[Federal Register Volume 79, Number 185 (Wednesday, September 24, 2014)]
[Rules and Regulations]
[Pages 57184-57346]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21375]



[[Page 57183]]

Vol. 79

Wednesday,

No. 185

September 24, 2014

Part II





 Securities and Exchange Commission





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17 CFR Parts 229, 230, 232, et al.





 Asset-Backed Securities Disclosure and Registration; Final Rule

Federal Register / Vol. 79 , No. 185 / Wednesday, September 24, 2014 
/ Rules and Regulations

[[Page 57184]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 230, 232, 239, 240, 243, and 249

[Release Nos. 33-9638; 34-72982; File No. S7-08-10]
RIN 3235-AK37


Asset-Backed Securities Disclosure and Registration

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting significant revisions to Regulation AB and 
other rules governing the offering process, disclosure, and reporting 
for asset-backed securities (``ABS''). The final rules require that, 
with some exceptions, prospectuses for public offerings under the 
Securities Act of 1933 (``Securities Act'') and ongoing reports under 
the Securities Exchange Act of 1934 (``Exchange Act'') of asset-backed 
securities backed by real estate related assets, auto related assets, 
or backed by debt securities, including resecuritizations, contain 
specified asset-level information about each of the assets in the pool. 
The asset-level information is required to be provided according to 
specified standards and in a tagged data format using eXtensible Markup 
Language (``XML''). We also are adopting rules to revise filing 
deadlines for ABS offerings to provide investors with more time to 
consider transaction-specific information, including information about 
the pool assets. We are also adopting new registration forms tailored 
to ABS offerings. The final rules also repeal the credit ratings 
references in shelf eligibility criteria for ABS issuers and establish 
new shelf eligibility criteria.

DATES: Effective Date: November 24, 2014.
    Compliance Dates:
    Offerings on Forms SF-1 and SF-3: Registrants must comply with new 
rules, forms, and disclosures no later than November 23, 2015.
    Asset level Disclosures: Offerings of asset-backed securities 
backed by residential mortgages, commercial mortgages, auto loans, auto 
leases, and debt securities (including resecuritizations) must comply 
with asset-level disclosure requirements no later than November 23, 
2016.
    Forms 10-D and 10-K: Any Form 10-D or Form 10-K that is filed after 
November 23, 2015 must comply with new rules and disclosures, except 
asset-level disclosures.

FOR FURTHER INFORMATION CONTACT: Rolaine S. Bancroft, Senior Special 
Counsel, Michelle M. Stasny, Special Counsel, M. Hughes Bates, 
Attorney-Advisor, or Kayla Florio, Attorney-Advisor, in the Office of 
Structured Finance at (202) 551-3850, Division of Corporation Finance, 
U.S. Securities and Exchange Commission, 100 F Street NE., Washington, 
DC 20549-3628.

SUPPLEMENTARY INFORMATION: We are adopting amendments to Items 512 \1\ 
and 601 \2\ of Regulation S-K; \3\ Items 1100, 1101, 1102, 1103, 1104, 
1105, 1108, 1109, 1110, 1111, 1112, 1113, 1114, 1119, 1121, and 1122 
\4\ of Regulation AB \5\ (a subpart of Regulation S-K); Rules 139a, 
167, 190, 193, 401, 405, 415, 424, 430B, 430C, 433, 456, and 457,\6\ 
and Forms S-1 and S-3 \7\ under the Securities Act of 1933 (Securities 
Act); \8\ Rules 11, 101, 201, 202, and 305 \9\ of Regulation S-T; \10\ 
and Rules 3a68-1a, 3a68-1b, 15c2-8, 15d-22, 15Ga-1, and 17g-7 \11\ and 
Forms 8-K, 10-K, and 10-D \12\ under the Securities Exchange Act of 
1934; \13\ and Rule 103 \14\ of Regulation FD.\15\ We also are adding 
new Items 1124 and 1125 \16\ to Regulation AB, and Rule 430D,\17\ Form 
SF-1,\18\ Form SF-3,\19\ and Form ABS-EE \20\ under the Securities Act.
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    \1\ 17 CFR 229.512.
    \2\ 17 CFR 229.601.
    \3\ 17 CFR 229.10 et al.
    \4\ 17 CFR 229.1100, 17 CFR 229.1101, 17 CFR 229.1102, 17 CFR 
229.1103, 17 CFR 229.1104, 17 CFR 229.1105, 17 CFR 229.1108, 17 CFR 
229.1109, 17 CFR 229.1110, 17 CFR 229.1111, 17 CFR 229.1112, 17 CFR 
229.1113, 17 CFR 229.1114, 17 CFR 229.1119, 117 CFR 229.1121, and 17 
CFR 229.1122.
    \5\ 17 CFR 229.1100 through 17 CFR 229.1124.
    \6\ 17 CFR 230.139a, 17 CFR 230.167, 17 CFR 230.190, 17 CFR 
230.193, 17 CFR 230.401, 17 CFR 230.405, 17 CFR 230.415, 17 CFR 
230.424, 17 CFR 230.430B, 17 CFR 230.430C, 17 CFR 230.433, 17 CFR 
230.456, and 17 CFR 230.457.
    \7\ 17 CFR 239.11 and 17 CFR 239.13.
    \8\ 15 U.S.C. 77a et seq.
    \9\ 17 CFR 232.11, 17 CFR 232.101, 17 CFR 232.201, 17 CFR 
232.202, and 17 CFR 232.305.
    \10\ 17 CFR 232.10 et seq.
    \11\ 17 CFR 240.3a68-1a, 17 CFR 240.3a68-1b, 17 CFR 240.15c2-8, 
17 CFR 240.15d-22, 17 CFR 240.15Ga-1, and 17 CFR 240.17g-7.
    \12\ 17 CFR 249.308, 17 CFR 249.310, and 17 CFR 249.312.
    \13\ 15 U.S.C. 78a et seq.
    \14\ 17 CFR 243.103.
    \15\ 17 CFR 243.100 et seq.
    \16\ 17 CFR 229.1124 and 17 CFR 229.1125.
    \17\ 17 CFR 230.430D.
    \18\ 17 CFR 239.44.
    \19\ 17 CFR 239.45.
    \20\ 17 CFR 249.1500.
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Table of Contents

I. Executive Summary
    A. Background
    B. Problems in the ABS Markets
    C. Summary of Final Rules
    1. Asset-Level Disclosure
    2. Other Disclosure Requirements
    3. Securities Act Registration
    (a) Certification
    (b) Asset Review Provision
    (c) Dispute Resolution
    (d) Investor Communication
    (e) Other Shelf Offering Provisions
    4. Other Changes to ABS Rules
    5. Proposed Rules Not Being Adopted at This Time
II. Economic Overview
    A. Market Overview and Economic Baseline
    B. Economic Motivations
    C. Potential Effects on the ABS Market
    D. Potential Market Participants' Responses
III. Asset-Level Disclosure
    A. Asset-Level Disclosure Requirement
    1. Background and Economic Baseline for the Asset-Level 
Disclosure Requirement
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    2. Specific Asset-Level Data Points in Schedule AL
    (a) Disclosure Requirements for All Asset Classes and Economic 
Analysis of These Requirements
    (b) Asset Specific Disclosure Requirements and Economic Analysis 
of These Requirements
    (1) Residential Mortgage-Backed Securities
    (2) Commercial Mortgage-Backed Securities
    (3) Automobile Loan or Lease ABS
    (4) Debt Security ABS
    (5) Resecuritizations
    3. Asset-Level Data and Individual Privacy Concerns
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    4. Requirements Under Section 7(c) of the Securities Act
    (a) Section 7(c)(2)(B)--Data Necessary for Investor Due 
Diligence
    (b) Section 7(c)(2)(B)(i)--Unique Identifiers Relating to Loan 
Brokers and Originators
    (c) Section 7(c)(2)(B)(ii)--Broker Compensations and Section 
7(c)(2)(B)(iii)--Risk Retention by Originator and the Securitizer of 
the Assets
    B. Asset-Level Filing Requirements
    1. The Timing of the Asset-Level Disclosure Requirements
    (a) Timing of Offering Disclosures
    (1) Proposed Rule
    (2) Comments on Proposed Rule
    (3) Final Rule and Economic Analysis of the Final Rule
    (b) Timing of Periodic Disclosures
    (1) Proposed Rule
    (2) Comments on Proposed Rule
    (3) Final Rule and Economic Analysis of the Final Rule
    2. The Scope of New Schedule AL
    (a) Proposed Rule
    (1) Offering Disclosures
    (2) Periodic Disclosures
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    3. XML and the Asset Data File

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    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    4. Asset Related Documents
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    5. New Form ABS-EE
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    6. Temporary Hardship Exemption
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    C. Foreign ABS
IV. Other Prospectus Disclosure
    A. Transaction Parties
    1. Identification of the Originator
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule
    2. Financial Information Regarding a Party Obligated To 
Repurchase Assets
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule
    3. Economic Interest in the Transaction
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule
    4. Economic Analysis Related to the Rules Regarding Transaction 
Parties
    B. Prospectus Summary
    1. Proposed Rule
    2. Comments on Proposed Rule
    3. Final Rule and Economic Analysis of the Final Rule
    C. Modification of Underlying Assets
    1. Proposed Rule and Comments on Proposed Rule
    2. Final Rule and Economic Analysis of the Final Rule
    D. Disclosure of Fraud Representations
    E. Static Pool Disclosure
    1. Disclosure Required
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    2. Amortizing Asset Pools
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    3. Filing Static Pool Data
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and the Economic Analysis of the Final Rule
    F. Other Disclosure Requirements That Rely on Credit Ratings
V. Securities Act Registration
    A. Background and Economic Discussion
    B. New Registration Procedures and Forms for ABS
    1. New Shelf Registration Procedures
    (a) Rule 424(h) and Rule 430D
    (1) Proposed Rule
    (2) Comments on Proposed Rule
    (3) Final Rule and Economic Analysis of the Final Rule
    (a) Rule 424(h) Filing
    (b) New Rule 430D
    2. Forms SF-1 and SF-3
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    3. Shelf Eligibility for ABS Offerings
    (a) Shelf Eligibility--Transaction Requirements
    (1) Certification
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Shelf Certification 
Requirement
    (i) Paragraph One
    (ii) Paragraph Two
    (iii) Paragraph Three
    (iv) Paragraph Four
    (v) Paragraph Five
    (vi) Signature Requirement
    (vii) Date of the Certification
    (viii) Opinion by an Independent Evaluator Alternative
    (2) Asset Review Provision
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Asset Review 
Provision
    (i) Triggers for Review
    (a) Delinquency Prong
    (b) Investor Vote Prong
    (ii) Scope of the Review
    (iii) Report of the Findings and Conclusions
    (iv) Selection of the Reviewer
    (3) Dispute Resolution Provision
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Dispute Resolution 
Shelf Requirement
    (4) Investor Communication
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Investor 
Communication Shelf Requirement
    (b) Shelf Eligibility--Registrant Requirements
    (c) Annual Evaluation of Form SF-3 Eligibility in Lieu of 
Section 10(a)(3) Update
    (1) Annual Compliance Check Related to Timely Exchange Act 
Reporting
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    (2) Annual Compliance Check Related to the Fulfillment of the 
Transaction Requirements in Previous ABS Offerings
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    4. Continuous Offerings
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    5. Mortgage Related Securities
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    C. Exchange Act Rule 15c2-8(b)
    1. Proposed Rule
    2. Comments on Proposed Rule
    3. Final Rule and Economic Analysis of the Final Rule
    D. Including Information in the Form of Prospectus in the 
Registration Statement
    1. Presentation of Disclosure in Prospectuses
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    2. Adding New Structural Features or Credit Enhancements
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    E. Pay-as-You-Go Registration Fees
    1. Proposed Rule
    2. Comments on Proposed Rule
    3. Final Rule and Economic Analysis of the Final Rule
    F. Codification of Staff Interpretations Relating to Securities 
Act Registration
    1. Fee Requirements for Collateral Certificates or Special Units 
of Beneficial Interest
    2. Incorporating by Reference Subsequently Filed Exchange Act 
Reports
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
VI. Filing Requirements for Transaction Documents
    A. Proposed Rule
    B. Comments Received on Proposed Rule
    C. Final Rule and Economic Analysis of the Final Rule
VII. Definition of Asset-Backed Security
    A. Proposed Rule
    B. Comments on Proposed Rule
    1. The Master Trust Exception
    2. The Revolving Period Exception
    3. The Prefunding Exception
    C. Final Rule and Economic Analysis of the Final Rule
VIII. Exchange Act Reporting
    A. Distribution Reports on Form 10-D
    1. Delinquency Presentation
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    2. Identifying Information and Cross-References to Previously 
Reported Information
    3. Changes in Sponsor's Interest in the Securities
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    B. Annual Report on Form 10-K
    1. Servicer's Assessment of Compliance With Servicing Criteria
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    2. Codification of Prior Staff Interpretations Relating to the 
Servicer's Assessment of Compliance With Servicing Criteria
    C. Central Index Key Numbers for Depositor, Sponsor and Issuing 
Entity

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IX. Transition Period
    A. General Transition Period
    B. Transition Period for Asset-Level Disclosure Requirements
    C. Compliance Dates
X. Paperwork Reduction Act
    A. Background
    B. Summary of Comment Letters on the PRA Analysis
    C. Revisions to Proposals
    D. PRA Reporting and Cost Burden Estimates
    1. Form ABS-EE
    2. Form S-3 and Form SF-3
    3. Form S-1 and Form SF-1
    4. Form 10-K
    5. Form 10-D
    6. Form 8-K
    7. Regulation S-K and Regulation S-T
    E. Summary of Changes to Annual Burden of Compliance in 
Collection of Information
XI. Regulatory Flexibility Act Certification
XII. Statutory Authority and Text of Rule and Form Amendments

I. Executive Summary

A. Background

    The Commission addressed the registration, disclosure, and 
reporting requirements for asset-backed securities in 2004 when it 
adopted new rules and amendments under the Securities Act and the 
Exchange Act.\21\ Among other changes, the 2004 rules updated and 
clarified the Securities Act registration requirements for asset-backed 
securities offerings and allowed modified Exchange Act reporting 
tailored to asset-backed securities offerings. In April 2010, we 
proposed revisions to the registration, disclosure, and reporting 
requirements for ABS offerings in an effort to improve investor 
protection and promote more efficient asset-backed markets.\22\
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    \21\ See Asset-Backed Securities, Release No. 33-8518 (Jan. 7, 
2005) [70 FR 1506] (the ``2004 ABS Adopting Release'').
    \22\ See Asset-Backed Securities, Release No. 33-9117 (Apr. 7, 
2010) [75 FR 23328] (the ``2010 ABS Proposing Release'' or the 
``2010 ABS Proposal'').
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    In the 2010 ABS Proposing Release we noted that the financial 
crisis highlighted that investors and other participants in the 
securitization market did not have the necessary information and time 
to be able to fully assess the risks underlying asset-backed securities 
and did not value asset-backed securities properly or accurately. This 
lack of understanding and the extent to which it impacted the U.S. and 
global economy prompted us to revisit several aspects of our regulation 
of asset-backed securities.\23\ To address these issues, we proposed to 
require that, with some exceptions, prospectuses for public offerings 
of asset-backed securities and ongoing Exchange Act reports contain 
specified asset-level information about each of the assets in the pool 
in a standardized tagged data format. Further, we proposed a rule that 
asset-backed issuers provide investors with more time to consider 
transaction-specific information about the pool assets. We also 
proposed to require asset-backed issuers to file a computer program 
modeling the flow of funds, or waterfall, provisions of the transaction 
to help investors analyze the offering and monitor ongoing performance. 
For offerings of asset-backed securities that qualify for shelf 
registration, we proposed investor protection-focused shelf eligibility 
and offering requirements that would indicate which types of offerings 
qualify for delayed shelf eligibility and also proposed to remove the 
investment-grade ratings requirement.\24\ Finally, we proposed to 
require disclosure provisions in unregistered ABS transaction 
agreements as a condition to certain safe harbors for exempt offerings 
and resales of ABS.
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    \23\ See the 2010 ABS Proposing Release at 23329.
    \24\ In this Release, we also refer to such offerings as shelf 
offerings.
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    In July 2010, subsequent to the 2010 ABS Proposing Release, 
Congress passed the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act''),\25\ which directed the 
Commission to prescribe several ABS related rules, some of which were 
included in the 2010 ABS Proposals and others of which were not. Two of 
the proposed shelf eligibility requirements--risk retention and 
continued Exchange Act reporting--were addressed by provisions of the 
Dodd-Frank Act. After taking the Dodd-Frank requirements into account, 
and considering comments received in connection with the 2010 ABS 
Proposing Release, in 2011 we re-proposed some of the 2010 ABS 
Proposals, including the shelf eligibility requirements. In that same 
release, we also sought additional comment on asset-level disclosure, 
including comment on how best to implement Section 7(c) of the 
Securities Act, as added by Section 942(b) of the Dodd-Frank Act, which 
directed the Commission to adopt regulations to require asset-level 
information.\26\
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    \25\ Public Law 111-203, 124 Stat. 1376 (July 21, 2010).
    \26\ See Re-Proposal of Shelf Eligibility Conditions for Asset-
Backed Securities, Release No. 33-9244 (July 26, 2011) [76 FR 47948] 
(the ``2011 ABS Re-Proposing Release'' or the ``2011 ABS Re-
Proposal'').
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    In February 2014, the Commission re-opened the comment period \27\ 
on the 2010 ABS Proposals and the 2011 ABS Re-Proposals to permit 
interested persons to comment on an approach for the dissemination of 
asset-level data, which is described in a staff memorandum, dated 
February 25, 2014, that was posted to the public comment file.\28\
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    \27\ See Re-Opening of Comment Period for Asset-Backed 
Securities, Release No. 33-9552 (Feb. 25, 2014), [79 FR 11361] 
(``the 2014 Re-Opening Release'').
    \28\ See Memorandum from the Commission's Division of 
Corporation Finance (Feb. 25, 2014), available at http://www.sec.gov/comments/s7-08-10/s70810.shtml (the ``2014 Staff 
Memorandum'').
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B. Problems in the ABS Markets

    The financial crisis highlighted a number of concerns about the 
operation of our rules in the securitization market.\29\ The failures 
of credit ratings to accurately measure and account for the risks 
associated with certain asset-backed securities have been well 
documented by lawmakers, market observers, and academics.\30\ The 
collapse of these ``investment-grade'' rated securities was a major 
contributor to the financial crisis, and demonstrated the risks to 
investors of unduly relying on these securities' credit ratings without 
engaging in independent due diligence.\31\ Although academic

