsibility2. RP faces uncertainty and risk when determining “material compliance,”
without additional guidance from the Commission3. Would create conflicts and raise transaction costs as deals would have to be
renegotiated/repriced 4. Would the proposed RP effectively be a guarantor as to performance of
transaction parties’ responsibilities?
C. MBA Recommendation:Division of responsibility for signing 10-K Report, Sarbanes-Oxley Certification and Assertion of Compliance should be a point of negotiation between the depositor and the master servicer
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VI. Proposed Attestation Engagement
A. MBA Views1. Proposed attestation engagement strong start2. Preferable to separate industry engagements 3. Workable with some changes
B. MBA Concerns1. Overlapping servicer roles2. RP could place conflicting demands on same primary servicers3. RP (including master servicers) controls generally do not provide assurance to
level of detail covered by servicing criteria4. Timeline issues5. Some criteria too transaction specific6. Some criteria related to trustee functions
C. MBA Recommendation1. Master servicers, and primary servicers that meet a certain threshold, should
be required to engage an independent accountant to render an opinion on their individual compliance with servicing criteria at the platform level.
2. Then, the RP collects the attestation reports from each servicer and attaches a statement to the 10-K Report without rendering a judgment as to any servicers’ compliance.
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VII. General MBA Comments
• Materiality Guidance
• Costs Associated with Compliance
• Transition Period
• Reissue Proposed Rule for Additional Comment
04/18/23 17
VIII. Recap of Industry Recommendations
• DEFINITIONS
• DISCLOSURES
• RESPONSIBLE PARTY
• ATTESTATION ENGAGEMENT
• REISSUE PROPOSED RULE FOR ADDITIONAL COMMENT