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research suggests that some investors might have been able to price ABS 
credit risk beyond what the ratings implied, there is also evidence 
that investors in triple-A rated tranches were less informed than 
investors in lower tranches.\32\
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    \29\ For a more detailed discussion of the issues mentioned in 
this section and other economic problems that affected the ABS 
market, see Section II.B Economic Motivations below.
    \30\ See, e.g., H.R. Rep. No. 4173 (2010) (Conf. Rep.) (Dodd-
Frank Wall Street Reform and Consumer Protection Act--Conference 
Report) (noting that the performance of credit rating agencies, 
particularly their ratings of asset-backed securities, contributed 
significantly to the financial crisis); John Griffin & Dragon Tang, 
Did Subjectivity Play a Role in CDO Credit Ratings?, 67 J. Fin. 
1293-1328 (2012) (discussing discretionary out-of-model adjustments 
to collateralized debt obligation (``CDO'') ratings made by one 
nationally recognized statistical rating organization); Adam 
Ashcraft, Paul Goldsmith-Pinkham & James Vickery, MBS Ratings and 
the Mortgage Credit Boom (2010 Working Paper Federal Reserve Bank of 
New York) (arguing, among other things, that MBS ratings did not 
fully reflect publicly available data).
    \31\ See the 2011 ABS Re-Proposal. See also Federal Reserve, 
Report to Congress on Risk Retention 49-66 (2010) (documenting the 
extent of the collapse of the investment-grade ABS market); Efraim 
Benmelech & Jennifer Dlugosz, The Credit Rating Crisis, in 24 NBER 
Macroeconomics Ann. 161-207 (Daron Acemoglu, Kenneth Rogoff & 
Michael Woodford, eds., Univ. of Chicago Press, Apr. 2010) (2009) 
(arguing that credit rating agency models did not adequately 
anticipate how poorly the assets underlying many structured finance 
products performed during economic downturns, that the ratings 
models failed to account for the correlation among underlying assets 
(e.g., residential home prices) at the national level, and that 
``ratings shopping'' by issuers exacerbated the severity of the poor 
performance of structured finance products during the economic 
downturn); Patrick Bolton, Xavier Freixas & Joel Shapiro, The Credit 
Ratings Game, 67(1) J. Fin. 85-111 (2012) (arguing that credit 
rating agency competition can reduce the efficiency of credit 
ratings, as it facilitates ``ratings shopping,'' and that ratings 
are more likely to be inflated during economic booms and when 
investors are more trusting).
    \32\ See Manuel Adelino, How Much Do Investors Rely on Ratings? 
The Case of Mortgage-Backed Securities, (2009 Working Paper 
Dartmouth College) (suggesting that investors in certain RMBS 
triple-A rated tranches relied more on ratings because they were 
less informed about the quality of the underlying assets than 
investors in lower tranches based on a comparison between yield 
spreads at securitization and actual defaults). But see Jie Jack He, 
Jun QJ Qian & Philip E. Strahan, Are All Ratings Created Equal? The 
Impact of Issuer Size on the Pricing of Mortgage-Backed Securities, 
67 J. Fin. 2097-2137 (2012) (suggesting that investors did not over 
rely on ratings by arguing that investors were able to price the 
risk of large RMBS issuers receiving more inflated ratings by 
comparing yields on RMBS sold by large issuers against the yields on 
RMBS sold by small issuers).
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    In addition, investors have expressed concern about a lack of time 
to analyze securitization transactions and make informed investment 
decisions.\33\ Time to analyze an offering is necessary if investors 
are being encouraged to perform their own diligence and to not over 
rely on credit ratings. While the Commission has not generally built 
waiting periods into its shelf offering registration process,\34\ and 
instead has believed investors can take the time they believe is 
adequate to analyze securities (and refuse to invest if not provided 
sufficient time), investors have indicated that this is not generally 
possible in the ABS market, particularly in a heated market.\35\
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    \33\ See discussion in Section V.B.1.a) Rule 424(h) and Rule 
430D below.
    \34\ See, e.g., Section IV.A. of Securities Offering Reform, 
Release No. 33-8591 (July 19, 2005) [70 FR 44722] (the ``Securities 
Offering Reform Release'') (adopting significant revisions to 
registration, communications and offering process under the 
Securities Act and stating that Rule 159 would not result in a speed 
bump or otherwise slow down the offering process).
    \35\ See discussion in Section V.B.1.(a) Rule 424(h) and Rule 
430D below.
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    Investors and others have also expressed concerns about other 
aspects of the securitization market, including concern about a lack of 
effective oversight by the principal officers of the ABS issuer.\36\ In 
particular, investors have been concerned that these officers have not 
conducted sufficient due diligence when reviewing the pool assets and 
designing the securitization structure. Additionally, investors have 
noted that the mechanisms for enforcing the representations and 
warranties contained in the securitization transaction documents are 
weak, and thus they are not confident that even strong representations 
and warranties provide them with adequate protection.\37\ They have 
also noted that difficulties in locating fellow ABS investors have 
prevented them from exercising rights under the transaction agreement, 
including requirements that an originator or sponsor repurchase an 
asset if it does not comply with the representations and 
warranties.\38\
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    \36\ See, e.g., letters from Better Markets dated Oct. 4, 2011 
submitted in response to the 2011 ABS Re-Proposing Release (``Better 
Markets''), CFA Institute dated Nov. 9, 2011 submitted in response 
to the 2011 ABS Re-Proposing Release (``CFA II''), Securities 
Industry and Financial Markets Association dated Aug. 2, 2010 
submitted in response to the 2010 ABS Proposing Release (``SIFMA 
I'') (expressed views of investors only), and Vanguard dated Aug. 
27, 2010 submitted in response to the 2010 ABS Proposing Release 
(``Vanguard'').
    \37\ See letters from Metropolitan Life Insurance Company dated 
Oct. 4, 2011 submitted in response to the 2011 ABS Re-Proposing 
Release (``Metlife II''), Prudential Investment Management, Inc. 
dated Oct. 4, 2011 submitted in response to the 2011 ABS Re-
Proposing Release (``Prudential II''), and Securities Industry and 
Financial Markets Association, Asset Management Group dated Oct. 4, 
2011 submitted in response to the 2011 ABS Re-Proposing Release 
(``SIFMA II-investors'') (stating that they do not believe the ABS 
market will recover without a mechanism to enforce breaches of 
representations and warranties). See also Section V.B.3.a)(2) Asset 
Review Provision below.
    \38\ See letters from CFA II and Investment Company Institute 
dated Oct. 4, 2011 submitted in response to the 2011 ABS Re-
Proposing Release (``ICI II'').
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    Market participants have also expressed a desire for expanded 
disclosure about the assets underlying securitizations in order to 
conduct an analysis of the offering.\39\ The financial crisis 
underscored that the information available to investors about ABS may 
not have provided them with all the information necessary to fully 
understand and correctly gauge the risks underlying the securities. As 
a result, investors may not have been able to accurately value those 
securities.\40\
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    \39\ See discussion in Section III.A.1 Background and Economic 
Baseline for the Asset-Level Disclosure Requirement below.
    \40\ See Sheila Bair, Bull by The Horns: Fighting to Save Main 
Street From Wall Street and Wall Street From Itself 52 (2012) 
(noting that, based on data analysis conducted by the FDIC, ABS 
investors did not look at the quality of the individual loans in the 
asset pools and lacked detailed loan-level information and adequate 
time to analyze the information before making an investment 
decision). See also footnote 882 and discussions in Section III.A.1 
Background and Economic Baseline for the Asset-Level Disclosure 
Requirement and Section V.B.1.a) Rule 424(h) and Rule 430D below.
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C. Summary of Final Rules

    We are adopting significant revisions to the rules governing 
disclosure, reporting, registration, and the offering process for 
asset-backed securities. The revised rules are designed to address the 
problems discussed above and to enhance investor protection in the ABS 
market.\41\ In adopting these changes, we have taken into consideration 
the comments and recommendations made by commenters in connection with 
the 2010 ABS Proposing Release, the 2011 ABS Re-Proposing Release and 
the 2014 Re-Opening Release, which are reflected in the changes made in 
the final rules.\42\ We received a total of 240 comment letters in 
connection with the 2010 ABS Proposals, 2011 ABS Re-Proposal and the 
2014 Re-Opening Release.
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    \41\ The rules do not affect the applicability of the Investment 
Company Act (15 U.S.C. 80a-1 et seq.) to ABS issuers, including the 
availability of exclusions from such Act. See, e.g., Section 3(c)(1) 
or Section 3(c)(7) (15 U.S.C. 80a-3(c)(1) and 80a-3(c)(7)) (for 
unregistered transactions); Rule 3a-7 [17 CFR 270.3a-7] (for 
registered and unregistered transactions).
    \42\ The 2014 Re-Opening Release provided for a thirty-day 
comment period. In response to commenters' requests, on March 28, 
2014, we extended the comment period until April 28, 2014.
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    The final rules are intended to provide investors with timely and 
sufficient information, reduce the likelihood of undue reliance on 
credit ratings, and provide mechanisms to help to enforce the 
representations and warranties made about the underlying assets. These 
revisions are comprehensive and although they will impose new burdens 
on issuers, we believe they will protect investors and promote 
efficient capital formation. The rules cover the following areas:
     Securities Act and Exchange Act disclosures, including new 
requirements for certain asset classes to disclose standardized asset-
level information;
     Revisions to the shelf offering process, eligibility 
criteria, and prospectus delivery requirements; and
     Several changes to the Asset-Backed Issuer Distribution 
Report on Form 10-D, the Annual Report on Form 10-K, and the Current 
Report on Form 8-K.\43\
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    \43\ See Section I.C.5 Proposed Rules Not Being Adopted At This 
Time for a list of proposed rules that we are not adopting at this 
time.
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    In addition, we are adopting clarifying, technical, and other 
changes to the current rules. Some of the rules we are adopting are 
designed to address and improve areas that we believe have the 
potential to raise issues similar to those highlighted in the financial 
crisis. Furthermore, some of the rules we are adopting respond to 
Sections 939A and 942(b) of the Dodd-Frank Act.
1. Asset-Level Disclosure
    Investors, other market participants, academics, and policy makers 
have increasingly noted that asset-level information is essential to 
evaluating an asset-backed security.\44\ We believe that

[[Page 57188]]

all investors and market participants should have access to the 
information they need to assess the credit quality of the assets 
underlying a securitization at inception and over the life of a 
security. In 2010, we proposed to require standardized asset-level 
information in prospectuses and on an ongoing basis in periodic 
reports. The 2010 ABS Proposals called for ABS issuers to disclose 
standardized asset-level information for most asset classes.
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    \44\ See, e.g., The Private Mortgage Market Investment Act, Part 
I, Hearing on H.R. 3644 Before the Subcomm. on Capital Mkts. & Gov't 
Sponsored Enters. of the H. Comm. on Fin. Servs., 112th Cong. 3 
(2011) (statement of Rep. Scott Garrett, Chairman, Subcomm. on 
Capital Mkts. & Gov't Sponsored Enters.) (stating ``in regards to 
transparency and disclosure, investors should be empowered, if you 
will, and enabled to do their own analysis of the assets underlying 
the securities that they are investing in. So by disclosing more 
detailed loan level data, while at the same time protecting the 
privacy of the borrowers, and by allowing more time for the 
investors to study that additional information, investors will be 
able to conduct more due diligence and lessen their reliance on 
rating agencies''); Securitization of Assets: Problems & Solutions 
Hearing Before the Subcomm. on Secs., Ins., & Inv. of S. Comm. on 
Banking, Housing & Urban Affairs, 111th Cong. 39 (2009) (statement 
of Patricia McCoy, law professor at the University of Connecticut 
School of Law) (recommending that ``[t]he SEC should require 
securitizers to provide investors with all of the loan-level data 
they need to assess the risks involved'' and ``should require 
securitizers and servicers to provide loan-level information on a 
monthly basis on the performance of each loan and the incidence of 
loan modifications and recourse''). See also letters from Moody's 
Investors Service dated Aug. 31, 2010 submitted in response to the 
2010 ABS Proposing Release (``Moody's I'') (suggesting increased ABS 
data information will restore confidence in the structured finance 
market), Prudential Investment Management, Inc. dated Aug. 2, 2010 
submitted in response to the 2010 ABS Proposing Release 
(``Prudential I'') (supporting the SEC's proposal for investors to 
have access to asset-level data in order to provide investors with a 
better understanding of risk), and SIFMA I (suggesting that asset-
level data is important to an investor's investment decision and is 
needed to restore investor confidence).
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    We are adopting standardized asset-level disclosure requirements 
because we believe this information will allow an investor to better 
conduct his or her own evaluation of the ongoing credit quality of a 
particular asset, risk layering of assets, and overall risks in the 
pool underlying the ABS. In our discussion below, we refer to each 
individual asset-level disclosure requirement as an asset-level data 
point. The asset-level data will be provided at the time of the 
offering and on an ongoing basis. The disclosures are required to be 
provided in a standardized XML format, so that they are more useful to 
investors and markets. We have revised the required data points to 
address commenters' concerns about a variety of topics that we discuss 
further below, such as the availability of data, market practice, need 
for increased transparency and privacy concerns. While we are adopting 
asset-level disclosure requirements for ABS where the underlying assets 
consist of residential mortgages, commercial mortgages, auto loans, 
auto leases and resecuritizations of ABS that include these asset 
types, or of debt securities,\45\ we are continuing to consider the 
best approach for requiring more information about underlying assets 
for the remaining asset classes covered by the 2010 ABS Proposal.\46\
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    \45\ Under the proposal, this asset class was titled ``corporate 
debt.'' However, we are using the term ``debt security ABS'' to 
provide clarification because, as we discuss below, the same set of 
requirements will also apply to resecuritizations.
    \46\ While the 2010 ABS Proposal applied across asset classes, 
we had also proposed specific requirements for equipment loans and 
leases, student loans, floorplan financings, and credit card 
receivables. As discussed below, Section 7(c) of the Securities Act 
[15 U.S.C. 77g(c)] also requires, in relevant part, that the 
Commission adopt regulations requiring an issuer of an asset-backed 
security to disclose, for each tranche or class of security, 
information about the assets backing that security, including asset-
level or loan-level data, if such data is necessary for investors to 
independently perform due diligence.
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    We have modified some of the proposed data points in response to 
comments. The new disclosure requirements include the following 
standardized data points:
     Data points about the payment stream related to a 
particular asset, such as the contractual terms, scheduled payment 
amounts, basis for interest rate calculations and whether and how 
payment terms change over time;
     Data points that allow for an analysis of the collateral 
related to the asset, such as the geographic location of the property, 
property valuation data and loan-to-value (``LTV'') ratio;
     Data points about the performance of each asset over time, 
for example, data about whether an obligor is making payments as 
scheduled; and
     Data points about the loss mitigation efforts by the 
servicer to collect amounts past due and the losses that may pass on to 
the investors.

Other key data points we are adopting will provide data about the 
extent to which income and employment status have been verified, 
mortgage insurance coverage, and lien position.
    We have also made modifications from the 2010 ABS Proposal in light 
of privacy concerns. As we discuss below, many commenters were 
concerned with the privacy implications of asset-level disclosure, 
particularly the risk that the information could be combined with other 
publicly available information to discover, or ``re-identify,'' the 
identities of the obligors in ABS pools, thereby revealing potentially 
sensitive personal and financial information about an obligor. In light 
of these concerns, we are omitting or modifying certain asset-level 
disclosures for RMBS and securities backed by auto loans and leases 
(collectively, ``Auto ABS'') to reduce the potential risk that the 
obligors could be re-identified. We refer to this risk throughout the 
release as ``re-identification risk''. Additionally, in response to 
commenters' suggestions, we have sought and obtained guidance from the 
Consumer Financial Protection Bureau (``CFPB'') on the application of 
the Fair Credit Reporting Act (``FCRA'') \47\ to the required 
disclosures. We believe these steps implement the statutory mandate of 
Section 7(c) and will provide investors with the asset-level 
information they need while reducing concerns about the potential re-
identification risk associated with disclosing consumers' personal and 
financial information.\48\
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    \47\ 15 U.S.C. 1681 et seq. FCRA generally regulates the use of 
``consumer reports'' furnished by a ``consumer reporting agency,'' 
as those terms are defined in the statute. The CFPB has authority to 
interpret FCRA.
    \48\ 15 U.S.C. 77g(c).
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2. Other Disclosure Requirements
    We are also adopting other amendments to the prospectus disclosure 
requirements, which will require:
     A summary of statistical information about the pool of 
underlying assets in the prospectus summary;
     A description of the provisions in the transaction 
agreements about modification of the terms of the underlying assets;
     More explanatory language about the static pool 
disclosures and standardized delinquency presentation and, for static 
pool filings on Form 8-K, a new separate Form 8-K item and exhibit 
number;
     Expanded disclosure about transaction parties; and
     Filing of the transaction documents, by the date of the 
final prospectus, which is a clarification of the current rules.
3. Securities Act Registration
    ABS issuers have emphasized their desire to access the capital 
markets quickly through shelf registration. ABS shelf registration 
offers significant flexibility and timing benefits to issuers, but 
these interests must be balanced against investors' need for adequate 
information and time to make informed investment decisions. Investors 
have expressed concerns about not having adequate time to review the 
prospectus in order to make a well-informed investment decision, 
especially in an

[[Page 57189]]

active market.\49\ This lack of time to adequately review the 
transaction contributed to investors placing undue reliance on the 
investment-grade ratings of these securities.\50\ Consequently, we are 
adopting a requirement that ABS issuers using a shelf registration 
statement on new Form SF-3 file a preliminary prospectus under new Rule 
424(h) containing transaction-specific information at least three 
business days in advance of the first sale of securities in the 
offering.\51\ The preliminary prospectus will give investors additional 
time to analyze the specific structure, assets, and contractual rights 
regarding each transaction. We had originally proposed that any 
material change to the preliminary prospectus, other than offering 
price, would require the filing of a new preliminary prospectus and re-
starting the waiting period. In response to commenters' concerns, we 
are requiring, instead, that issuers file material changes in a 
prospectus supplement that provides a clear description of how the 
information has changed at least 48 hours before the first sale.
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    \49\ See the 2010 ABS Proposing Release at 23334, including 
footnote 80, and the 2011 ABS Re-Proposal at 47950, including 
footnote 19. See also the discussion in Section V.B.1.a)(1), below 
(discussing investors' concerns about the lack of adequate time).
    \50\ See, e.g., Securitization of Assets: Problems & Solutions 
Hearing Before the Subcomm. on Sec., Ins., & Inv. of the S. Comm. on 
Banking, Housing & Urban Affairs, 111th Cong. 71 (2009) (statement 
of William W. Irving, Portfolio Manager at Fidelity Investments) 
(noting ``high demand [for ABS] put investors in the position of 
competing with each other, making it difficult for any of them to 
demand better underwriting, more disclosure, simpler product 
structures, or other favorable terms'').
    \51\ We use the term ``preliminary prospectus'' to mean the Rule 
424(h) preliminary prospectus; similarly we use the term ``final 
prospectus'' to mean the Rule 424(b)(2) or (5) prospectus.
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    As noted above, while we recognize that ABS issuers have expressed 
the desire to use shelf registration in order to access the capital 
markets quickly, we believe that the shelf eligibility requirements 
should be designed to help ensure a certain quality and character for 
asset-backed securities eligible for delayed shelf registrations given 
the speed of these offerings. Prior to today, one of the shelf 
eligibility requirements for offerings of asset-backed securities was 
that the securities were investment-grade securities--meaning that at 
least one of the nationally recognized statistical rating organizations 
(``NRSRO'') rated them in one of its generic rating categories that 
signifies investment grade and is typically one of the four highest 
categories. As noted above, the financial crisis revealed that credit 
rating agencies had generally not appropriately evaluated the credit 
risk of the securities and that some investors may have placed too much 
reliance on these ratings without conducting their own analysis.\52\ We 
proposed to replace the investment-grade ratings requirement with 
alternative shelf eligibility criteria. These proposals were part of a 
broad ongoing effort to remove references to NRSRO credit ratings from 
our rules in order to reduce the risk of undue reliance on ratings and 
also to eliminate the appearance of an imprimatur that such references 
may create.\53\ Additionally, Section 939A of the Dodd-Frank Act 
requires us to review and eliminate the use of credit ratings as an 
assessment of creditworthiness in our rules.\54\ Consequently, we are 
adopting four transaction requirements for ABS shelf eligibility to 
indicate which types of offerings qualify for shelf registration, and 
we are removing the prior investment-grade ratings requirement. The 
four new transaction requirements are:
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    \52\ See footnote 31. See also, e.g., Joshua D. Coval, Jakub W. 
Jurek & Erik Stafford, Economic Catastrophe Bonds, 99(3) Am. Econ. 
Rev. 628-66 (2009) (arguing that senior CDO tranches have 
significantly different risk exposures than their credit rating-
matched single-name counterparts, and thus should command different 
risk premia, and that the information provided by the credit ratings 
agencies to their customers is inadequate for purposes of accurately 
pricing these risks); John Griffin & Dragon Tang, Did Subjectivity 
Play a Role in CDO Credit Ratings?, 67(4) J. Fin. 1293-1328 (2012) 
(analyzing 916 CDOs and finding that credit rating agencies 
frequently made favorable pro-issuer adjustments beyond what their 
own risk models suggested, thereby subjectively increasing the size 
of triple-A tranches in the CDOs, and, subsequently, the CDOs with 
larger subjective adjustments experienced more severe downgrades 
during the economic crisis).
    \53\ See, e.g., Security Ratings, Release No. 33-9245 (July 27, 
2011) [76 FR 46606] (the ``Security Ratings Release'') (amending 
rules and forms under the Securities Act and the Securities Exchange 
Act); Removal of Certain References to Credit Ratings Under the 
Securities Exchange Act of 1934, Release No. 34-64352 (Apr. 27, 
2011) [76 FR 26550] (proposing amendments to rules and one form 
under the Securities Exchange Act).
    \54\ Section 939A of the Dodd-Frank Act requires that the 
Commission review any regulation issued by the Commission that 
requires the use of an assessment of the credit-worthiness of a 
security or money market instrument and any references to or 
requirements in such regulations regarding credit ratings. We 
completed this review and issued a report on July 21, 2011 (see 
Report on Review of Reliance on Credit Ratings, available at http://www.sec.gov/news/studies/2011/939astudy.pdf). We have removed 
references from a significant number of rules and forms both as a 
result of our broad ongoing effort to remove credit rating 
references from our rules as well as in light of the requirements in 
Section 939A of the Dodd-Frank Act. See, e.g., Rules 15c3-1 [17 CFR 
240.15c3-1], 15c3-3 [17 CFR 240.15c3-3], 10b-10 [17 CFR 240.10b-10] 
and 17i-8(a)(4) [17 CFR 240.17i-8(a)(4)] under the Exchange Act, 
Form X-17A-5, Part IIB [17 CFR 249.617] under the Exchange Act, 
Schedule 14A [17 CFR 240.14a-101] under the Exchange Act, Rule 
100(b)(2) of Regulation FD [17 CFR 243.100(b)(2)], Rule 5b-3 [17 CFR 
270.5b-3] under the Investment Company Act, Forms N-1A [17 CFR 
274.11A], N-2 [17 CFR 274.11a-1] and N-3 [17 CFR 274.11b] under the 
Investment Company Act, Rules 134 [17 CFR 230.134], 138 [17 CFR 
230.138], 139 [17 CFR 230.139] and 168 [17 CFR 230.168] under the 
Securities Act and Forms S-3 (non-ABS) [17 CFR 239.13], S-4 [17 CFR 
239.25], F-3 [17 CFR 239.33], F-4 [17 CFR 239.34] and F-9 
(rescinded) under the Securities Act.
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     A certification by the chief executive officer;
     An asset review provision requiring review of the assets 
for compliance with the representations and warranties upon the 
occurrence of certain trigger events;
     A dispute resolution provision; and
     Disclosure of investors' requests to communicate.
    We believe that these new shelf eligibility and offering 
requirements will reduce undue reliance on credit ratings and also help 
to ensure that ABS issued in shelf offerings are designed and prepared 
with more oversight and care that make them appropriate to be issued 
off a shelf, which we define as being ``shelf appropriate'' securities.
(a) Certification
    In the aftermath of the financial crisis, investors have expressed 
concern that ABS issuers were creating securitization transactions that 
could not support the scheduled payments due to investors.\55\ We are 
concerned, in particular, that issuers were not adequately reviewing 
the disclosure provided in the prospectus, examining the assets 
included in the pool, and assessing the security structure and the 
expected pool-asset cash flows. To address this concern, we are 
adopting, as a shelf eligibility requirement, a certification by the 
chief executive officer of the depositor at the time of each takedown 
about the disclosures contained in the prospectus and the structure of 
the securitization. We believe that a certification should cause the 
chief executive officer to participate more extensively in the 
oversight of the transaction. The certification will also provide 
explicit evidence of the certifier's belief about the securitization at 
the time of the takedown.
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    \55\ See, e.g., letters from Better Markets and Prudential I 
(highlighting the problem with the ``originate-to-distribute'' model 
where the focus is on whether the asset can be sold into a 
securitization rather than on its likely long-term performance).
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    We have made revisions to the certification in order to address 
commenters' concerns about the certification constituting a guarantee 
about future performance and possibly increased liability for 
certifiers. To address commenters' concerns about certifier liability, 
we have added a

[[Page 57190]]

paragraph to clarify that the certifier has any and all defenses 
available under the securities laws.
(b) Asset Review Provision
    We have noted investors' concerns about the effectiveness of 
contractual provisions related to the representations and warranties 
about the pool assets and the lack of responsiveness by sponsors and 
other parties to the transaction about potential breaches.\56\ 
Commenters shared this concern \57\ and, to address it, we are 
requiring, as proposed that the relevant transaction agreements include 
provisions providing for a review of the underlying assets for 
compliance with the representations and warranties upon the occurrence 
of certain post-securitization trigger events. The rule is designed to 
address comments received related to the triggers and potential costs, 
while at the same time balance the need for stronger mechanisms to 
enforce underlying contract terms. Under the final rule, the agreements 
must require a review, at a minimum, upon the occurrence of a two-
pronged trigger. The first prong of the trigger is the occurrence of a 
specified percentage of delinquencies in the pool. If the delinquency 
trigger is met, the second prong of the trigger is the direction of 
investors by vote. The report of the reviewer's findings and 
conclusions for all assets reviewed will be required to be provided to 
the trustee in order for the trustee to determine whether a repurchase 
request would be appropriate under the terms of the transaction 
agreements, and a summary of the report must be included on the Form 
10-D. We believe that this shelf requirement will address investors' 
concerns about the enforceability of the representations and warranties 
and also will incentivize the obligated parties to better consider the 
disclosure, characteristics, and quality of the assets in the pool.
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    \56\ See Disclosure for Asset-Backed Securities Required by 
Section 943 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Release No. 33-9175 (Jan. 20, 2011) [76 FR 4489, 
4490] (the ``Section 943 Adopting Release''). We also note, for 
example, that transaction agreements typically have not included 
specific mechanisms to identify possible breaches of representations 
and warranties or to resolve a question of whether a breach of the 
representations and warranties has occurred.
    \57\ See footnotes 1050 and 1051.
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(c) Dispute Resolution
    As demonstrated by events surrounding the financial crisis, 
investors have not only lacked an effective mechanism to identify 
potential breaches of the representations and warranties, they have 
also lacked a mechanism to require sponsors to address their repurchase 
requests in a timely manner.\58\ We are requiring that the underlying 
transaction agreements include a provision providing that, if an asset 
subject to a repurchase request is not repurchased by the end of a 180-
day period beginning when notice is received, then the party submitting 
such repurchase request would have the right to refer the matter, at 
its discretion, to either mediation or third-party arbitration. Under 
the final rule, the dispute resolution provision is a separate and 
distinct shelf eligibility requirement; investors will be able to take 
advantage of the dispute resolution provision regardless of whether 
they had utilized the asset review process.
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    \58\ See Alex Ulam, Investors Try to Use Trustees as Wedge in 
Mortgage Put-Back Fight, Am. Banker, June 24, 2011 (noting that many 
attempted put-backs have ``flamed out after investor coalitions 
failed to get the 25% bondholder votes that pooling and servicing 
agreements require for a trustee to be forced to take action against 
a mortgage servicer''). See also Tom Hals & Al Yoon, Mortgage 
Investors Zeroing in on Subprime Lender, Thomson Reuters, May 9, 
2011 (noting that gathering the requisite number of investors needed 
to demand accountability for faulty loans pooled into investments is 
a ``laborious'' task).
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(d) Investor Communication
    The aftermath of the financial crisis has demonstrated that 
investors have also encountered difficulty in locating other investors 
in order to enforce rights collectively under the terms of the ABS 
transaction, especially those related to repurchase demands due to 
breaches of the representations and warranties.\59\ Without an 
effective means for investors to communicate with each other, investors 
have told us that they are unable to utilize the contractual rights 
provided in the underlying transaction agreements. To address this 
concern, we are requiring as proposed that the underlying transaction 
agreements must include a provision to require that a request by an 
investor to communicate with other investors be included in ongoing 
distribution reports filed on Form 10-D.
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    \59\ See Katy Burne, Banker's Latest Bet: Teamwork on Bonds, 
Wall St. J., Jan. 22, 2013 (illustrating the difficulty that 
investors encounter in attempting to communicate with one another 
and noting one investor's efforts to locate other RMBS investors by 
publishing advertisements in national newspapers).
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(e) Other Shelf Offering Provisions
    We are also adopting various other changes to the procedures and 
forms related to shelf offerings substantially as proposed, with some 
changes in response to comments, including:
     Limiting registration of continuous ABS shelf offerings to 
``all or none offerings.''
     Eliminating Rule 415(a)(1)(vii) that provided shelf 
eligibility to certain investment-grade mortgage related securities 
regardless of the registration statement form.
     Permitting a pay-as-you-go registration fee alternative, 
allowing ABS issuers to pay registration fees at the time of filing the 
preliminary prospectus, as opposed to paying all registration fees 
upfront at the time of filing the registration statement.
     Creating new Forms SF-1 and SF-3 for ABS issuers that will 
replace the usage of current Forms S-1 and S-3 in order to delineate 
between ABS filers and corporate filers and to tailor requirements for 
ABS offerings.
     Eliminating the ABS investment-grade exemptive provision 
in Rule 15c2-8(b) so that a broker or dealer will be required to 
deliver a preliminary prospectus at least 48 hours before sending a 
confirmation of sale.
     Revising the current practice of providing a base 
prospectus and prospectus supplement for ABS issuers and instead 
requiring that a single prospectus be filed for each takedown (except 
that it would be permissible to highlight material changes from the 
preliminary prospectus in a separate supplement to the preliminary 
prospectus).
4. Other Changes to ABS Rules
    In addition to the prospectus disclosure changes and shelf 
requirements, we are also adopting other changes related to ABS. For 
example, we are adopting a revision to the prefunding exception 
provided in the definition of ABS, which will decrease the prefunding 
limit from 50% to 25% of the offering proceeds. Additionally, we are 
adopting several changes to Forms 10-D, 10-K and 8-K.
5. Proposed Rules Not Being Adopted At This Time
    We are not adopting at this time, however, several rules that we 
proposed in the 2010 ABS Proposing Release or the 2011 ABS Re-Proposing 
Release. These proposals remain outstanding. They include:
     Requiring issuers to provide the same disclosure for Rule 
144A offering as required for registered offerings;
     Making the general asset-level requirements applicable to 
all asset classes and asset-class specific requirements for equipment 
loans and leases, student loans, and floorplan financings;
     Requiring grouped-account disclosure for credit and charge 
card ABS;

[[Page 57191]]

     Filing of a waterfall computer program of the contractual 
cash flow provisions of the securities;
     Requiring the transaction documents, in substantially 
final form, be filed by the date the preliminary prospectus is required 
to be filed;
     Exempting ABS issuers from current requirements that the 
depositor's principal accounting officer or controller sign the 
registration statement and in lieu requiring an executive officer in 
charge of securitization sign the registration statement; and
     Revising when pool disclosure must be updated on Form 8-K.

II. Economic Overview

    We are mindful of the economic consequences and effects, including 
costs and benefits, of our rules, and we discuss them throughout this 
release when we explain the new rules that we are adopting. Further, 
Section 2(b) of the Securities Act \60\ and Section 3(f) of the 
Exchange Act \61\ require the Commission, when engaging in rulemaking 
that requires it to consider whether an action is necessary or 
appropriate in the public interest, to consider, in addition to the 
protection of investors, whether the action would promote efficiency, 
competition, and capital formation. In addition, Section 23(a) of the 
Exchange Act requires the Commission, when making rules and regulations 
under the Exchange Act, to consider the impact a new rule would have on 
competition.\62\ Section 23(a)(2) also prohibits the Commission from 
adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act.\63\
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    \60\ 15 U.S.C. 77b(b).
    \61\ 15 U.S.C. 78c(f).
    \62\ 15 U.S.C. 78w(a).
    \63\ 15 U.S.C. 78w(a)(2).
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    To assess these economic consequences, we are using as our baseline 
the ABS market as it exists at the end of 2013, including applicable 
rules adopted by the Commission but excluding the rules adopted herein. 
Because activity in the ABS market has changed due to the financial 
crisis, we will refer to market statistics that encompass the pre-
crisis period, the crisis period, and the current period as appropriate 
in order to provide a more comprehensive picture of the ABS market. To 
the extent that certain amendments are mandated by statute, the 
economic analysis considers the consequences and effects that stem from 
statutory mandates, as well as those that are affected by the 
discretion we exercise in implementing the mandates. We provide a 
qualitative, and whenever possible quantitative, discussion of the 
costs, benefits, and the effects on efficiency, competition, and 
capital formation of individual rule provisions in the corresponding 
sections of the release. We anticipate, however, that the elements of 
the rules will interact with each other and also with other regulations 
to generate combined economic effects. Thus, it is appropriate to 
expand the analysis to include disparate elements of the rule. While we 
make every reasonable attempt to quantify the economic impact of the 
rules that we are adopting, we are unable to do so for several 
components of the new rules due to the lack of available data.\64\ We 
also recognize that several components of the new rules are designed to 
change existing market practices and as a result, existing data may not 
provide a basis to fully assess the rules' economic impact. 
Specifically, the rules' effects will depend on how issuers, their 
investors, and other parties to the transactions (e.g., trustees, 
underwriters, and other parties that facilitate transactions between 
issuers and investors) will adjust on a long-term basis to these new 
rules and the resulting evolving conditions. The ways in which these 
groups could adjust, and the associated effects, are complex and 
interrelated and thus we are unable to predict them with specificity 
nor are we able to quantify them at this time.
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    \64\ We note the lack of quantitative analysis provided by 
commenters about the impact of the proposals on the market. Some 
commenters did, however, provide us with some limited qualitative 
descriptions of potential impacts, which we took into consideration 
in adopting the final rules.
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    The new rules are designed to improve investor protections and 
promote a more efficient asset-backed market. The new transaction 
requirements for shelf eligibility should encourage ABS issuers to 
design and prepare ABS offerings with greater oversight and care and 
should incentivize issuers to provide investors with accurate and 
complete information at the time of the offering. It is these 
transactions that are appropriate to be offered to the public off a 
shelf without prior staff review. The new requirements for more asset-
level information and more time for investors to review this 
information will provide more disclosure and greater transparency about 
the underlying assets. The effect of the increased disclosure on 
competition, efficiency, and capital formation will depend, in part, on 
the level of granularity and standardization of information currently 
available and disclosed. The remaining changes to Regulation AB that we 
are adopting are refinements to existing Regulation AB. We recognize 
that these new and amended rules that we are adopting may impose costs 
on asset-backed issuers, investors, servicers, and other transaction 
participants and may affect competition, efficiency, and capital 
formation. The effect of the refinements to existing Regulation AB will 
depend, in part, on issuers' current methods to comply with the 
existing rules. While we cannot predict or quantify precisely all 
effects the new rules will have on competition, efficiency, and capital 
formation, we believe that the rules we are adopting will improve the 
asset-backed securities market.

A. Market Overview and Economic Baseline

    For many asset classes, the ABS market before the 2007-2009 
financial crisis differed significantly from the one immediately after 
the crisis, and even from our baseline, the market that exists today, 
as illustrated in Figure 1. Private-label (non-U.S. agency) ABS issuers 
held $2.6 trillion in assets in 2004, which grew to $4.5 trillion in 
2007, and declined to $1.63 trillion in 2013.\65\ This distinction is 
most stark in the case of private-label residential mortgage-backed 
securities (``RMBS''), including home equity lines of credit. In 2004, 
prior to the crisis, new issuances of registered private-label RMBS 
totaled $746 billion.\66\ The overwhelming majority of private-label 
RMBS deals issued before the crisis were registered offerings. In 2008, 
registered private-label RMBS issuance drastically dropped to $12 
billion. Today, the private-label RMBS market remains exceptionally 
weak overall and consists

[[Page 57192]]

almost exclusively of unregistered RMBS offerings.\67\ For 2013, new 
issuances of registered private-label RMBS totaled $4 billion, which 
represents 0.54% of the issuance level in 2004. Similarly, a drop in 
issuance level was evident with registered commercial mortgage-backed 
securities (``CMBS''), which totaled $74 billion in 2004, declined to 
$11 billion in 2008, and totaled $53 billion in 2013. The consumer 
finance ABS market, including credit card and auto securitizations, 
also declined drastically both in terms of number of deals and issuance 
volume after the financial crisis. For example, $85 billion of Auto ABS 
were issued in 2005, but after the crisis, in 2008, issuance plummeted 
to $32 billion. Unlike RMBS, consumer finance ABS, especially Auto ABS, 
has since 2008 steadily increased to $42 billion of issuance in 2011 
and to $62 billion in 2013. Almost all ABS markets experienced historic 
downturns following the crisis, and the recovery of these markets has 
not been uniform.
BILLING CODE 8011-01-C
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    \65\ See Federal Reserve Board, Financial Accounts of the United 
States: Flow of Funds, Balance Sheets, and Integrated Macroeconomic 
Accounts (published quarterly), available at http://www.federalreserve.gov/releases/z1/. Each report contains data for 
the previous five years; data for earlier years can be accessed 
through the Federal Reserve's Data Download Program, available at 
http://www.federalreserve.gov/datadownload/Choose.aspx?rel=Z.1. We 
use aggregate data for private mortgage pools, consumer credit, 
business loans, student loans, consumer leases, and trade credit 
securitization.
    \66\ The figure and statistics in this section are based on the 
issuance data from AB Alert and CM Alert databases. The deals are 
categorized by offering year, underlying asset type, and offering 
type (SEC registered, Rule 144A, or traditional private offerings). 
Private-label RMBS include residential, Alt-A, and subprime RMBS, 
and ABS backed by home equity loans and lines of credit. Only 
private-label (non-GSE) RMBS deals sold in the United States and 
sponsors of such deals are counted. Auto loan ABS include ABS backed 
by auto loans, both prime and subprime, motorcycle loans, truck 
loans, and RV loans.
    \67\ As of December 2013, roughly 99% of new residential 
mortgage-related securitizations were government sponsored (market 
statistics from the Securities Industry and Financial Markets 
Association (SIFMA)). See also Tracy Alloway, ``Private-Label 
Mortgage Securities Take Root,'' Fin. Times (Feb. 22, 2013) (noting 
a recent spurt in private-label RMBS issuances but also indicating 
that the volume of private-label RMBS is likely to remain suppressed 
for some time). The outstanding private-label RMBS market fell to 
$1.1 trillion in the last quarter of 2013, down from $1.4 trillion 
in 2011 and $2.3 trillion in 2007. See also Diana Olick, ``Why 
Private Investors Are Staying Away From Mortgages,'' CNBC (Aug. 6, 
2012) (citing lack of investor confidence in the quality and ratings 
of RMBS).
[GRAPHIC] [TIFF OMITTED] TR24SE14.000

    The number of sponsors in the registered ABS markets has undergone 
changes similar to the issuance activity described above. In 2004 there 
were 131 sponsors of registered ABS, while currently there are 61 
sponsors of registered ABS.\68\ The decline in the number of sponsors 
is most dramatic in the RMBS segment where only a single sponsor of 
private-label RMBS was issuing registered securities as of the end of 
2013--down from 52 sponsors in 2004. In the RMBS market, private-label 
RMBS issuers encounter competitive pressure from government-sponsored 
enterprises, whose mortgage-backed securities are guaranteed and exempt 
from registration and reporting requirements. As private-label issuance 
has declined, issuance of agency RMBS has increased. Issuances of 
Federal National Mortgage Association (``Fannie Mae''), Federal Home 
Loan Mortgage Corporation (``Freddie Mac''), and Government National 
Mortgage Association (``Ginnie Mae'') mortgage-related securities were 
$1.4 trillion in 2004, and grew to $1.9 trillion in 2013.\69\
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    \68\ For a description of the data, see footnote 66. The 2004 
numbers in this release have been revised from those provided in the 
2010 ABS Proposal to include CMBS sponsors from the CM Alert 
database.
    \69\ See SIFMA, U.S. Mortgage-Related Issuance, available at 
http://www.sifma.org/research/statistics.aspx.
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    Many factors contributed to the financial crisis, including some 
that involved mortgage-backed securities.\70\ The low interest rate 
environment prior to the crisis drove investor demand for high-yield, 
high-credit rated products, including mortgage-backed securities.\71\

[[Page 57193]]

Among the many factors relating to mortgage-backed securities that 
contributed to the financial crisis, mortgage originators largely 
exhausted the supply of traditional quality mortgages, and to keep up 
with investor demand for mortgage-backed securities, subprime lending 
became increasingly popular.\72\ During the crisis, as the default rate 
for subprime mortgages soared, such securities, including those with 
high credit ratings, lost value (up to 95% for triple-B rated and 70% 
for triple-A rated subprime RMBS issued in 2006), making investors 
reluctant to purchase these securities.\73\ Some of the decline in the 
value began to reverse in 2010 as housing prices started to stabilize 
and investors gained a better understanding of the mortgage 
modification process. This reversal has been concentrated in the 
subprime RMBS tranches that were highly rated. As indicated above, 
activity in some parts of the ABS market continues to remain weak.
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    \70\ A report by the U.S. Government Accountability Office 
(``GAO'') noted that subprime and near-prime mortgages increased 
dramatically in popularity during the 2000's, accounting for nearly 
40% of mortgage originations by 2006. The high foreclosure and 
default rates of these mortgages contributed precipitously to the 
financial crisis. See U.S. Government Accountability Office, 
Mortgage Reform: Potential Impacts of Provisions in the Dodd-Frank 
Act on Homebuyers and the Mortgage Market (July 2011) at 11.
    \71\ See, e.g., Eamonn K. Moran, Wall Street Meets Main Street: 
Understanding the Financial Crisis, N.C. Banking Inst. 7, 14 & 35 
(2009) (``Low interest rates set by the Federal Reserve, as a 
result, led to low returns on traditionally safe U.S. Treasury 
bonds. Therefore, securitized investments, which yielded a premium 
but many of which carried AAA-ratings even if the underlying 
mortgages were dubious, were quite attractive to domestic and 
foreign investors.'').
    \72\ See id. at 35 (noting ``voracious demand exhausted the 
supply of prime mortgage loan securitizations and investment bankers 
began seeking subprime mortgage loans to continue to generate 
mortgage-backed securities'').
    \73\ See, e.g., Board of Governors of the Federal Reserve 
System, Report to the Congress on Risk Retention, (Oct. 2010) at 50-
51 (discussing the dramatic drop in the triple-A and triple-B ABX.HE 
2006-2 index).
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B. Economic Motivations

    As described at the end of the previous section, during the 
financial crisis, many securitizations performed exceptionally poorly 
as investments. This has been attributed to the dual problems of moral 
hazard and asymmetric information.\74\ In particular, many believe that 
originators and securitizers have more information about the credit 
quality and other relevant characteristics of the borrower than the 
ultimate investors; for example, they may have been aware that the 
underlying assets were of poor quality and, thus, presented greater 
risks. This leads to a potential moral hazard problem--the situation 
where one party (e.g., the loan originator or ABS sponsor) may have a 
tendency to incur risks because another party (e.g., investors) will 
bear the costs or burdens of these risks. Hence, when there are 
inadequate processes in place to encourage (or require) sufficient 
transparency to overcome concerns about informational differences, the 
securitization process could lead certain participants to maximize 
their own welfare and interests at the expense of other participants. 
Before and during the crisis, information regarding the quality of the 
underlying assets was not generally known by investors, and certain 
originators and sponsors were frequently able to transfer the financial 
consequences of poor origination decisions by packaging the assets in 
complex and often opaque securitization structures.\75\ The incentives 
to maintain opacity were particularly acute for those securitizations 
where the originator and securitizer received full compensation for 
their services before investors could become informed about the loan 
quality of the underlying pool.\76\
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    \74\ See, Adam B. Ashcraft & Til Schuermann, Understanding the 
Securitization of Subprime Mortgage Credit (Staff Report, Fed. 
Reserve Bank of N.Y., Working Paper No. 318, 2008) (identifying at 
least seven different frictions in the residential mortgage 
securitization chain that can cause agency and adverse selection 
problems in a securitization transaction and explaining that given 
that there are many different parties in a securitization, each with 
differing economic interests and incentives, the overarching 
friction that creates all other problems at every step in the 
securitization process is asymmetric information).
    \75\ See, e.g., Chris Downing, Dwight Jaffee & Nancy Wallace, Is 
the Market for Mortgage-Backed Securities a Market for Lemons?, 
22(7) Rev. Fin. Stud. 2457-94 (2009) (stating that the quality of 
the assets sold to investors through securitizations is lower than 
the quality of similar assets that are not sold to investors); 
Amiyatosh Purnanandam, Originate-to-Distribute Model and the 
Subprime Mortgage Crisis, 24(6) Rev. Fin. Stud. 1881-1915 (2011) 
(stating that banks with high involvement in the originate-to-
distribute market originated excessively poor-quality mortgages and 
noting that this evidence is consistent with the view that the 
originating banks did not expend resources to adequately screen the 
quality of their borrowers).
    \76\ See also Section C.2.b. Broad Economic Considerations of 
the Credit Risk Retention, Release No. 34-70277 (Aug. 28, 2013) [78 
FR 57928] (the ``2013 Risk Retention Re-Proposing Release'').
---------------------------------------------------------------------------

    At that time, many investors unduly relied upon the major credit 
rating agencies for credit analysis of these structures rather than 
conducting their own due diligence, and these agencies often failed to 
accurately evaluate and rate the securitization structures.\77\ Many 
observers believe that inflated and inaccurate credit ratings 
contributed to the financial crisis in a significant way.\78\ 
Investment in securitizations has diminished substantially since the 
financial crisis, in part, because investors have significantly less 
trust that incentives are properly aligned among originators, 
securitizers, independent evaluators (rating agencies), and 
investors.\79\
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    \77\ See footnotes 30, 31 and 52.
    \78\ Observers identified several weaknesses in the credit 
rating process, which in many instances contributed to inaccurate 
ratings and were made apparent in the aftermath of the financial 
crisis. One of the weaknesses is the availability of ratings 
shopping, whereby issuers can request and privately observe multiple 
ratings and then choose to disclose publicly only the most 
favorable. Complex assets that are difficult to rate and that are 
likely to generate differences in ratings can create incentives for 
issuers to shop for ratings and disclose only those ratings that are 
high. Competition among credit rating agencies can exacerbate the 
problem, by providing rating agencies with incentive to compete for 
business through favorable ratings and providing issuers with 
options to choose among the rating agencies--commonly referred to as 
a race to the bottom. As a result of these weaknesses in the credit 
rating process, overreliance on credit ratings of complex or 
potentially opaque assets, such as in the case with asset-backed 
securities, can lead to excess investment with poor risk/return 
characteristics. See, e.g., Nat'l Comm'n on the Causes of the Fin. 
and Econ. Crisis in the U.S., The Financial Crisis Inquiry Report 
xxv, 43-44 (2011) (``Participants in the securitization industry 
realized that they needed to secure favorable credit ratings in 
order to sell structured products to investors. Investment banks 
therefore paid handsome fees to the ratings agencies to obtain the 
desired ratings.''); Vasiliki Skreta & Laura Veldkamp, Ratings 
Shopping and Asset Complexity: A Theory of Ratings Inflation, 56 J. 
Monetary Econ. 678-95 (2009); Bo Becker & Todd Milbourn, How Did 
Increased Competition Affect Credit Ratings?, 101 J. Fin. Econ. 493-
514 (2011); John Griffin & Dragon Tang, Did Subjectivity Play a Role 
in CDO Credit Ratings?, 67(4) J. Fin. 1293-1328 (2012).
    \79\ Adam B. Ashcraft & Til Schuermann, Understanding the 
Securitization of Subprime Mortgage Credit (Staff Report, Fed. 
Reserve Bank of N.Y., Working Paper No. 318, 2008) (discussing the 
ways that market participants work to minimize informational 
frictions that arise among and between the different participants in 
the securitization process and providing thoughts and evidence on 
how this process broke down during the financial crisis); Joshua 
Coval, Jakub Jurek & Erik Stafford, The Economics of Structured 
Finance, 23(1) J. Econ. Persp. 3-25 (2009) (providing a detailed 
assessment of the relative importance of rating agency errors, 
investor credulity, and perverse incentives and suspect behavior on 
the part of issuers, rating agencies, and borrowers).
---------------------------------------------------------------------------

    The rules we are adopting apply to private-label RMBS 
securitizations, and do not apply to Government Sponsored Entities 
(GSEs) such as Fannie Mae and Freddie Mac, whose principal and interest 
on issued securities is currently guaranteed, while the GSEs remain in 
conservatorship,\80\ and otherwise may be perceived by market 
participants to carry an implicit guarantee.\81\ Private-label RMBS 
securitizations are not guaranteed by the federal government and had a 
much higher serious delinquency rate than GSE-purchased

[[Page 57194]]

loans, even after accounting for different underlying loan 
characteristics.\82\ This historical performance-based evidence 
suggests that GSE underwriting standards offset the incentive to incur 
excess risk because of their capital support, at least in relation to 
the private-label securitizers that did not have such capital support. 
In particular, GSE purchased loans were six times less likely to 
default than private-label loans with similar characteristics.\83\ The 
focus of the final rules is on private-label securitizations, which is 
the segment of the market where investors are more likely to experience 
losses.
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    \80\ In September 2008, Fannie Mae and Freddie Mac agreed to be 
placed under direct government control, through conservatorship.
    \81\ N. Eric Weiss, Cong. Research Serv., R40800, GSEs and the 
Government's Role in Housing Finance: Issues for the 113th Congress 
(2013). For the estimates of the value of the implicit government 
guarantee, see Wayne Passmore, The GSE Implicit Subsidy and the 
Value of Government Ambiguity, 33(3) Real Est. Econ. 465-86 (2005) 
(finding that GSE shareholders benefit substantially from the 
ambiguous government relationship, largely due to the fact that 
purchasers of the GSEs' debt securities believe the debt is 
implicitly backed by the U.S. government (despite the lack of a 
legal basis for such a belief)); Deborah Lucas & Robert McDonald, 
Valuing Government Guarantees: Fannie and Freddie Revisited, in 
Measuring and Managing Federal Financial Risk 131-154 (Deborah 
Lucas, ed., Univ. of Chicago Press, Feb. 2010) (2010) (estimating 
the value of the implicit guarantee on GSEs' debt issues to be 
approximately $28 billion).
    \82\ See Joshua White & Scott Bauguess, Qualified Residential 
Mortgage: Background Data Analysis on Credit Risk Retention, 
Division of Economic and Risk Analysis, U.S. Securities and Exchange 
Commission (Aug. 2013) (the ``White-Bauguess Study''), available at 
http://www.sec.gov/divisions/riskfin/whitepapers/qrm-analysis-08-2013.pdf.
    \83\ Id.
---------------------------------------------------------------------------

    We note that the rules are intended to increase transparency about 
the potential risks in the ABS market through greater loan-level 
disclosure and to provide additional recourse for investors when issues 
arise, thus providing better tools for investors to evaluate their 
capital allocation decisions. These measures should lessen the risk of 
overreliance on credit ratings as investors will now be able to conduct 
their own due diligence using more transparent and fuller disclosures 
regarding the assets underlying a securitization. Disclosure of higher 
quality and more complete data regarding the loan characteristics of 
the underlying collateral should result in better capital allocation 
decisions, improved capital formation and, ultimately, lower capital 
costs by making the markets more informationally-efficient.
    One key objective of the final rules is to eliminate the reliance 
on credit ratings in the determination of shelf eligibility of asset-
backed securities. Replacing the investment-grade rating requirement 
for the purposes of shelf eligibility may result in securitizers 
finding it uneconomic or unnecessary to obtain credit ratings for their 
securitizations, thus lowering the demand for the services of third-
party evaluators. The rules do not, however, preclude investors from 
utilizing credit ratings in their investment analysis and decision-
making, and asset-backed securities issuers are not prohibited from 
having their offerings rated. Thus, if there is sufficient demand for 
ratings due to a perception of value in the ratings, then securitizers 
may continue to obtain ratings and credit rating agencies would suffer 
a relatively small decrease in the demand for their ratings services.
    The rules we are adopting are designed to work with other 
regulations to provide additional disclosures, further align incentives 
in the securitization market, and restore confidence in the ABS market. 
Specifically, Section 941(b) of the Dodd-Frank Act requires regulations 
that mandate that certain securitizers have ``skin in the game'' 
through the retention of a meaningful risk exposure in securitizations 
(at least a 5% economic loss exposure).\84\ The requirement that 
securitizers hold risk exposure is likely to affect their decisions 
regarding the quality of assets to include in such structures. While we 
expect that the risk retention rules required by the Dodd-Frank Act, 
when adopted, will result in better underwriting practices, we believe 
that further regulation is necessary to align incentives and facilitate 
credit evaluation in the securitization market.\85\
---------------------------------------------------------------------------

    \84\ See 15 U.S.C. 78o-11(b), (c)(1)(A) and (c)(1)(B)(ii). See 
also Credit Risk Retention, Release No. 34-64148 (Mar. 30, 2011) [76 
FR 24090] (the ``2011 Risk Retention Proposing Release'') and the 
2013 Risk Retention Re-Proposing Release (both proposed to implement 
the Dodd-Frank requirement).
    \85\ We also continue to separately consider the comments 
received in connection with the proposal to implement the 
prohibition under Section 621 of the Dodd-Frank Act on material 
conflicts of interest in connection with certain securitizations. 
See Prohibition Against Conflicts of Interest in Certain 
Securitizations, Release No. 65355 (Sept. 19, 2011) [76 FR 60320] 
(the ``ABS Conflicts Proposal'').
---------------------------------------------------------------------------

    In summary, the amendments to our regulations and forms for asset-
backed securities are designed to enhance investor protection by 
reducing the likelihood of overreliance on ratings and increasing 
transparency to market participants.

C. Potential Effects on the ABS Market

    We believe that these amendments will work together to also improve 
investors' willingness to invest in asset-backed securities and to help 
the recovery in the ABS market with attendant positive effects on 
informational and allocative efficiency, competition, and the level of 
capital formation. Enhanced ABS disclosures and the potential for 
improved pricing accuracy of the ABS market should ultimately benefit 
issuers in the form of a lower cost of capital and increased investor 
participation. We expect that increased transparency in the market and 
more certainty about the quality of underlying assets should result in 
lower required yields, and a larger number of investors should be 
willing to participate in the market because of reduced uncertainty and 
risk. This, in turn, would allow originators to conserve costly capital 
and to diversify credit risks among many investors. Further, we believe 
that credit risk transfer will result in greater efficiency in the 
lending decisions of originators, the lowering of credit costs, and 
ultimately greater capital availability through higher loan levels.\86\
---------------------------------------------------------------------------

    \86\ See, e.g., Darrell Duffie, Innovations in Credit Risk 
Transfer: Implications for Financial Stability (Bank for Int'l 
Settlements Working Paper No. 255, 2008), available at http://www.bis.org/publ/work255.pdf (stating that innovation in credit risk 
transfer through security design (such as ABS) increase the 
liquidity of credit markets, lowers credit risk premia, allows for 
the efficient distribution of risk among investors, and offers 
investors an improved menu and supply of assets and hedging 
opportunities); A. Sinan Cebenoyan & Philip E. Strahan, Risk 
Management, Capital Structure and Lending at Banks, 28(1) J. Banking 
& Fin. 19-43 (2004) (finding that increasingly sophisticated risk 
management practices (through activities such as loan sales) in 
banking are likely to improve the availability of bank credit, but 
are unlikely to reduce bank risk); Benedikt Goderis, Ian W. Marsh, 
Judit Vall Castello & Wolf Wagner, Bank Behavior with Access to 
Credit Risk Transfer Markets (Oct. 2006) (unpublished manuscript) 
(finding that banks that adopt advanced credit risk management 
techniques (measured in their study by the issuance of at least one 
collateralized loan obligation) experience a permanent increase in 
their target loan levels of around 50%, and interpreting their 
findings as a confirmation of the general efficiency enhancing 
implications of new risk management techniques).
---------------------------------------------------------------------------

    Asset-level disclosure requirements will provide information about 
underlying asset quality that was not consistently available to 
investors prior to these rules. The new rules also standardize the 
reporting of asset-level information, thus lowering the cost of 
acquiring information and search costs for investors. The disclosure 
and the reduction in search costs should directly increase the 
transparency of the market and, thus, the informational efficiency in 
pricing ABS, both in the primary and secondary markets. This should 
lead to increased investor participation and more efficient allocation 
of capital.
    There are important benefits to issuers from heightened disclosures 
of a structured finance asset base. In the absence of adequate 
information about the quality of assets in the ABS structure, as was 
the case in the RMBS market leading up to the start of the financial 
crisis, the market for structured products may break down.\87\ The 
continuing problems in the CMBS

[[Page 57195]]

and RMBS markets may be an extended manifestation of this problem.\88\ 
Investors that previously (and erroneously) relied on credit rating 
agencies to mitigate the informational asymmetry problem about asset 
quality can avail themselves of improved disclosures that allow them to 
conduct their own due diligence on an issuer's structured product. This 
will benefit issuers of high quality ABS because if investors are 
better able to independently verify the quality of and value underlying 
assets, they will be better able to distinguish high quality ABS 
issuers from other issuers, where otherwise the distinction between 
different types of issuers' disclosures would be obfuscated because the 
quality of the underlying ABS assets could not be verified. This 
differentiation between good and bad quality issuers would also lead to 
more efficient allocation of capital.
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    \87\ This is commonly referred to as the ``lemons problem.'' 
See, e.g., George A. Akerlof, The Market for ``Lemons'': Quality 
Uncertainty and the Market Mechanism, 84 Q. J. Econ. 488-500 (1970) 
(discussing the difficulty of distinguishing good quality from bad 
quality in the business world and suggesting that many economic 
phenomena may be explained and understood as a response to the 
demand for the need to distinguish).
    \88\ See Figure 1 in Section II.A Market Overview and Economic 
Baseline and accompanying discussion (noting that the RMBS and CMBS 
markets have not recovered since the crisis, whereas the issuance of 
consumer finance ABS, especially Auto ABS, has steadily increased in 
the recent years and almost reached the pre-crisis levels).
---------------------------------------------------------------------------

    Another consequence of the final rules is the increase in 
availability of capital through the potential expansion of the set of 
ABS eligible for shelf registration. A larger set of ABS will be 
eligible for shelf registration if they meet the new shelf eligibility 
requirements, namely, non-investment grade ABS tranches that were not 
eligible before. This may result in greater credit availability to 
issuers of non-investment grade ABS that would have otherwise been 
difficult or more costly to obtain.

D. Potential Market Participants' Responses

    We recognize that the final rules may have direct and indirect 
economic impacts on various market participants. Importantly, as noted 
above, the market practices of participants are likely to evolve in 
response to the final rules. While we lack the ability to predict those 
effects with certainty, we qualitatively consider some of the potential 
effects of these rules by discussing the trade-offs various market 
participants may face when complying with these rules.
    Most of the direct costs of these rules fall onto the sponsors of 
ABS, since they will initially bear any increased costs of compliance 
and implementation of the new requirements; however, there is some 
uncertainty surrounding who will ultimately bear these direct 
compliance costs. Depending on market conditions, the degree of 
competition at different levels of the securitization chain, and the 
availability of other forms of credit, the sponsors may attempt to pass 
some or all of these costs on to other market participants.
    One way in which the sponsors may elect to pass costs to market 
participants is through lower returns paid to investors in 
securitizations. Promised returns to investors will typically depend on 
the costs of creating and maintaining the securitized credit structure, 
including new costs associated with compliance. If investors are 
willing to absorb some or all of these costs and yet still expect to 
receive an acceptable risk-adjusted return on their investment, then 
investor returns could be lower on these investments than in the past. 
How much of the higher costs sponsors can realistically pass through to 
investors will depend on the risk and return opportunities available 
from other similar investments in the market.
    We also recognize that some of the new asset-level disclosure and 
shelf registration costs may be passed down the chain of securitization 
and ultimately to borrowers. In particular, and in the short term when 
new reporting and data handling systems have to be developed, borrowers 
may ultimately bear higher credit costs to compensate sponsors for 
these increased compliance costs. The ability to pass costs on to 
borrowers will be constrained by competition from lenders that do not 
securitize in the registered market. If the costs of compliance are 
significant, the competitive position of firms that are subject to the 
requirements of the final rules and that rely on securitization in the 
public market for funding, in particular through shelf registrations, 
could weaken relative to other financial firms that are not subject to 
these requirements, or that have other sources of funding.
    If asset-backed issuers are unable to pass along their shelf 
registration costs as described above, and thus bear all or most of 
these new costs, then they might choose to avoid the shelf registration 
process by registering their ABS on Form SF-1 or they might choose to 
bypass registration altogether and issue through unregistered offerings 
instead to avoid the new shelf registration costs. Similarly, if asset-
backed issuers are unable to pass along the costs incurred to provide 
asset-level disclosure (for those asset classes subject to it), then 
they may issue through unregistered offerings. Such actions could have 
the effect of reducing efficiency and could impede capital formation; 
however, there are reasons to believe that some investors may support 
the market for registered ABS despite additional costs. First, because 
the prospectus disclosure requirements are the same for both types of 
registered offerings, a shift from shelf-registration to non-shelf-
registration may occur only due to the new shelf registration costs, 
and the shift would be constrained by the speed and convenience of 
shelf takedowns. Moreover, the reallocation of newly issued registered 
ABS between shelf- and non-shelf registration should not have a 
substantial effect on capital formation as long as new and existing 
issuers of registered ABS choose to or continue to choose to issue 
registered ABS (and accordingly provide the same disclosures). Second, 
not all investors satisfy the criteria of qualified institutional 
buyers (``QIBs'') under Rule 144A,\89\ and, although such investors 
might be interested in investing in Rule 144A ABS, they would not be 
able to do so due to inability to qualify to participate in that 
market. To the extent that this segment of the investor base is 
sufficiently large, ABS issuers might experience substantial demand for 
their securities from investors that are not qualified to invest in 
unregistered offerings. Such demand would reduce the cost of capital 
for public ABS issuers, creating incentives to issue through registered 
rather than unregistered offerings. Third, since the final rule applies 
to registered offerings of ABS, to the extent that there are investors 
willing to pay (in the form of a reduced yield) for the resolution of 
uncertainty regarding the asset pool quality and reduced risk of 
investments, there again may be a substantial enough demand to fund ABS 
in the registered market. Thus, we believe that the shift from the 
registered ABS segment to other market segments should not be 
substantial. The potential expansion of the registered ABS market and 
wider investor participation discussed previously in this section 
should allow ABS sponsors to recoup some of the costs introduced by 
these rules and, thus, should increase the attractiveness of issuing 
ABS through registered offerings as opposed to through unregistered 
offerings.
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    \89\ The term ``qualified institutional buyer'' is defined in 
Rule 144A(a)(1) [17 CFR 230.144A(a)(1)] and includes specified 
institutions that, in the aggregate, own and invest on a 
discretionary basis at least $100 million in securities of issuers 
that are not affiliated with such institutions. Banks and other 
specified financial institutions must also have a net worth of at 
least $25 million. A registered broker-dealer qualifies as a QIB if 
it, in the aggregate, owns and invests on a discretionary basis at 
least $10 million in securities of issuers that are not affiliated 
with the broker-dealer.

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[[Page 57196]]

    The enhancement of registered transactions could potentially reduce 
the degree to which credit is intermediated by banks.\90\ In 
particular, greater availability of credit for borrowers through 
securitizations may result in less reliance on traditional bank loans 
and greater reliance on other financial intermediation mechanisms. This 
is especially likely to happen if and when the new capital and 
liquidity requirements (Basel III) result in an increase in the 
regulatory capital costs for financial institutions subject to 
regulatory capital and liquidity requirements.
---------------------------------------------------------------------------

    \90\ See Darrell Duffie, Innovations in Credit Risk Transfer: 
Implications for Financial Stability (Bank for Int'l Settlements 
Working Paper No. 255, 2008), available at http://www.bis.org/publ/work255.pdf (observing that financial innovations, such as ABS, 
designed for more efficient credit risk transfer, have facilitated a 
reduction in the degree to which credit is intermediated by banks).
---------------------------------------------------------------------------

    One potential source of competition for private-label securitizers 
impacted by these rules is the GSEs in the mortgage market. As 
previously mentioned, the principal and interest on GSE-issued 
securities is currently guaranteed, while the GSEs are in 
conservatorship. Even upon resolution of their current status, their 
congressional charter and past government intervention will likely 
perpetuate a widely held view of an implicit federal guarantee of their 
securities.\91\ This explicit or future implicit government support 
provides a competitive advantage over private-label securitizers 
through lower funding costs. In addition to this cost of capital 
advantage, GSEs will not be subject to these new rules and the costs 
associated with the enhanced disclosure rules,\92\ which as we 
previously discussed are less relevant to investors of GSE securities 
because of the government support in the event of credit problems. 
Thus, to the extent that the adopted rules impose additional costs on 
securitizers, their offerings will either not be as competitive as 
those of the GSEs or potentially be crowded out of the market 
altogether.
---------------------------------------------------------------------------

    \91\ See footnote 81.
    \92\ MBS issued by these GSE's and Ginnie Mae have been and 
continue to be exempt from registration under the Securities Act and 
most provisions of the federal securities laws. For example, Ginnie 
Mae guarantees are exempt securities under Section 3(a)(2) of the 
Securities Act (15 U.S.C. 77c(a)(2)) and Section 3(a)(12) of the 
Exchange Act (15 U.S.C. 78c(a)(12)). The chartering legislation for 
Fannie Mae and Freddie Mac contain exemptions with respect to those 
entities. See 12 U.S.C. 1723c and 12 U.S.C. 1455g.
---------------------------------------------------------------------------

    The current federal guarantee of mortgage-backed securities issued 
by GSEs (and/or the market perception of an implicit guarantee) may 
explain why, among all the securitized asset categories impacted by the 
financial crisis, the private-label RMBS and CMBS have been the slowest 
to regain volume.\93\ Thus, while the rules we are adopting are 
intended to create transparency in the market for private-label 
securitizations, the additional costs imposed on securitizers may be 
sufficiently large that, at least as long as the GSEs remain in federal 
government conservatorship, the cost differences between GSE and 
private-label securitizations may remain large enough to discourage 
substantial investment through the latter channel.\94\ Longer-term, the 
competitiveness of private-label securitizations may depend as much on 
the ultimate fate of the GSEs as on the effectiveness of the rules we 
adopt.
---------------------------------------------------------------------------

    \93\ See Figure 1 in Section II.A Market Overview and Economic 
Baseline and accompanying discussion.
    \94\ Even though the GSEs currently collect and disseminate 
asset-level information to the public (as discussed in Section 
III.A.1 Background and Economic Baseline for the Asset-Level 
Disclosure Requirement), the disclosure regime for GSEs would not 
change as a result of adopting these rules. Accordingly, the costs 
that GSEs incur due to their current asset-level disclosures will 
not change, and the GSEs will likely benefit from the cost advantage 
over private-label ABS issuers introduced by the rules being 
adopted.
---------------------------------------------------------------------------

III. Asset-Level Disclosure

    We are adopting a requirement for standardized asset-level 
disclosures for ABS where the underlying assets consist of residential 
mortgages, commercial mortgages, auto loans, auto leases, and 
resecuritizations of ABS that include these asset types or of debt 
securities. The disclosure is required to be provided in a standardized 
tagged XML format. We are also adopting many of the proposed 
refinements to other disclosure requirements. At this time, we are not 
adopting our proposal for other asset classes.

A. Asset-Level Disclosure Requirement

1. Background and Economic Baseline for the Asset-Level Disclosure 
Requirement
    Prior to these amendments, the Commission had not historically 
required the disclosure of asset-level data. Instead, issuers were only 
required to provide information about the composition and 
characteristics of the asset pool, tailored to the asset type and asset 
pool involved for the particular offering.\95\ In the past, some 
transaction agreements for securitizations required issuers to provide 
investors with asset-level information, or information on each asset in 
the pool backing the securities, but generally there was no mandatory 
regulatory requirement that asset-level data be provided.\96\ 
Furthermore, such information was generally not standardized or 
required to be standardized.
---------------------------------------------------------------------------

    \95\ See Item 1111 of Regulation AB [17 CFR 229.1111].
    \96\ Under Item 1111(b)(9) of Regulation AB [17 CFR 
229.1111(b)(9)] as it existed prior to this adoption, if the asset 
pool included commercial mortgages, certain non-standardized asset-
level information about the properties underlying the mortgage was 
required for all commercial mortgages to the extent material. 
Further, for each commercial mortgage that represented, by dollar 
value, 10% or more of the asset pool, as measured as of the cut-off 
date, additional non-standardized asset-level information about the 
properties was required.
---------------------------------------------------------------------------

    Many investors and other participants in the securitization market 
did not previously have sufficient time and information to be able to 
understand the risks underlying the ABS and were not able to value the 
ABS accordingly.\97\ This lack of understanding and the extent to which 
it impacted the U.S. and global economies prompted us to revisit 
several aspects of our regulation of ABS, including the information 
available to investors. This review led us to determine that investors 
need access to more robust and standardized information about the 
assets underlying a particular ABS in order to allow them to make 
informed investment decisions. To accomplish this, we proposed in the 
2010 ABS Proposing Release several changes to the disclosure 
requirements in Regulation AB including, subject to certain exceptions, 
a new requirement that issuers provide asset-level information about 
each asset in the pool backing the ABS. The asset-level data 
requirements were proposed to apply to all asset types, except ABS 
backed by credit cards, charge cards and stranded costs. For ABS backed 
by credit or charge card receivables, we proposed that issuers provide 
standardized grouped-account disclosures about the underlying asset 
pool instead of asset-level disclosures. Taken together, we believed 
these disclosures would provide robust data about each ABS, which would 
allow investors to analyze for each securitization transaction, at the 
time of inception and over the life of a security, the characteristics 
of each asset, including the collateral supporting each asset and the 
cash flows derived from each asset in the transaction.
---------------------------------------------------------------------------

    \97\ See footnotes 40 and 44.
---------------------------------------------------------------------------

    Subsequent to the 2010 ABS Proposing Release, Congress passed the 
Dodd-Frank Act. Section 942(b) of the Dodd-Frank Act added Section 7(c) 
to the Securities Act, which requires, in relevant part, that the 
Commission adopt regulations requiring an issuer of

[[Page 57197]]

an asset-backed security to disclose, for each tranche or class of 
security, information regarding the assets backing that security, 
including asset-level or loan-level data, if such data is necessary for 
investors to independently perform due diligence.\98\ In July 2011, we 
re-proposed some of the rules proposed in the 2010 ABS Proposing 
Release in light of the provisions added by the Dodd-Frank Act and 
comments received on our 2010 ABS Proposals. In the 2011 ABS Re-
Proposing Release, we requested comment on whether the asset-level 
disclosure requirements proposed in the 2010 ABS Proposals implemented 
Section 7(c) effectively and whether there were any changes or 
additions that would better implement Section 7(c). The Commission also 
requested comment on whether certain asset-level disclosures enumerated 
in Section 7(c) are necessary for investor due diligence.\99\
---------------------------------------------------------------------------

    \98\ See Section 7(c) of the Securities Act [15 U.S.C. 77g(c)]. 
Section 7(c) also requires, among other things, that we set 
standards for the format of the data provided by issuers of an 
asset-backed security, which shall, to the extent feasible 
facilitate the comparison of such data across securities in similar 
types of asset classes.
    \99\ In particular, the 2011 ABS Re-Proposing Release requested 
comment on whether asset-level disclosures of unique identifiers for 
loan brokers and originators, broker and originator compensation and 
the risk retention held by the originator and the sponsor are 
necessary for investor due diligence. As noted below, in general, 
most commenters did not believe those particular asset-level 
disclosures were necessary for investor due diligence.
---------------------------------------------------------------------------

    We received comments on the potential privacy implications of the 
proposed asset-level data requirements, including comments suggesting 
that the required asset-level information be provided by means other 
than public dissemination on the Commission's Electronic Data 
Gathering, Analysis, and Retrieval system (``EDGAR'').\100\ In light of 
the privacy concerns about the proposed asset-level requirements, we 
re-opened the comment period on the 2010 ABS Proposals and the 2011 ABS 
Re-Proposals in February 2014 to permit interested persons to comment 
on an approach for the dissemination of asset-level data, which was 
described in the 2014 Staff Memorandum. The 2014 Staff Memorandum 
summarized the comments that had been received related to potential 
privacy concerns and outlined an approach that would require issuers to 
make asset-level information available to investors and potential 
investors through an issuer-sponsored Web site rather than having 
issuers file and make all of the information publicly available on 
EDGAR (the ``Web site approach''). The Web site approach noted various 
ways in which issuers could address potential privacy concerns 
associated with the disclosure of asset-level information, including 
through restricting Web site access to such information.
---------------------------------------------------------------------------

    \100\ See letters from Ally Financial Inc., et al dated Aug. 2, 
2010 submitted in response to the 2010 ABS Proposing Release 
(``VABSS I''), Ally Financial Inc. et al dated Oct. 13, 2011 
submitted in response to the 2011 ABS Re-Proposing Release (``VABSS 
III''), and Ally Financial Inc. et al dated Aug. 3, 2012 submitted 
in response to the 2011 ABS Re-Proposing Release (``VABSS IV'') 
(urging the Commission ``to consider whether loan-level data (or 
even grouped data) needs to be made publicly available or could be 
made available to investors and other legitimate users in a more 
limited manner, such as through a limited access Web site''). See 
also letters from Consumer Data Industry Association dated Aug. 2, 
2010 submitted in response to the 2010 ABS Proposing Release 
(``CDIA'') (suggesting that the Commission require parties that want 
to access the data on EDGAR register to use the data, acknowledge 
the sensitive nature of the data and agree to maintain its 
confidentiality) and Epicurus Institute dated Aug. 1, 2010 submitted 
in response to the 2010 ABS Proposing Release (``Epicurus'') 
(stating that they believe ``that the prospectus should contain a 
hypertext link (with instructions for accessing a Web site to obtain 
the data) . . . [and only] prospective investors should have 
traceable access to the data, and that they never have the 
opportunity to download . . . raw data in any format'').
---------------------------------------------------------------------------

    To assess the economic consequences of these asset-level disclosure 
requirements, we are using as our baseline the ABS market as it existed 
at the end of 2013. Today, we note that for some types of ABS, issuers 
have begun or have continued to provide asset-level data. For instance, 
some registered RMBS issuers before the financial crisis provided 
asset-level disclosures, although the disclosures were not 
standardized. Since then, there have been a limited number of 
registered RMBS transactions. Those transactions have provided asset-
level disclosures pursuant to recently developed industry 
standards.\101\ Further, sellers of mortgage loans to Fannie Mae and 
Freddie Mac are required to deliver certain asset-level data in a 
standardized electronic form.\102\ In turn, Fannie Mae and Freddie Mac 
provide investors loan-level disclosures about the assets underlying 
their securitizations.\103\ For CMBS, we note that issuers commonly 
provide investors with asset-level disclosures at the time of 
securitization and on an ongoing basis pursuant to industry developed 
standards.\104\ For other asset classes, we remain unaware of any 
publicly available data standards or instances where issuers have 
provided asset-level data.
---------------------------------------------------------------------------

    \101\ Since 2010, only one sponsor has been publicly issuing 
private-label RMBS. This issuer has disclosed at the time of 
securitization asset-level data about the assets underlying the RMBS 
in a format developed by the American Securitization Forum (ASF). 
The ASF Project on Residential Securitization Transparency and 
Reporting (``Project RESTART'') published a disclosure and reporting 
package for residential mortgage-backed securities. See American 
Securitization Forum RMBS Disclosure and Reporting Package Final 
Release (July 15, 2009), available at http://www.americansecuritization.com/. ASF is a securitization trade 
association that represents issuers, investors, financial 
intermediaries, rating agencies, legal and accounting firms, 
trustees, servicers, guarantors, and other market participants.
    \102\ See Fannie Mae Uniform Loan Delivery Dataset available at 
https://www.fanniemae.com/singlefamily/uniform-loan-delivery-dataset-uldd. See also Freddie Mac Uniform Loan Delivery Dataset 
available at http://www.freddiemac.com/singlefamily/sell/uniform_delivery.html.
    \103\ See Section III.A.2.b)(1) Residential Mortgage-Backed 
Securities for a discussion of loan-level disclosures provided by 
Fannie Mae and Freddie Mac.
    \104\ The CRE Finance Council's Investor Reporting Package 
includes data points on loan, property and bond-level information 
for CMBS at issuance and while the securities are outstanding. 
Materials related to the CRE Finance Council Investor Reporting 
Package are available at http://www.crefc.org/. The CRE Finance 
Council is a trade organization for the commercial real estate 
finance industry.
---------------------------------------------------------------------------

    We also note that prudential regulators in other jurisdictions 
require asset-level data about certain ABS in certain instances. For 
instance, the European Central Bank requires asset-level information 
for ABS accepted as collateral in the Eurosystem credit 
operations.\105\ Additionally, the Bank of England requires that asset-
level information be provided for certain ABS submitted as collateral 
against transactions with the Bank of England.\106\ Some asset-level 
data is available today through third-party data providers who collect 
asset-level information about agency and non-agency mortgage loans and 
provide, for a fee, access to the data.\107\ In addition, many third-
party data providers have

[[Page 57198]]

developed products to analyze and model asset-level data.\108\
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    \105\ See details about the European Central Bank's loan-level 
for ABS accepted as collateral in Eurosystem credit operations 
available at http://www.ecb.europa.eu/paym/coll/loanlevel/html/index.en.html.
    \106\ See the market notices from the Bank of England discussing 
its eligibility requirements for RMBS and covered bonds backed by 
residential mortgages, CMBS, small-medium enterprise loan backed 
securities and asset-backed commercial paper, and asset-backed 
securities backed by consumer loans, auto loans, and leases that are 
delivered as collateral against transactions in the Bank's 
operations at: http://www.bankofengland.co.uk/markets/Documents/marketnotice121002abs.pdf, http://www.bankofengland.co.uk/markets/Documents/marketnotice111220.pdf, and http://www.bankofengland.co.uk/markets/Documents/marketnotice121217.pdf.
    \107\ See, e.g., Blackbox Logic (providing RMBS loan-level data 
aggregation and processing services allowing clients to analyze both 
current and historical RMBS trends), http://www.bbxlogic.com/, Core 
Logic (providing data and analytic services), http://www.corelogic.com/, LPS McDash Online (providing access to loan-
level data), http://www.lpsvcs.com/Products/CapitalMarkets/LoanData/Products/Pages/McDashOnline.aspx and Lewtan (providing data and 
analytic services), http://www.lewtan.com/.
    \108\ See, e.g., Experian Credit Horizons (providing products to 
analyze consumer mortgage and non-mortgage assets), https://www.experian.com/capital-markets/credithorizons-product.html and 
Kroll Factual Data (providing data on credit, income collateral, 
employment, etc.), http://www.krollfactualdata.com/Industry/Lending/Mortgage.
---------------------------------------------------------------------------

    After considering the comments received, the ABS market and the 
availability and use of asset-level data regarding ABS as they exist 
today, we are adopting, with modifications, the proposed asset-level 
disclosure requirements for ABS where the underlying assets consist of 
residential mortgages, commercial mortgages, auto loans or auto leases, 
resecuritizations of ABS that include these asset types, or of debt 
securities.\109\ We provide detail on the final rules below.
---------------------------------------------------------------------------

    \109\ In the 2010 ABS Proposing Release, the debt security asset 
class was categorized as ``Corporate Debt.''
---------------------------------------------------------------------------

    As noted above, the proposed asset-level data requirements were to 
apply to all asset types, except ABS backed by credit cards, charge 
cards and stranded costs. For ABS backed by credit or charge card 
receivables, we proposed that issuers provide standardized grouped-
account disclosures about the underlying asset pool instead of asset-
level disclosures.
    Asset-level information should provide investors with information 
that allows them to independently perform due diligence and make 
informed investment decisions; however, each asset class presents its 
own unique considerations. The response to our proposal was mixed, with 
some commenters supporting asset-level disclosure across asset classes 
and some commenters suggesting that alternative forms of disclosure 
were more appropriate for certain asset classes. We believe that the 
mix of information needed for analysis varies from asset class to asset 
class, and as we discuss in greater detail below, we have tailored the 
requirements for each asset class. While we are adopting requirements 
for only certain asset classes, we continue to consider the appropriate 
disclosure requirements for other asset classes and those proposals 
remain unchanged and outstanding.\110\
---------------------------------------------------------------------------

    \110\ See footnote 46 and accompanying text and Section I.C.5 
Proposed Rules Not Being Adopted At This Time.
---------------------------------------------------------------------------

(a) Proposed Rule
    To augment our current principles-based, pool-level disclosure 
requirements, we proposed to require that issuers disclose standardized 
asset-level information about the assets underlying the ABS at the time 
of offering and on an ongoing basis in Exchange Act reports.\111\ 
Proposed Item 1111(h) and Schedule L of Regulation AB enumerated all of 
the data points that were to be provided for each asset in the asset 
pool at the time of offering. Proposed Item 1121(d) and Schedule L-D 
enumerated all of the data points that were to be provided in periodic 
reports required under Sections 13 and 15(d) of the Exchange Act. These 
requirements contained data points requiring general information or 
item requirements applicable to all asset types underlying an ABS 
transaction and specialized item requirements applicable to only 
certain asset types. For instance, the proposal included specialized 
data points for ABS backed by the following: residential mortgages, 
commercial mortgages, auto loans, auto leases, equipment loans, 
equipment leases, student loans, floorplan financings, and debt 
securities and also for resecuritizations. Each proposed data point 
contained a title, definition, and a standardized response. The 
standardized response could be a date, number, text, or coded 
response.\112\ Finally, in order to facilitate investors' use of the 
asset-level data, we proposed that the data be filed with the 
Commission on EDGAR in a standardized tagged data format using XML.
---------------------------------------------------------------------------

    \111\ See Section III of the 2010 ABS Proposing Release.
    \112\ If a data point required a ``coded response,'' we proposed 
a set of predefined responses that were coded with a number that an 
issuer could select in providing the information.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Support for requiring asset-level disclosures varied across asset 
types, and in some cases, between issuers and investors. Some 
commenters, mainly investors, generally indicated broad support for 
asset-level disclosure across asset types.\113\ In general, these 
commenters suggested that asset-level disclosures would lead to better 
informed investment decisions,\114\ better evaluation of the risk 
profile of the securities,\115\ better pricing,\116\ more transparency 
with respect to loan servicing operations,\117\ and a broader range of 
opinions and analysis available with respect to ABS.\118\ Certain 
commenters noted that the disclosure of

[[Page 57199]]

asset-level data is an existing market practice,\119\ and some 
commenters noted that asset-level disclosure requirements already exist 
in other jurisdictions.\120\ Some commenters requested that the 
Commission require additional asset-level data fields,\121\ and one 
commenter noted that asset-level data is necessary for implementation 
of the Commission's proposed waterfall computer program.\122\ While 
most investors supported requiring asset-level disclosure across asset 
types,\123\ some commenters, mainly issuers or entities representing 
issuers, generally limited their support for asset-level disclosures to 
RMBS and CMBS.\124\ Some commenters expressed concern about whether the 
materiality of the information that was proposed to be required has 
been considered or shown to affect the performance of the securities or 
the pricing of securities.\125\ Some commenters suggested that we 
address this concern by either adopting industry standards \126\ or 
adopting a ``provide-or-explain'' type regime.\127\
---------------------------------------------------------------------------

    \113\ See, e.g., letters from Appraisal Institute dated Aug. 2, 
2010 submitted in response to the 2010 ABS Proposing Release 
(``AI''), Association of Mortgage Investors dated July 31, 2010 
submitted in response to the 2010 ABS Proposing Release (``AMI''), 
American Securitization Forum, Auto Issuer Subforum and Auto 
Investor Subcommittee dated Aug. 31, 2010 submitted in response to 
the 2010 ABS Proposing Release (``ASF II'') (expressed views of 
loan-level investors only), California Public Employees' Retirement 
System dated Aug. 2, 2010 submitted in response to the 2010 ABS 
Proposing Release (``CalPERS''), The Beached Consultancy dated July 
8, 2010 submitted in response to the 2010 ABS Proposing Release 
(``Beached Consultancy''), Martha Coakley, Massachusetts Attorney 
General dated Aug. 2, 2010 submitted in response to the 2010 ABS 
Proposing Release (``Mass. Atty. Gen.''), Metropolitan Life 
Insurance Company dated Aug. 2, 2010 submitted in response to the 
2010 ABS Proposing Release (``MetLife I''), Prudential I, SIFMA I 
(expressed views of investors only), Vanguard, Americans for 
Financial Reform dated Apr. 21, 2014 submitted in response to the 
2014 Re-Opening Release (``AFR'') (suggesting that asset-level 
disclosure should be required for all ABS ultimately backed by 
loans, including non-public ABS), Committee on Capital Markets 
Regulation dated Apr. 28, 2014 submitted in response to the 2014 Re-
Opening Release (``CCMR''), Council of Institutional Investors dated 
Mar. 26, 2014 submitted in response to the 2014 Re-Opening Release 
(``CII''), CRE Finance Council dated Mar. 2, 2014 submitted in 
response to the 2014 Re-Opening Release (``CREFC III''), Lewtan 
dated Mar. 28, 2014 submitted in response to the 2014 Re-Opening 
Release (``Lewtan''), Prudential Investment Management, Inc. dated 
Apr. 28, 2014 submitted in response to the 2014 Re-Opening Release 
(``Prudential III'') (noting that loan-level data (e.g., current 
asset balance, next interest rate, current delinquency status, 
remaining term to maturity) will allow investors to better estimate 
the timing of the principal and interest cash flows of the 
collateral pool, which will in turn allow investors to better 
estimate the cash flow of the securitization and be more confident 
in their risk/reward consideration of the security), Allison 
Schwartz dated May 21, 2014 submitted in response to the 2014 Re-
Opening Release (``A. Schwartz''), Securities Industry and Financial 
Markets Association/Financial Services Roundtable dated Mar. 28, 
2014 submitted in response to the 2014 Re-Opening Release (``SIFMA/
FSR I-dealers and sponsors''), Vantage Score Solutions LLC dated 
Apr. 17, 2014 submitted in response to the 2014 Re-Opening Release 
(``Vantage II'') (supporting industry efforts to align asset-level 
disclosure reporting for GSEs and private label securities), and 
Wells Fargo & Co. dated Mar. 28, 2014 submitted in response to the 
2014 Re-Opening Release (``Wells Fargo III''). But see letters from 
ASF II (indicating that, for ABS backed by automotive loans and 
leases, part of their investor membership supported loan-level and 
part of their investor membership supported grouped account data and 
for ABS backed by floorplan receivables their investor members 
supported grouped account data), and American Securitization Forum 
dated Nov. 2, 2011 submitted in response to the 2011 ABS Re-
Proposing Release (``ASF IV'') (indicating that for ABS backed by 
equipment loans and leases part of their investor membership 
supported loan-level, another portion supported grouped-account 
disclosures, and another portion supported additional pool-level 
disclosure).
    \114\ See, e.g., letters from CDIA, Investment Company Institute 
dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing 
Release (``ICI I''), MetLife I, and MSCI Inc. dated July 27, 2010 
submitted in response to the 2010 ABS Proposing Release (``MSCI'').
    \115\ See letter from AMI (stating that the disclosures 
described in Schedule L and L-D are essential for investors to 
properly evaluate the risk profile of securities offered for 
purchase).
    \116\ See letter from Vanguard.
    \117\ See letter from MetLife I (referring to the loan-level 
templates for RMBS).
    \118\ See letters from Moody's I and Moody's Investor Service 
dated Apr. 28, 2014 submitted in response to the 2014 Re-Opening 
Release (``Moody's II'').
    \119\ See letters from Lewtan, R&R Consulting dated Mar. 25, 
2014 submitted in response to the 2014 Re-Opening Release (``R&R''), 
A. Schwartz (noting Fannie Mae has disclosed asset-level data and 
stating that such data is available from many commercial vendors and 
has not compromised borrower privacy), and SIFMA/FSR I-dealers and 
sponsors (noting, however, that the proposed requirements represent 
a dramatic departure from the type and amount of asset-level 
information issuers provide to investors and others under past 
industry asset-level practices).
    \120\ See, e.g., letters from American Bar Association dated May 
6, 2014 submitted in response to the 2014 Re-Opening Release (``ABA 
III'') (noting that the Bank of England requires the disclosure of 
anonymized loan-level data and the European Securities and Market 
Authority (``ESMA'') recently published a consultation paper that 
included draft templates for asset-level disclosures for asset-
backed securities), AFR (noting that other jurisdictions, such as 
the European Union and the United Kingdom, are already providing 
asset-level information to investors), and Global Financial Markets 
Association/Australian Securitisation Forum dated Apr. 28, 2014 
submitted in response to the 2014 Re-Opening Release (``GFMA/
AusSF'') (noting that the Bank of England, the European Central 
Bank, ESMA and the Reserve Bank of Australia already currently 
require, will soon require, or are in the process of developing 
templates to require asset-level disclosure at some point in the 
future).
    \121\ See letters from the Structured Finance Industry Group 
dated February 18, 2014 submitted in response to the 2011 ABS Re-
Proposing Release (``SFIG I''), Jeremy Calva dated Mar. 21, 2014 
submitted in response to the 2014 Re-Opening Release (``J. Calva'') 
(suggesting that certain asset-level data also be required in Form 
ABS-15G filings to identify repurchase request activity), CCMR 
(supporting additional disclosures, including more detailed 
information about obligors), and Vantage II (requesting updated 
credit scores and requesting that the rules not specifically refer 
to the FICO brand credit score or, in the alternative, refer to FICO 
and other credit score types, such as Vantage Score).
    \122\ See letter from A. Schwartz.
    \123\ See footnote 113.
    \124\ See, e.g., letters from American Securitization Forum 
dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing 
Release (``ASF I'') (indicating support for asset-level disclosures 
for RMBS), Bank of America dated Aug. 2, 2010 submitted in response 
to the 2010 ABS Proposing Release (``BoA I''), Citigroup Global 
Markets dated Aug. 2, 2010 submitted in response to the 2010 ABS 
Proposing Release (``Citi'') (supporting transparency and meaningful 
disclosure in connection with the issuance of ABS), J.P. Morgan 
Chase & Co. dated Aug. 2, 2010 submitted in response to the 2010 ABS 
Proposing Release (``J.P. Morgan I''), Wells Fargo & Co. dated Aug. 
2, 2010 submitted in response to the 2010 ABS Proposing Release 
(``Wells Fargo I''), Marc Joffe dated Mar. 27, 2014 submitted in 
response to the 2014 Re-Opening Release (``M. Joffe'') (suggesting 
asset-level requirements only for RMBS), and R&R (stating that 
asset-level information is necessary only for asset classes that are 
resecuritized, such as RMBS).
    \125\ See, e.g., letters from BoA I (suggesting that while some 
investors may suspect that the asset-level information would be 
helpful, the ``lack of any historic reliance on some of this data 
suggests that it may be per se immaterial''), Citi, and SIFMA I 
(expressed views of dealer and sponsors only) (stating that while 
they support the disclosure of data that facilitates an informed 
investment decision, requiring information that is not material 
merely increases the costs to issuers of providing that information 
without a corresponding benefit).
    \126\ See, e.g., letters from American Bar Association dated 
Aug. 17, 2010 submitted in response to the 2010 ABS Proposing 
Release (``ABA I''), BoA I, CMBS.Com dated Aug. 2, 2010 submitted in 
response to the 2010 ABS Proposing Release (``CMBS.com I''), CoStar 
Group dated Aug. 2, 2010 submitted in response to the 2010 ABS 
Proposing Release (``CoStar''), CRE Finance Council dated Aug. 2, 
2010 submitted in response to the 2010 ABS Proposing Release 
(``CREFC I''), Mortgage Bankers Association dated Aug. 2, 2010 
submitted in response to the 2010 ABS Proposing Release (``MBA I''), 
MERSCorp, Inc. dated July 30, 2010 submitted in response to the 2010 
ABS Proposing Release (``MERS''), MetLife I (supporting the use of 
an existing CMBS industry standard), Mortgage Industry Standards 
Maintenance Organization dated July 30, 2010 submitted in response 
to the 2010 ABS Proposing Release (``MISMO''), Real Analytics dated 
Aug. 2, 2010 submitted in response to the 2010 ABS Proposing 
Release, Vanguard, and Wells Fargo I.
    \127\ See letters from BoA I, Citi, SIFMA I (expressed views of 
dealer and sponsors only), and Securities Industry and Financial 
Markets Association, Dealers and Sponsors dated Oct. 4, 2011 
submitted in response to the 2011 ABS Re-Proposing Release (``SIFMA 
III-dealers and sponsors''). These commenters suggested that under a 
provide-or-explain regime if an issuer omits any asset-level data 
point the issuer would be required to identify the omitted field and 
explain why the data was not disclosed. These commenters seemed to 
suggest that a provide-or-explain regime should apply to any asset 
type required to provide asset-level data.
---------------------------------------------------------------------------

    In addition to comments indicating general support or opposition to 
the proposal, as discussed further below, we also received comments 
expressing more specific concerns about the proposal, such as the costs 
to provide the disclosures, the value of the disclosure to investors, 
the liability for errors in the data, individual privacy issues, the 
potential release of proprietary data, and whether asset-level 
disclosures were necessary to evaluate ABS involving certain asset 
classes.
    Both investors and issuers noted that the disclosure requirements 
will impose costs and burdens on ABS issuers. Investors, however, also 
believed asset-level information is necessary to properly analyze ABS, 
and some investors believed that the concerns about the costs and 
burdens of providing such data may be exaggerated. For instance, the 
investor membership of one trade association acknowledged that 
requiring asset-level disclosures will impose costs and burdens on ABS 
issuers, but believed the information is a ``necessary and key element 
of restoring investor confidence in the ABS markets.'' \128\ Another 
investor acknowledged that the proposed asset-level disclosures, among 
other proposed reforms, would increase costs, but the investor believed 
the reforms would ``instill stronger origination and servicing of 
securitized assets, allow for more complete investor reviews and foster 
a more stable securitization market, which is a benefit to all 
borrowers, lenders and investors.'' \129\ One investor noted that the 
additional costs allegedly arising from some of the proposed reforms, 
including asset-level disclosures, may be ``greatly exaggerated.'' 
\130\ This investor suggested that the deficiencies in ``governance and 
transparency have dramatically increased the costs of securitization in 
the current market.'' The investor also noted that asset-level 
disclosures are routinely provided in various global securitization 
sectors, such as U.S. CMBS and Australian CMBS, and these markets have 
not shut down.
---------------------------------------------------------------------------

    \128\ See letter from SIFMA I (expressed views of investors 
only).
    \129\ See letter from Prudential II.
    \130\ See letter from MetLife II.
---------------------------------------------------------------------------

    Several commenters did not support asset-level requirements for 
certain asset classes, noting that the value of the disclosures to 
investors or market participants may not justify the potential costs 
and burdens derived from the disclosures.\131\ Commenters

[[Page 57200]]

expressed these concerns with respect to specific asset types, such as 
Auto ABS,\132\ student loan ABS,\133\ equipment ABS \134\ or credit 
card ABS.\135\ One commenter stated that for Auto ABS the proposed 
disclosure requirements would require significant reprogramming and 
technological investment.\136\ Another commenter noted that the 
proposal would require sponsors to gather and present data in ways that 
differ from the way sponsors currently maintain and evaluate data.\137\ 
This commenter also believed the preparation of such information would 
likely impose burdens upon sponsors' systems, auditing costs and create 
management oversight burdens that it believed the Commission had 
significantly underestimated. This commenter, however, did not quantify 
the amount that the Commission had underestimated these costs and 
burdens or provide its own estimate of these costs.\138\ Also without 
providing a cost estimate, another commenter suggested that the 
Commission had not evaluated the entire cost of ongoing reporting for 
RMBS.\139\ Another commenter expressed concern that if the new 
standards are not well integrated with existing industry practices, the 
data may be less reliable because reformatting data leads to a greater 
possibility for errors in the data.\140\ Some commenters advised that 
the costs to implement the changes necessary to comply with the 
requirements may drive certain issuers from the market.\141\ A few 
commenters suggested, without referencing a particular asset type, that 
the proposed disclosures may overwhelm investors \142\ and a few 
commenters raised a similar concern solely with respect to the 
disclosures applicable to Auto ABS.\143\
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    \131\ See, e.g., letters from ABA I, ABA III, American Financial 
Services Association dated Aug. 2, 2010 submitted in response to the 
2010 ABS Proposing Release (``AFSA I''), American Financial Services 
Association dated Mar. 28, 2014 submitted in response to the 2014 
Re-Opening Release (``AFSA II''), American Bankers Association/ABA 
Securities Association dated Aug. 2, 2010 submitted in response to 
the 2010 ABS Proposing Release (``ABAASA I''), Capital One Financial 
Corporation dated Apr. 28, 2014 submitted in response to the 2014 
Re-Opening Release (``Capital One II''), J.P. Morgan I (stating that 
the asset-level and grouped-account disclosures will impose 
significant costs on issuers and may, for most asset classes other 
than RMBS and CMBS, only provide incremental value to investors 
relative to what is currently disclosed), SIFMA I (expressed views 
of dealers and sponsors only), Equipment Leasing and Finance 
Association, dated Apr. 28, 2014 submitted in response to the 2014 
Re-Opening Release (``ELFA II''), IPFS Corporation dated Mar. 28, 
2014 submitted in response to the 2014 Re-Opening Release (``IPFS 
II''), Structured Finance Industry Group dated Apr. 28, 2014 
submitted in response to the 2014 Re-Opening Release (``SFIG II''), 
and Wells Fargo III.
    \132\ See, e.g., letters from AmeriCredit Corp. dated Aug. 2, 
2010 submitted in response to the 2010 ABS Proposing Release 
(``AmeriCredit''), ASF II (expressed views of dealers and sponsors 
only), Capital One II, Financial Services Roundtable dated Aug. 2, 
2010 submitted in response to the 2010 ABS Proposing Release 
(``FSR''), VABSS I, Vehicle ABS Sponsors dated Nov. 8, 2010 
submitted in response to the 2010 ABS Proposing Release (``VABSS 
II''), VABSS III, and Wells Fargo I.
    \133\ See letter from Student Loan Servicing Alliance dated Aug. 
2, 2010 submitted in response to the 2010 ABS Proposing Release 
(``SLSA'').
    \134\ See, e.g., letters from Equipment Leasing and Finance 
Association dated July 22, 2010 submitted in response to the 2010 
ABS Proposing Release (``ELFA I''), CNH Capital America LLC dated 
Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release 
(``CNH I''), Navistar Financial Corporation dated Aug. 2, 2010 
submitted in response to the 2010 ABS Proposing Release 
(``Navistar''), and Wells Fargo I.
    \135\ See, e.g., letters from BoA I, Capital One Financial 
Corporation dated Aug. 2, 2010 submitted in response to the 2010 ABS 
Proposing Release (``Capital One I''), Discover Financial Services 
dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing 
Release (``Discover''), and J.P. Morgan I.
    \136\ See letter from BoA I.
    \137\ See letter from ABA I.
    \138\ See letter from ABA I (expressing concerns about the costs 
or even the ability to verify certain data, such as property 
appraisals, residual value estimates, status of occupancy of the 
property, the effect on competition from the public release of 
proprietary data, which, for some asset classes, may deter 
securitizations, restrict capital formation and eliminate market 
access for some issuers and affect the availability of consumer and 
business credit without providing additional benefits to investors).
    \139\ See letter from MBA I (suggesting that the Commission has 
not identified any costs associated with (1) initially establishing 
the new fields; (2) the cost of redefining many of the fields 
already in existence; (3) the labor cost of collecting and inputting 
significant new data elements into the servicing systems; (4) the 
costs to validate the new data on an ongoing and operational basis; 
(5) the cost for controls needed to ensure the data is accurate and 
complete; (6) the need for servicers and their data providers to 
build functionality within the project, to test and verify the new 
ongoing reporting; (7) introducing new elements not listed in 
proposed L-D, such as updated credit scores).
    \140\ See letter from eSignSystems dated Aug. 2, 2010 submitted 
in response to the 2010 ABS Proposing Release (``eSign''). See also 
letter from ABA I (stating that data point descriptions may not be 
entirely consistent with how information about obligors is captured 
or comparable to other similarly styled information and issuers 
should be able to provide narrative analysis of this data in order 
to ensure their disclosure is meaningful and not misleading).
    \141\ See, e.g., letters from ABAASA I (noting, without further 
explanation, that the competitive impact on business models and 
potential legal risks in providing asset-level data may drive 
issuers from the market or make them pass these costs on to 
investors and borrowers) and BoA I. See also SIFMA I (expressed 
views of dealers and sponsors only) (expressing concern about the 
effect on small originators and that if small originators leave the 
securitization market, the value of portfolio of assets would drop 
due to lower liquidity).
    \142\ See letters from CFA Institute dated Aug. 20, 2010 
submitted in response to the 2010 ABS Proposing Release (``CFA I'') 
and Epicurus.
    \143\ See letters from AmeriCredit and VABSS I.
---------------------------------------------------------------------------

    Commenters also raised concerns about liability for 
inaccuracies.\144\ Some commenters expressed concern that there will 
inevitably be errors in documents including typographical errors, 
information entered incorrectly (or not at all) into the files and 
other errors.\145\ One concern was that some data may be difficult to 
objectively verify,\146\ which one commenter referred to as ``soft 
data.'' \147\ This commenter defined soft data as data that ``is often 
self-reported by obligors, cannot be verified by issuers at a 
reasonable cost, cannot be confirmed by auditors, may not be consistent 
with (or comparable to) information obtained or presented by other 
issuers and may reflect subjective judgments.'' \148\ A few commenters 
noted that some soft data is used to calculate the response to other 
item requirements \149\ and one of these commenters suggested issuers 
should have the discretion to include or exclude soft data from their 
disclosures.\150\ In general, these commenters suggested that the 
materiality of individual data points should be determined on an 
aggregate basis across the entire asset portfolio, rather than at the 
level of the individual loan. Further, these commenters stated that 
even if an inaccuracy is material to a particular loan, the inaccuracy 
should not subject the issuer to the potential remedy of rescission of 
the entire issuance. The commenters urged that liability be based on 
the aggregate materiality in the context of the entire asset pool, the 
full offering disclosures and whether the securitization structure and 
documentation provide adequate remedies. Another commenter echoed this 
point.\151\
---------------------------------------------------------------------------

    \144\ See, e.g., letters from ASF I, ABA I, and ABAASA I.
    \145\ See letters from ABA I and ABAASA I.
    \146\ See, e.g., letters from ABA I and ABAASA I. See also BoA I 
(noting that numerous disclosure items in proposed Schedule L relate 
to information that is obtained from borrowers and verified to the 
extent provided by an originator's underwriting policies and 
procedures in the application and underwriting process and such 
information is not subsequently updated or verified by originators 
or servicers in the normal course of business).
    \147\ See letter from ABA I (suggesting that the proposal 
contained some data points requiring empirically verifiable data, 
such as outstanding balances, scheduled payments, interest rates and 
pre-payment penalties, while other data points require data which 
may not be verifiable because they are ``factual representations'' 
or ``subjective judgments,'' such as property appraisals, residual 
value estimates, or status of occupancy of the property).
    \148\ See letter from ABA I.
    \149\ See letters from ABA I and ABAASA I.
    \150\ See letter from ABA I (suggesting that the Commission 
provide issuers the discretion to include or exclude soft data from 
their disclosures and, where such information is included, it should 
be described as information obtained from third parties and allow 
issuers to disclaim liability absent actual knowledge by the issuer 
that such information is materially incorrect). See also letter from 
ABAASA I (suggesting that the Commission clarify that for liability 
purposes soft data is not part of the prospectus or registration 
statement).
    \151\ See letter from ASF I (suggesting that the extent to which 
the data in any individual field or group of fields is material to a 
particular transaction should remain a factual matter, based on the 
facts and circumstances of the transaction, the underlying loans, 
the securities and the individual circumstances of the investor).
---------------------------------------------------------------------------

    As noted above, some commenters did not support requiring asset-
level disclosures for certain asset types. For example, several 
commenters, mainly

[[Page 57201]]

issuers of ABS backed by automobile loans or leases,\152\ equipment 
loans or leases,\153\ floorplan financings,\154\ and student 
loans,\155\ opposed asset-level disclosures requirements for these 
asset types because the disclosures would raise individual privacy 
concerns, result in the release of proprietary data, and the 
disclosures would be of limited value to investors. To alleviate these 
concerns, some of these commenters suggested grouped-account disclosure 
or a combination of grouped account and standardized pool-level 
disclosures.\156\ For equipment ABS, some commenters suggested 
standardized pool-level data was sufficient.\157\ As discussed below, 
individual privacy concerns were also raised with respect to the 
proposed asset level disclosures for RMBS \158\ and with respect to the 
Web site approach described in the 2014 Staff Memorandum.\159\
---------------------------------------------------------------------------

    \152\ See, e.g., letters from ABA I, American Bar Association 
dated Nov. 16, 2011 submitted in response to the 2011 ABS Re-
Proposing Release (``ABA II''), AmeriCredit, ASF II (expressed views 
of a portion of their investor membership only), BoA I, Capital One 
I, VABSS I, and Wells Fargo I.
    \153\ See, e.g., letters from CNH I, ELFA I, FSR, Navistar, and 
VABSS I.
    \154\ See, e.g., letters from ABA I and ASF II. See also 
memorandum to comment file dated Mar. 8, 2011 regarding staff's 
telephone call with members of the Financial Services Roundtable 
with letter attached from the Captive Commercial Equipment ABS 
Issuers Group (``Captive Equipment Group''), and VABSS I.
    \155\ See, e.g., letters from ABA I, Sallie Mae, Inc. dated Aug. 
2, 2010 submitted in response to the 2010 ABS Proposing Release 
(``Sallie Mae I''), and SLSA.
    \156\ See, e.g., letters from ASF II, Navistar, Sallie Mae I, 
and VABSS I.
    \157\ See, e.g., letters from Captive Equipment Group, CNH I, 
and ELFA I.
    \158\ See, e.g., letters from ABA I, ASF I, Consumers Union 
dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing 
Release (``CU''), MBA I, and World Privacy Forum dated Aug. 2010 
submitted in response to the 2010 ABS Proposing Release (``WPF I'').
    \159\ See, e.g., letters from ABA III, CCMR, Mortgage Bankers 
Association dated Mar. 28, 2014 (``MBA IV''), SIFMA/FSR I-dealers 
and sponsors (noting that ``[t]his puts issuers in an untenable 
position--the more carefully an issuer protects customer data by 
restricting access to its Web site, the more risk it bears of an 
investor suit for failing to disclose all material information''), 
and SFIG II. See also Section III.A.3 Asset-Level Data and 
Individual Privacy Concerns.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    As noted above, the public availability of asset-level information 
has historically been limited. In the past, some transaction agreements 
for securitizations required issuers to provide investors with asset-
level information, or information on each asset in the pool backing the 
securities.\160\ Such information is sometimes filed as part of the 
pooling and servicing agreement or as a free writing prospectus; 
however, the information provided varied from issuer to issuer and was 
not standardized.\161\ We believe, however, that all investors and 
market participants should have access to information to analyze the 
risk and return characteristics of ABS offerings and that asset-level 
information about the assets underlying a securitization transaction at 
inception and over the life of a security provides a more complete 
picture of the composition and characteristics of the pool assets and 
the performance of those assets than pool-level information alone, and 
forms an integral part of ABS investment analysis.\162\ Therefore, we 
are adopting, with modifications, a requirement that standardized 
asset-level data be provided, for certain asset types, in the 
prospectus and in Exchange Act reports. We are also adopting a 
requirement that the required asset-level disclosures be provided in 
XML, a machine-readable format.
---------------------------------------------------------------------------

    \160\ This usually included, for example, information about the 
principal balance at the time of origination, the date of 
origination, the original interest rate, the type of loan (e.g., 
fixed, ARM, hybrid), the obligor's debt-to-income (``DTI'') ratio, 
the documentation level for origination of the loan, and the LTV 
ratio.
    \161\ Under our current requirements the servicing agreement 
should be filed as an exhibit to the registration statement. See 
Item 601 of Regulation S-K and Section III.B.3.c of the 2004 ABS 
Adopting Release. See also Item 1108(c)(1) of Regulation AB. We 
remind registrants that the pooling and servicing agreement that is 
filed must contain all parts of the pooling and servicing agreement, 
including, but not limited to, any schedules, exhibits, addendums or 
appendices, unless a request for confidential treatment was 
submitted and granted to allow for the redaction of such 
information. See, e.g., Securities Act Rule 406 [17 CFR 230.406], 
Exchange Act Rule 24b-2 [17 CFR 240.24b-2], and Division of 
Corporation Finance Staff Legal Bulletins Nos. 1 (Feb. 28, 1997) and 
1A (July 11, 2001).
    \162\ Others have noted the importance of loan-level data to 
investors. See, e.g., footnote 44.
---------------------------------------------------------------------------

    At this time, we are adopting asset-level requirements for ABS 
where the underlying assets consist of residential mortgages, 
commercial mortgages, auto loans or leases, and resecuritizations of 
ABS, or of debt securities and we continue to consider whether asset-
level disclosure would be useful to investors across other asset 
classes. Prior to the financial crisis, RMBS and CMBS had historically 
represented a large portion of the registered ABS market while Auto ABS 
represents a large portion of the current registered ABS market. 
Accordingly, these disclosures should benefit the largest number of 
investors, especially as greater numbers of RMBS and CMBS are issued. 
Although comments about the asset-level requirements for Auto ABS were 
mixed, with some opposing any asset-level requirements for Auto ABS, 
Auto ABS investors have indicated in comment letters that they believe 
that asset-level data will strengthen the Auto ABS market and make it 
more resilient over the long term.\163\ We also note that the European 
Central Bank recently began requiring the disclosure of standardized 
asset-level data for all Auto ABS accepted as collateral in the 
Eurosystem credit operations.\164\ For these reasons, we prioritized 
our efforts to develop asset-level requirements for these asset 
classes.
---------------------------------------------------------------------------

    \163\ See letters from ASF II (expressed views of loan-level 
investors only) and Prudential III.
    \164\ See details about the European Central Bank's Auto ABS 
loan-level requirements at http://www.ecb.europa.eu/paym/coll/loanlevel/html/index.en.html. We have sought to address cost 
concerns raised by Auto ABS issuers through our changes to the Auto 
ABS requirements, as discussed below.
---------------------------------------------------------------------------

    The asset-level disclosure requirements for debt security ABS are 
relatively limited in scope and primarily consist of information that 
should be readily available to issuers. These disclosures, while 
consisting of only the basic characteristics of the debt security, will 
provide useful information to investors, such as the cash flows 
associated with the debt security, and identifiers, such as the SEC 
file number of the debt security. Using the SEC file number of the debt 
security, investors will be able to access other disclosures filed with 
the Commission about the debt security. No commenters specifically 
opposed these requirements.
    We are also adopting asset-level disclosure requirements for 
resecuritization ABS. In an ABS resecuritization, the asset pool is 
comprised of one or more ABS. The new rules require disclosures about 
the ABS in the pool and, if the ABS in the asset pool is an RMBS, CMBS 
or Auto ABS, issuers are also required to provide asset-level 
disclosures about the assets underlying the ABS. We are requiring 
disclosures about the ABS being resecuritized for the same reasons we 
are requiring disclosure for debt security ABS, which is to provide 
investors with information about the ultimate source of cash flows of 
assets underlying the resecuritization. As a result, we believe 
investors in resecuritization ABS should derive the same benefits as 
investors in other ABS.
    Under current requirements the securities being resecuritized must 
be registered or exempt from registration

[[Page 57202]]

under Section 3 of the Securities Act.\165\ As a result, all 
disclosures for a registered offering are required. Therefore, 
requiring asset-level data for the assets underlying resecuritizations 
of RMBS, CMBS, Auto ABS or debt security ABS is consistent with our 
current disclosure requirements, which also prevents issuers from 
circumventing our asset-level requirements for these asset classes. We 
also note that over the past several years there have been no 
registered resecuritizations of RMBS, CMBS or Auto ABS. We recognize, 
however, that such a requirement could increase the disclosure costs of 
resecuritizations relative to disclosure costs of ABS backed by other 
assets should an issuer choose to do a resecuritization of RMBS, CMBS 
or Auto ABS in the future because sponsors may need to collect 
information about underlying assets from additional sources. We have 
made some revisions to the proposal to address some of those costs. To 
the extent that the pass-through of required asset level disclosures 
imposes costs above that required for the original securitization, this 
could limit the benefits of resecuritizations and potentially inhibit 
the issuance of resecuritizations.
---------------------------------------------------------------------------

    \165\ See Securities Act Rule 190 [17 CFR 230.190]. An asset 
pool of an issuing entity includes all instruments which support the 
underlying assets of the pool. If those instruments are securities 
under the Securities Act, the offering must be registered or exempt 
from registration if the instruments are included in the asset pool 
as provided in Securities Act Rule 190, regardless of their 
concentration in the pool. See Securities Act Rule 190(a) and (b). 
See also Section III.A.6.a of the 2004 ABS Adopting Release.
---------------------------------------------------------------------------

    We also believe the same benefits will accrue to investors in 
resecuritization ABS as to investors in RMBS, CMBS, Auto ABS or debt 
security ABS. Similar to a direct investment in an RMBS, CMBS, Auto ABS 
or debt security ABS, access to this information should provide further 
transparency about the assets underlying the security or securities 
underlying the resecuritization ABS. This additional information should 
allow investors to analyze the collateral supporting the security being 
resecuritized, the cash flows derived from each asset underlying the 
security being resecuritized, and the risk of each asset underlying the 
security being resecuritized.
    We acknowledge commenters' concerns about other asset classes, 
which we think warrant further consideration. For instance, we continue 
to consider commenters' concerns about how asset-level disclosures 
should apply where there is lack of uniformity amongst the types of 
collateral or terms of the underlying contracts,\166\ there is a large 
volume of assets in a pool,\167\ and there are unique features to the 
ABS structure.\168\ For those asset classes where we are deferring 
action, we will continue to consider the best approach for providing 
more information about underlying assets to investors, including 
possibly requiring asset-level data in the future.
---------------------------------------------------------------------------

    \166\ See letter from ELFA I.
    \167\ See letters from Sallie Mae I and ASF I.
    \168\ See letters from ABA I and ABA III.
---------------------------------------------------------------------------

    We also believe that, for most investors, the usefulness of asset-
level data is generally limited unless the asset-level data 
requirements, which include the following components, are standardized: 
The definitions of each data point, the format for providing the asset-
level data (e.g., XML), and the scope of the information required, such 
as what data is required about each obligor, the related collateral, 
and the cash flows related to each asset. We believe that standardizing 
the asset-level disclosures facilitates the ability to compare and 
analyze the underlying asset-level data of a particular asset pool as 
well as compare that pool to other recent ABS offerings involving 
similar assets.\169\ Over time, asset-level information about past ABS 
offerings, including asset-level information about the performance of 
those offerings, will be available to further facilitate the ability 
for issuers to assess expected performance of a new offering based on 
the performance of past offerings involving similar assets.
---------------------------------------------------------------------------

    \169\ See Statement of Former Federal Reserve Governor Randall 
S. Kroszner at the Federal Reserve System Conference on Housing and 
Mortgage Markets, Washington, DC, Dec. 4, 2008 (stating that a 
necessary condition for the potential of private-label MBS to be 
realized going forward is for comprehensive and standardized loan-
level data covering the entire pool of loans backing MBS be made 
available and easily accessible so that the underlying credit 
quality can be rigorously analyzed by market participants).
---------------------------------------------------------------------------

    The asset-level data required will, in general, include information 
about the credit quality of the obligor, the collateral related to each 
asset, the cash flows related to a particular asset, such as the terms, 
expected payment amounts, indices and whether and how payment terms 
change over time and the performance of each asset over the life of a 
security. This information should allow investors to better understand, 
analyze, and track the performance of ABS. We believe the final 
requirements we are adopting for RMBS, CMBS, Auto ABS, debt security 
ABS and resecuritizations will implement the requirements of Section 
7(c) for these asset classes.\170\ Some commenters expressed concern 
that the proposed data points require more information than necessary 
for investor due diligence and could increase re-identification 
risk.\171\ As discussed in further detail below, we have modified the 
proposed data set for RMBS and Auto ABS in response to these concerns. 
We believe these modifications will help to reduce re-identification 
risk without materially affecting investors' ability to evaluate ABS. 
We believe that the disclosure requirements that we are adopting will 
provide investors with information they need to independently perform 
due diligence and make informed investment decisions.
---------------------------------------------------------------------------

    \170\ See Section III.A.4 Requirements under Section 7(c) of the 
Securities Act for a discussion regarding Section 7(c) and the 
requirements applicable to RMBS, CMBS, debt security ABS and 
resecuritizations. See Section III.A.2.b)(3) Automobile Loan or 
Lease ABS for a discussion regarding Section 7(c) of the Securities 
Act and the requirements applicable to Auto ABS.
    \171\ See letters from ABA III and MBA IV (with respect to 
RMBS).
---------------------------------------------------------------------------

    As noted above, we believe the usefulness of the asset-level 
information is further increased by our formatting requirements. We 
believe providing standardized data definitions and requiring the data 
to be in a machine-readable format will provide investors the ability 
to download the data into software tools that can promptly analyze the 
asset pool. While some investors may need to obtain the software or 
other tools needed to analyze the data, we believe such costs would be 
offset by a reduction or elimination of the costs investors would incur 
to convert non-machine-readable data into a format that makes analyzing 
it easier. As a result, this should reduce the time investors need to 
analyze the offering. We also believe requiring the data to be in a 
machine-readable format addresses concerns that investors will be 
overwhelmed by the granularity of the data, because investors can 
quickly extract the data most relevant to their analysis. Section 7(c) 
also requires that we set standards for the format of the data provided 
by issuers of an asset-backed security, which shall, to the extent 
feasible, facilitate the comparison of such data across securities in 
similar types of asset classes.
    The requirements of standardized asset-level information in a 
machine-readable format coupled with, as we discuss in Section V.B.1.a 
Rule 424(h) and Rule 430D, more time to consider transaction-specific 
information provided through the new preliminary prospectus and three-
day offering

[[Page 57203]]

period rules that we are adopting \172\ are aimed at addressing 
concerns, highlighted by the recent financial crisis, that investors 
and other participants in the securitization market may not have had 
the necessary time and information to be able to understand and analyze 
the risk underlying those securities and may not have valued those 
securities properly or accurately.\173\ Taken together, standardized 
asset-level information in a machine-readable format and more time to 
consider the information should enable investors to analyze offerings 
more effectively and efficiently to better understand and gauge the 
risk underlying the securities. This, in turn should lead to better 
pricing, a reduced need to rely on credit ratings and a greater ability 
of investors to match their risk and return preferences with ABS 
issuances having the same risk and return profile. These benefits 
should improve allocative efficiency and facilitate capital formation.
---------------------------------------------------------------------------

    \172\ See Section V.B.1a) Rule 424(h) and Rule 430D [17 CFR 
230.430D].
    \173\ See footnote 40.
---------------------------------------------------------------------------

    Providing investors access to such information should reduce their 
cost of information gathering because they will not need to purchase 
the data from intermediaries or otherwise gather the information. 
Furthermore, requiring that a single entity, the issuer, provide the 
information rather than requiring each investor to collect it will 
reduce duplicative information-gathering efforts. Also, data accuracy 
may increase because issuers are incentivized to confirm the accuracy 
of the required asset-level disclosures provided in public filings.
    Finally, we note that the public availability of standardized 
machine-readable data may encourage new entities to enter the ABS 
credit-analysis industry previously dominated by the top three largest 
NRSROs. This could increase competition in that industry and provide 
those investors who prefer not to analyze ABS themselves with more 
options when purchasing credit-risk assessments and reports from third 
parties. In addition, since asset-level information in standardized and 
machine-readable format will now be available, investors will have the 
ability to better assess the rating performance of NRSROs and other 
credit-analysis firms.
    While we expect that the asset-level disclosure requirements we are 
adopting will generate the benefits described above, we also recognize 
that they will impose costs upon the issuers required to provide asset-
level disclosures and on other market participants. We received only a 
few quantitative estimates of the potential costs to comply with the 
proposed asset-level disclosure requirements.\174\ As discussed above, 
however, some commenters did express general concerns about the costs 
and burdens that would be imposed in order to comply with the 
requirements. After considering comments received, we acknowledge that, 
taken together, the asset-level disclosure requirements may result in 
the costs detailed immediately below.\175\
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    \174\ See, e.g., letter from VABSS IV (stating that several Auto 
ABS sponsors estimated the costs and employee hours necessary to 
reprogram systems and business procedures to capture, track, and 
report all of the proposed data points for auto loans to be 
approximately $2 million, and that the estimated number of employee 
hours needed to provide the required disclosures was approximately 
12,000). See also letter from ELFA I (suggesting that one computer 
systems vendor estimated that the cost to implement a computer 
system to monitor and produce the required asset-level information 
for equipment ABS would be approximately $250,000 in direct 
programming costs plus the additional staff time devoted to 
preparing such reports and posting them).
    \175\ Costs related to concerns about re-identification risk are 
detailed separately in Section III.A.3 Asset-Level Data and 
Individual Privacy Concerns.
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    The asset-level disclosures, as commenters noted, will result in 
costs related to revising existing information systems to capture, 
store and report the data as required. These costs may be incurred by 
several parties along the securitization chain, including loan 
originators who pass the information to sponsors and ABS issuers who 
file the information with the Commission. As we describe later in the 
release, there could be significant start-up costs \176\ to sponsors to 
comply with the asset level disclosures, but ongoing costs to sponsors 
likely will be significantly less than the initial costs. We recognize 
that our estimates may not reflect the actual costs sponsors will 
incur, particularly to the extent that there are differences in system 
implementation costs relative to our estimates. We also recognize that 
there are likely to be significant differences across sponsors in their 
current internal data collection practices and that implementation 
costs will depend on how the new requirements differ from the methods 
sponsors and ABS issuers currently use to maintain and transmit data. 
Additionally, we recognize that these costs will differ by asset class, 
depending on whether sponsors and ABS issuers within an asset class 
have a history of collecting and providing the asset-level information 
to investors. Further, in the last four years (2010-2013) only 296 
registered RMBS, CMBS, Auto ABS, debt security ABS and resecuritization 
transactions took place. This limited issuance activity may discourage 
issuers and other market participants from investing in the new systems 
necessary to provide asset-level disclosures required by the final 
rules. As a result, several commenters stated that some entities may 
choose to exit the securitization market or not re-enter the market, 
which could decrease the availability of credit to consumers and 
increase the cost of available credit.\177\ Furthermore, as we 
discussed earlier in this release, some sponsors may choose to issue 
through unregistered offerings where no asset-level disclosures are 
required.\178\
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    \176\ See footnote 748.
    \177\ See letters from ABAASA I (suggesting that if the costs of 
the disclosure, plus the competitive impact on business models and 
the potential legal risks outweigh the advantages of securitization, 
issuers may choose to leave the market or pass along increased costs 
to investors and borrowers, thereby reducing the amount of credit or 
increasing the cost of credit), BoA I (stating that the uncertain 
costs and burdens associated with building the infrastructure to 
capture the data needs to be ``rationalized'' given the fact that 
the non-agency securitization markets are not currently robust), and 
SIFMA I (expressed views of dealers and sponsors only) (suggesting 
the proposed asset-level requirements would most likely prevent some 
securitizers, in particular smaller originators, from accessing 
capital through the securitization markets because they may not be 
able to incur the costs of overhauling their current systems and 
practices, and that without these smaller originators the value of 
portfolio assets would likely be reduced due to lower liquidity). 
See also letter from SIFMA III-dealers and sponsors.
    \178\ See Section II.D Potential Market Participants' Responses.
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    We also note that sponsors and ABS issuers may pass the costs they 
incur to comply with the requirements on to investors in the form of 
lower promised returns and/or originators may pass their costs on to 
borrowers in the form of higher interest rates or fees. We note, 
however, that some of these costs may be offset by a reduction in other 
expenses. For example, investors who previously paid data aggregators 
for access to relevant information may no longer be required to 
purchase this data and, to the extent that they do, lower data 
collection costs on the part of the data aggregators may flow through 
to investors. Many of the data gathering costs that previously were 
borne by several data aggregators and/or investors would be performed 
by the sponsor, eliminating the potential duplication of effort. Thus, 
the net effect of the new rules could be a reduction in the aggregate 
data collection costs imposed on the entire market through more 
efficient dissemination of relevant information. As a result, in the 
aggregate, the increase of the costs to investors in the form of lower 
returns

[[Page 57204]]

may be offset by the reduction of the costs that are no longer paid to 
third-party data providers.
    The 2010 ABS Proposing Release noted that the proposed standard 
definitions for asset-level information for RMBS and CMBS were similar 
to, and in part based on, other standards that have been developed by 
the industry, such as those developed under the American Securitization 
Forum's (ASF) Project on Residential Securitization Transparency and 
Reporting (``Project RESTART'') or those developed by CRE Finance 
Council (CREFC). We continue to acknowledge that to the extent that 
there are differences between standards for asset-level information, 
additional costs would be imposed on issuers and servicers to reconcile 
differences between standards. Further, servicers may incur some costs 
in monitoring their compliance with servicing criteria and requirements 
under the servicing agreement given that periodic reports will now 
include asset-level information. As we discuss in more depth below in 
the discussions about the requirements applicable to each asset type, 
we have attempted to reduce burden and cost concerns by further 
aligning the disclosure requirements with industry standards where 
feasible. Further, as discussed below, we are providing for an extended 
implementation timeframe, which we also believe will reduce the burden 
of implementing the requirements.\179\ We discuss in greater detail 
below in Section III.A.2 Specific Asset-Level Data Points in Schedule 
AL the comments received with respect to RMBS, CMBS, Auto ABS, debt 
security ABS and resecuritizations and the changes to the final 
requirements to address these comments.
---------------------------------------------------------------------------

    \179\ See Section IX.B Transition Period for Asset-Level 
Disclosure Requirements.
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    To further minimize implementation costs, we also removed the 
``General'' category. We incorporated the data points proposed under 
this category into each of the asset class-specific requirements in 
order to tailor the requirements for each asset class.\180\ We believe 
removing the General category and tailoring the disclosure requirements 
to each asset class minimizes implementation costs because issuers will 
not need to respond to generic disclosure requirements that may not be 
applicable to the particular asset class or that may not align with how 
the particular asset class captures and stores data.
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    \180\ Under the proposal, asset pools containing only 
residential mortgages would need to provide, as applicable, the 
asset-level disclosures for residential mortgages and also the 
general item requirements applicable to all ABS. Under the new 
rules, if, for example, the asset pool contains residential 
mortgages, then issuers only need to provide the asset-level 
disclosures applicable to residential mortgages. As noted above, 
proposed data points in the general category remain outstanding for 
asset classes other than the ones we are adopting today.
---------------------------------------------------------------------------

    We also understand the asset-level data requirements may also 
affect other market participants. For instance, some investors may have 
used the services of data providers to obtain the type of data that 
will now be mandatory under the requirements we are adopting. As a 
result, these data providers may experience reduced demand for their 
data aggregation business as investors may no longer seek such services 
since these requirements may provide them access to similar data. We 
believe, however, that this concern is mitigated as these entities will 
also be able to access the publicly available data. As a result, these 
data providers may not need to gather this asset-level data from other 
sources, thereby reducing their costs to obtain the data. Further, 
third-party data providers have developed products to analyze and model 
the asset-level data. Since the asset-level data will be standardized 
it may increase the utility of their current products or allow them to 
develop new products, thus increasing demand for their data analysis 
business.
    We note that commenters raised other concerns regarding the asset-
level reporting requirements beyond the cost to implement the 
requirements. One concern, as noted above, is that the proposed asset-
level data may result in the release of an originator's proprietary 
data.\181\ A commenter noted that if originators determine that asset-
level disclosures reveal their proprietary business model to 
competitors they may refrain from securitizing assets.\182\ We note, 
however, that one commenter believed that the proprietary concerns were 
unfounded.\183\ While we acknowledge competitive concerns still may 
exist, we believe that information we are requiring about the 
underlying assets, including information about the obligors, will 
provide investors and potential investors with information they need to 
perform due diligence and make informed investment decisions and 
therefore should be disclosed. We also note that some of the asset-
level data that we are requiring to be disclosed are available to the 
public, for a fee, through third-party data providers.\184\
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    \181\ See, e.g., letters from ABA I, AmeriCredit, ABAASA I, ASF 
II (expressed views of issuers only), AFSA I, BoA I, FSR, J.P. 
Morgan I, SIFMA I, and VABSS I (noting that for Auto ABS a 
competitor could take data on values such as credit score, LTV, and 
payment-to-income and combine it with other information (e.g., make, 
model, interest rate, loan maturity) to ascertain proprietary 
scoring models, build their own models or greatly improve the 
performance of their existing models).
    \182\ See, e.g., letter from ABA I.
    \183\ See letter from AMI.
    \184\ See footnote 107 and accompanying text.
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    Another concern that some commenters raised was the potential for 
securities law liability for inaccuracies in data points that require 
so-called ``soft data.'' \185\ The commenters suggested that soft data 
includes data that may originate from representations provided by an 
obligor at origination or may represent a subjective judgment of a 
third party, such as property valuations of an appraiser. We note 
commenters' concerns about the potential cost to verify data of this 
type and whether such data can be verified objectively. We are not, 
however, persuaded by commenters' suggestions that we address these 
concerns by providing issuers with the discretion to include or exclude 
soft data from their disclosures. As noted below, we believe the 
discretion to determine what data would be included or excluded from 
their disclosures would reduce the comparability of asset pools. 
Further, we note that much of the required soft data includes data that 
is commonly part of the universe of data that originators use to make a 
credit decision, and we believe that investors should have access to 
similar data for each loan in order to evaluate the creditworthiness of 
the assets that they are dependent upon for payment of the securities. 
We note that some soft data, as defined by commenters, has been 
included in pool-level information provided in prior registered 
offerings and thus is already subject to potential securities law 
liability. In some instances the data will provide investors a baseline 
to compare how certain characteristics of the asset have changed over 
time. Finally, an investor's analysis can take into account the age of 
such disclosures.
---------------------------------------------------------------------------

    \185\ See letter from ABA I.
---------------------------------------------------------------------------

    In addition to concerns about the accuracy of data points requiring 
soft data, some commenters expressed concern about potential liability 
cost for errors or inaccuracies in the responses provided to other data 
points. Assessing materiality for purposes of securities law liability 
for an error or inaccuracy in an individual data point would depend on 
a traditional analysis of the particular facts and circumstances.\186\

[[Page 57205]]

We agree with commenters that suggested that issuers should be able to 
provide narrative analysis of data in order to make their disclosure 
not misleading. Such additional explanatory disclosure can and should 
be added to the prospectus or the Form 10-D as may be necessary to make 
the asset-level disclosures, in the light of the circumstances under 
which they are made, not misleading.\187\ Also, issuers that wish to 
provide other explanatory disclosure about the asset-level disclosures 
can provide such disclosures in a separate exhibit.\188\
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    \186\ Whether any particular statement or omission is material 
will depend on the particular facts and circumstances. Information 
is material if ``there is a substantial likelihood that a reasonable 
shareholder would consider it important'' in making an investment 
decision. The question of materiality is an objective one involving 
the significance of an omitted or misrepresented fact to a 
reasonable investor. See TSC Industries, Inc. v. Northway, Inc., 426 
U.S. 438, 448-49 (1976) (stating that to fulfill the materiality 
requirement, there must be a substantial likelihood that the fact 
``would have been viewed by the reasonable investor as having 
significantly altered the `total mix' of information made 
available''); see also Basic v. Levinson, 485 U.S. 224, 231-32 
(1988).
    Courts have analyzed materiality under Exchange Act Section 
10(b) and Exchange Act Rule 10b-5, and Securities Act Sections 11 
and 12(a)(2) in a similar fashion. See, e.g., In re Donald J. Trump 
Casino Sec. Litig., 7 F.3d 357, 368 n.10 (3d Cir. 1993) (noting that 
while there are substantial differences in the elements that a 
plaintiff must establish under these provisions, they all have a 
materiality requirement and this element is analyzed the same under 
all of the provisions). See also Securities Act Sections 11, 
12(a)(2) and 17(a), Securities Act Rule 408 [17 CFR 230.408]; 
Securities Act Sections 11 [15 U.S.C. 77k(a)], 12(a)(2) [15 U.S.C. 
77l] and 17(a) [15 U.S.C. 17(a))]; Exchange Act Section 10(b) [15 
U.S.C. 78j(b)); Exchange Act Rule 10b-5 [17 CFR 240.10b-5]; and 
Exchange Act Rule 12b-20 [17 CFR 240.12b-20].
    \187\ See, e.g., Securities Act Rule 408 and Exchange Act Rule 
12b-20 [17 CFR 229.408 and 17 CFR 240.12b-20].
    \188\ New Item 601(b)(103) Asset Related Documents of Regulation 
S-K is an exhibit that allows for explanatory disclosure regarding 
the asset-level data file(s) filed pursuant to Item 601(b)(102) 
Asset Data File. Item 601(b)(103) is required to be incorporated by 
reference into the prospectus. See Section III.B.5 New Form ABS-EE.
---------------------------------------------------------------------------

    We considered several possible alternatives to the new asset-level 
requirements we are adopting. Some alternatives we considered to 
address various concerns, including re-identification risk, included: 
Requiring more pool-level data in lieu of asset-level data, grouped 
account data in lieu of asset-level data, allowing a ``provide-or-
explain'' type regime, only defining the type of information to be 
provided and allowing the registrant or other market participants to 
define the asset-level information or the Web site approach.\189\
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    \189\ See Section III.A.3 Asset-Level Data and Individual 
Privacy Concerns.
---------------------------------------------------------------------------

    We are concerned that these alternatives would be of limited 
benefit to investors, since they will not go far enough in providing 
them with information best suited to assessing the risk and return 
tradeoff presented by RMBS, CMBS, Auto ABS, debt security ABS and 
resecuritizations and to independently perform due diligence. Pool-
level and grouped account data does not provide investors with the 
opportunity to develop the same level of understanding, because when 
loans or assets are aggregated into groups of information, certain 
characteristics of individual assets are lost. For example, investors 
may know how many loans fall in a particular loan-to-value range but 
may not know whether most loans are at the top, middle or bottom of 
that range.\190\ This cross-sectional distribution of loans within a 
given loan-to-value range may have important implications for the 
pool's expected losses. A grouped account data approach groups loans 
based on certain loan characteristics, which does not allow investors 
to analyze the asset pool based on the loan characteristics the 
investors deem most important to their analysis. As a commenter noted, 
however, asset-level data provides investors the opportunity to analyze 
a broad set of loan characteristics and to assess risks based on the 
characteristics investors believe are most predictive of expected 
losses.\191\ With standardized asset-level data in a machine readable 
format provided at issuance and over the life of a security, the data 
can be run through a risk model at issuance and over the life of a 
security to assess the risk profile of the transaction at issuance and 
any changes to the risk profile of the asset pool over time.
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    \190\ See letter from A. Schwartz (noting that ``[f]rom a 
statistical perspective, disclosing asset-level data to investors is 
materially superior to providing them with statistical summaries of 
the asset pool, because it conveys more information'').
    \191\ See letter from Prudential II.
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    As noted above, we also considered the alternative suggested by 
some commenters that we require asset-level disclosure generally but 
allow an issuer or an industry group to define the disclosures. We also 
considered a provide-or-explain type regime that would permit an issuer 
to omit any asset-level data point and provide an explanation as to why 
the data was not disclosed.\192\ We believe such approaches may limit 
the value of such disclosures. As noted above, the usefulness of asset-
level data is generally limited unless the individual data points are 
standardized in terms of the definitions, the scope of information to 
be disclosed, and the format of the data points. A provide-or-explain 
regime may result in differing levels of disclosure provided about 
similar asset pools, as some may provide the required asset-level 
disclosures and others may exclude certain data points and only provide 
an explanation of why the information was excluded. This would inhibit 
the comparability of disclosures across ABS. Similarly, setting general 
asset-level disclosure requirements and allowing the issuer to define 
the data to be included and how the information is presented may result 
in differing levels of disclosure or different presentations of the 
data. This may limit the ability to compare across asset pools within 
the same asset class, which may reduce the usefulness of the data. 
Standardizing the information facilitates the ability to analyze the 
underlying asset-level data of a particular asset pool and the ability 
to compare the assets in one pool to assets in other pools.\193\ As we 
note elsewhere in this release, we believe standardized disclosure 
requirements and making the disclosures easily accessible may 
facilitate stronger independent evaluations of ABS by market 
participants.
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    \192\ See letters from BoA I, Citi, and SIFMA I (expressed views 
of dealers and sponsors only). Some commenters also suggested that 
issuers should have the flexibility to modify the disclosures to 
address privacy concerns. See, e.g., letters from ABA III and 
Securities Industry and Financial Markets Association and the 
Financial Services Roundtable dated Apr. 28, 2014 responding to the 
2014 Re-Opening Release (``SIFMA/FSR II-dealers and sponsors'').
    \193\ See letters from MetLife I (stating that the Commission 
should require standardized disclosure templates with the relevant 
fields for each ABS sector with the key benefit of standard 
disclosure being a significantly enhanced ability for investors to 
compare and contrast different ABS transactions in connection with 
their investment decisions and ongoing portfolio management) and 
Prudential I (stating that if two sponsors within the same asset 
class can provide information on different standards, it will be 
impossible for investors to efficiently compare asset[hyphen]level 
files).
---------------------------------------------------------------------------

    In addition to considering the alternatives we discussed above, we 
also considered adopting industry developed asset-level disclosure 
standards already in existence for RMBS and CMBS. We discuss in Section 
III.A.2.b.1 Residential Mortgage-Backed Securities and Section 
III.A.2.b.2 Commercial Mortgage-Backed Securities our consideration of 
adopting industry developed asset-level disclosure standards for these 
asset types.
    Finally, as mentioned above, the final rules include several 
changes from the proposal. The changes are aimed at simplifying the 
requirements, addressing cost concerns and conforming our requirements, 
to the extent feasible, to other pre-existing asset-level disclosure 
templates. The discussions below address, for each asset type, the 
economic effects of the specific requirements, such as when the data is 
required and the types of

[[Page 57206]]

disclosures required for each asset type. We also discuss the likely 
costs and benefits of the new rules and their effect on efficiency, 
competition and capital formation.
2. Specific Asset-Level Data Points in Schedule AL
    This section is divided into several parts. Each part discusses the 
specific requirements we are adopting today for RMBS, CMBS, Auto ABS, 
debt security ABS and resecuritizations and highlights, for each asset 
class, the significant changes from the proposal.
(a) Disclosure Requirements for All Asset Classes and Economic Analysis 
of These Requirements
    In the 2010 ABS Proposing Release, we proposed, between Schedule L 
and Schedule L-D, 74 general data points. We believed the proposed 
general item requirements captured basic characteristics of assets that 
would be useful to investors in ABS across asset types. As discussed 
below in Section III.B.2 The Scope of New Schedule AL, we have 
condensed the information previously proposed to be provided in either 
Schedule L or Schedule L-D into a single schedule, titled Schedule AL. 
Schedule AL enumerates all of the asset-level disclosures to be 
provided, if applicable, about the assets in the pool at securitization 
and on an ongoing basis.
    We received a substantial number of comments directed at making 
technical changes to the data points and in some cases requesting we 
delete or add certain data points or that we change a data point to 
accommodate the characteristics of specified assets types.\194\ Many 
commenters sought changes to the format of the information,\195\ the 
range of possible responses for a particular data point, or the data 
point's title or definition in order to increase the usefulness of the 
information required, to address cost concerns or to align the data 
point with industry standards.\196\
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    \194\ See, e.g., letters from ASF I, ASF II, BoA I, CREFC I, 
Mass. Atty. Gen., MBA I, Mortgage Bankers Association dated Nov. 22, 
2010 submitted in response to the 2010 ABS Proposing Release (``MBA 
II''), MetLife I, MISMO, SIFMA I, VABSS I, VABSS IV, Wells Fargo I 
and SFIG I.
    \195\ For example, proposed Item 1(a)(15) of Schedule L, 
``Primary Servicer'' provided that the format of the response should 
be a ``text'' entry. Under this format the names of the servicers 
could be entered or some other identifier of services, such as the 
MERS organization identification number. One commenter suggested 
that the format of the response be a number entry and that we 
require the MERS ``Mortgage Identification Number'' or ``MIN.'' The 
MIN is an 18-digit number used to track a mortgage loan throughout 
its life, from origination to securitization to pay-off or 
foreclosure. We did not adopt this suggested change because there 
may be instances where a servicing organization may not have a MERS 
number. See letter from ASF I.
    \196\ For example, SIFMA I stated that the title of Item 
1(a)(12) of Schedule L ``Amortization Type'' does not describe the 
two options, fixed or adjustable. They recommended changing the 
title to ``Interest rate type.'' We revised the data point title to 
``Original interest rate type.'' SFIG I recommended that we add 
explanatory language for interest-only and balloon loans to the 
definition of proposed Item 1(a)(9) Original amortization term of 
Schedule L. See new Item 1(c)(5) of Schedule AL.
---------------------------------------------------------------------------

    To address comments that we revise data points to accommodate the 
characteristics of certain assets types, we integrated the proposed 
Item 1 General Requirements into the asset-specific requirements. This 
change permitted us to tailor the data points to each particular asset 
type and allowed us to further incorporate applicable industry 
standards. The data points we discuss below are incorporated into the 
rules for RMBS, CMBS, Auto ABS, debt security ABS and 
resecuritizations. In incorporating the proposed General Requirements 
into the requirements for each asset type, we are also making changes 
to the data points, based in large part on comments received, that we 
believe improve or clarify the disclosure, mitigate cost concerns and/
or implement industry standards when we believe doing so would not 
materially diminish the value of the disclosures to investors.
Asset Number
    We proposed that issuers provide a unique asset number for each 
asset that is applicable only to that asset and identify the source of 
the asset number.\197\ We did not propose requiring that issuers use a 
specific naming or numbering convention. We asked for comment, however, 
about whether we should require or permit one type of asset number that 
is applicable to all asset types.\198\ In response, several commenters 
urged that we recognize a specific type of asset numbering system 
currently in use within the industry for each asset type.\199\ A few 
commenters were against a uniform number system that would apply across 
asset classes.\200\ A few commenters, however, cautioned against 
requiring an asset number because privacy issues may arise if the asset 
number is associated with an individual.\201\
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    \197\ See proposed Items 1(a)(1) and 1(a)(2) of Schedule L. If 
an issuer uses its own unique numbering system to track the asset 
throughout its life, disclosure of that number would satisfy this 
proposed item requirement.
    \198\ See the 2010 ABS Proposing Release at 23359.
    \199\ See letters from ASF I (supporting the use of CUSIP number 
in debt repackagings and resecuritizations and the ASF Loan 
Identification Number Code (``ASF LINCTM'') for 
securitizations backed by assets other than securities), eSign, 
MERS, MISMO (eSign, MERS and MISMO each support the use of the MERS 
``Mortgage Identification Number'' for real estate assets), and 
SIFMA I (supporting the use of CUSIP numbers in debt repackagings 
and resecuritizations).
    \200\ See letters from eSign and MISMO.
    \201\ See letters from CDIA and Epicurus (both suggesting that 
privacy issues could result if the asset number is published and 
then associated with asset records).
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    We are adopting, as proposed, that issuers provide for each asset 
in the pool a unique asset number applicable only to that asset and the 
source of the number.\202\ We believe the use of an asset number is 
necessary and to the benefit of market participants, because it will 
allow them to follow the performance of an asset from securitization 
through ongoing periodic reporting. We remind issuers and underwriters 
that they should be mindful of the sensitive nature of the asset number 
and ensure that appropriate measures are taken to prevent the number 
from being associated with a particular person. While some commenters 
requested we adopt a specific type of identifier, we believe that 
identifiers for each asset may be generated in many ways and currently 
there is no single uniform asset identifier. These data points, as 
adopted, provide flexibility to issuers to use any numbering system, 
including those numbering systems that commenters recommended, and we 
believe this minimizes compliance costs. We are also adopting a data 
point, as proposed, that requires the identification of the source of 
the asset number. We recognize, however, that by not standardizing the 
numbering system, the usefulness of the data will be limited to the 
extent that investors intend to combine it with other data already 
incorporating a particular numbering system.
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    \202\ Under this requirement each asset number should only be 
used to reference a single asset within the pool. If an asset in the 
pool is removed and replaced with another asset, the asset added to 
the pool should be assigned a unique asset number applicable to only 
that asset.
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Underwriting Indicator
    We proposed a data point that would disclose whether the loan or 
asset was an exception to defined or standardized underwriting 
criteria. The response to this data point was mixed. One commenter 
suggested that we correlate this data point with the then proposed Item 
1111(a)(3) of Regulation AB that would have required disclosure on the 
underwriting of assets that deviate from the underwriting criteria 
disclosed in the prospectus.\203\ Another commenter

[[Page 57207]]

suggested the data point be omitted because the time and resources to 
provide the disclosures were not necessary or desired.\204\ This 
commenter also noted that if we adopt the disclosure, then we should 
more precisely define what is considered defined and/or standardized 
underwriting criteria to avoid confusion.\205\ An Auto ABS commenter 
stated that the exception disclosure required by Item 1111(a)(8) is 
sufficient and therefore this data point should be eliminated, but if 
this data point is adopted, the Commission should instruct registrants 
to omit it if no exceptions to the underwriting guidelines are reported 
in the prospectus.\206\ Another commenter stated underwriting standards 
often contain certain elements of discretionary authority for an 
underwriter to vary from the stated criteria and an exercise of this 
discretion does not constitute an exception.\207\ This commenter also 
noted specific concerns about the application of this data point to 
CMBS. The commenter stated that underwriting criteria for commercial 
mortgage loans are generally not clearly prescribed and the judgment of 
the originator is commonly used rather than an objective test based on 
established mathematical or financial models. Therefore, we should only 
require disclosure of exceptions to underwriting criteria in cases 
where such criteria are well defined, are fundamental to the credit 
analysis and are consistently applied.\208\
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    \203\ See letter from ASF I. In the 2010 ABS Proposing Release 
we proposed to amend Item 1111(a)(3) of Regulation AB. At the time 
of the proposal, we proposed to require a description of the 
solicitation credit-granting or underwriting criteria used to 
originate or purchase the pool assets, including any changes in such 
criteria and the extent to which such policies and criteria are or 
could be overridden. We proposed to revise the requirement to also 
require data to accompany this disclosure on the amount and 
characteristics of those assets that did not meet the disclosed 
standards. Further, if disclosure was provided regarding 
compensating or other factors, if any, that were used to determine 
that those assets should be included in the pool despite not having 
met the disclosed underwriting standards, then a description of 
those factors and data on the amount of assets in the pool that are 
represented as meeting those factors and the amount of assets that 
do not meet those factors would also be required. We discuss below 
that the proposed amendments to Item 1111(a)(3) were incorporated 
into Item 1111(a)(8) of Regulation AB.
    \204\ See letter from BoA I (without providing a costs 
estimate).
    \205\ See letter from BoA I (requesting confirmation that the 
proposed data point correlates to proposed Item 1111(a)(3)).
    \206\ See letter from VABSS IV.
    \207\ See letter from ABA I (suggesting that other than possibly 
in the context of RMBS, it would be preferable to permit textual 
disclosure of originators' trends in underwriting standards and 
risk-management activities because more specific disclosure may lead 
to the disclosure of proprietary underwriting standards, which may 
make the securitization markets unattractive and may also lead to 
less specific underwriting standards).
    \208\ See letter from ABA I.
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    In contrast, one commenter requested additional disclosure because 
some market participants use ``exception'' to refer to loans that are 
unacceptable under the underwriting guidelines (i.e. they do not comply 
with the underwriting guidelines and do not meet the ``compensating 
factor'' standard set out in the guidelines to otherwise allow the 
approval of such loans) and at other times market participants use the 
term ``exception'' to refer to loans that are acceptable under the 
underwriting guidelines because they demonstrated sufficient 
compensating factors. The commenter suggested we require disclosure on 
an asset-level basis of exceptions both with and without the presence 
of sufficient compensating factors, the compensating factors relied 
upon and the specific underwriting exception.\209\ Another commenter 
noted that this data point is not provided in asset-level disclosures 
for offerings of CMBS based on market practice and this data point 
should only be required if underwriting criteria become defined or 
standardized for commercial or multi-family mortgages.\210\
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    \209\ See letter from Mass. Atty. Gen.
    \210\ See letter from MBA II.
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    The proposed amendments to Item 1111(a)(3) were incorporated into 
Item 1111(a)(8) of Regulation AB which was added to Item 1111 of 
Regulation AB in early 2011.\211\ Item 1111(a)(8) requires issuers, in 
part, to disclose how the assets in the pool deviate from the disclosed 
underwriting criteria. Rule 193 implements Section 945 of the Dodd-
Frank Act by requiring that any issuer registering the offer and sale 
of an ABS perform a review of the assets underlying the ABS.\212\ This 
review provides a basis for the Item 1111(a)(8) disclosure discussed 
above. Under Rule 193, such review, at a minimum, must be designed and 
effected to provide reasonable assurance that the disclosure regarding 
the pool assets in the prospectus is accurate in all material respects. 
The release adopting Item 1111(a)(8) noted that where originators may 
approve loans at a variety of levels, and the loans underwritten at an 
incrementally higher level of approval may be evaluated based on 
judgmental underwriting decisions, the criteria for the first level of 
underwriting should be disclosed. In addition, Item 1111(a)(8) requires 
disclosure of the loans that are included in the pool despite not 
meeting the criteria for this first level of underwriting criteria.
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    \211\ See Issuer Review of Assets in Offerings of Asset-Backed 
Securities, Release No. 33-9176 (Jan. 20, 2011) [76 FR 4231] (the 
``January 2011 ABS Issuer Review Release'').
    \212\ See Securities Act Rule 193 [17 CFR 230.193]. See also the 
January 2011 ABS Issuer Review Release.
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    In light of comments received and the subsequent adoption of Item 
1111(a)(8), we are adopting this data point with modifications.\213\ As 
we noted when adopting the changes to Item 1111(a)(8), originators may 
approve loans at a variety of levels, and the loans underwritten at an 
incrementally higher level of approval are evaluated based on 
judgmental underwriting decisions. Therefore, we believe it is 
appropriate to base the data point on the standards of Item 1111(a)(8) 
and, in particular, on whether the asset met the disclosed underwriting 
criteria or benchmark used to originate the asset. We revised this data 
point to state: ``indicate whether the loan or asset met the criteria 
for the first level of solicitation, credit-granting or underwriting 
criteria used to originate the pool asset.'' Since originators may 
approve loans at a variety of levels, and the loans underwritten at an 
incrementally higher level of approval may be evaluated based on 
judgmental underwriting decisions, the data point, as defined, will 
capture whether the loan or asset met the criteria for the first level 
of underwriting. We believe aligning this data point to Item 1111(a)(8) 
responds to comments, including the concerns raised by a commenter with 
respect to CMBS, and minimizes confusion because the data point does 
not rely on what constitutes an exception to a defined and/or 
standardized set of underwriting criteria and instead focuses on 
whether the loan or asset met the disclosed underwriting criteria. For 
the same reasons, we also believe it addresses concerns that 
underwriting standards often contain certain elements of discretionary 
authority for an underwriter to vary from the stated criteria without 
being considered an exception or that the disclosure may release 
proprietary underwriting standards.\214\ We are not persuaded that 
disclosures, on an asset-level basis, of exceptions both with and 
without the presence of sufficient compensating factors, the 
compensating factors relied upon and the specific underwriting 
exception, are necessary. We believe such disclosure is unnecessary 
because this data point, as adopted, captures

[[Page 57208]]

whether an asset met the first applicable level of underwriting 
criteria.
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    \213\ See new Items 1(c)(10), 2(c)(13), 3(c)(11), 4(c)(7), and 
5(c)(12) of Schedule AL. Each of these items is titled underwriting 
indicator.
    \214\ See footnote 207.
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    We acknowledge a commenter's position, which was provided prior to 
the adoption of Rule 193, that a substantial expenditure of time and 
resources would be required to enable issuers to provide the proposed 
disclosures. We anticipate that in order to provide the new disclosure, 
an issuer could rely, in part, on the review that is already required 
in order for an issuer to comply with Rule 193. Since issuers can rely, 
in part, on the review that is required under Rule 193, issuers should 
incur less cost to provide this disclosure than if Rule 193 had not 
been implemented. We acknowledge that the information gained through a 
Rule 193 review may not provide all of the information needed to 
provide the disclosures.
    Although issuers will incur potential costs to provide this 
disclosure, investors should benefit from the insight these disclosures 
will provide about the originator's underwriting of the pool assets and 
the originator's ongoing underwriting practices. For instance, the 
disclosures should provide investors the ability to identify the 
particular assets in the pool that did not meet the disclosed 
underwriting standards. Investors can then analyze whether these assets 
alter the risk profile of the asset pool and monitor the performance of 
these particular assets. In addition, we believe this information will 
allow investors to compare, over time, the performance of assets that 
met the disclosed underwriting criteria against those assets that did 
not meet the disclosed underwriting criteria used to originate the 
assets. This should allow investors to better evaluate an originator's 
underwriting practices.
Information About Repurchases
    We proposed a data point to capture whether an asset had been 
repurchased from the pool.\215\ If the asset had been repurchased, then 
the registrant would have to indicate through additional data points 
whether a notice of repurchase had been received,\216\ the date the 
asset was repurchased,\217\ the name of the repurchaser,\218\ and the 
reason for the repurchase.\219\
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    \215\ See proposed Item 1(i) of Schedule L-D.
    \216\ See proposed Item 1(i)(1) of Schedule L-D.
    \217\ See proposed Item 1(i)(2) of Schedule L-D.
    \218\ See proposed Item 1(i)(3) of Schedule L-D.
    \219\ See proposed Item 1(i)(4) of Schedule L-D.
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    One commenter suggested we clarify that the repurchase notice data 
point is intended to track whether a repurchase request has been made 
before the repurchase has been completed and add an option to indicate 
whether a repurchase request was made but the parties later agreed that 
a repurchase was not required.\220\ Two commenters requested we delete 
the repurchase notice data point.\221\
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    \220\ See letter from SIFMA I.
    \221\ See letters from ASF I (requesting that we not adopt the 
repurchase notice data point because RMBS transactions do not 
typically require notices in connection with repurchases) and VABSS 
IV (noting that repurchase notices are rarely delivered in Auto 
ABS).
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    The dealer and sponsor members of one commenter suggested we delete 
the data point identifying the name of the repurchaser because 
transaction documents will contain the name of the person obligated to 
make repurchases based on breaches of representations and 
warranties.\222\ The investor members of the same commenter, however, 
suggested we retain the data point because multiple parties could be 
responsible for the repurchase of individual assets.\223\
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    \222\ See letter from SIFMA I (dealer and sponsors).
    \223\ See letter from SIFMA I (investors).
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    We are adopting this group of data points with revisions in 
response to comments to align the data points with other disclosures 
about asset repurchases now required pursuant to the Dodd-Frank Act. As 
one commenter noted, Rule 15Ga-1 was adopted subsequent to the 2010 ABS 
Proposing Release.\224\ Unlike the aggregated disclosures under Rule 
15Ga-1, these data points provide transparency about fulfilled and 
unfulfilled demands for repurchase or replacement on an individual 
asset-level basis for investors in a particular transaction. We believe 
these data points provide investors with a more complete picture 
regarding the number of assets subject to a repurchase demand, 
including whether repurchases occur only after the receipt of a 
repurchase demand and the potential effects a repurchase may have on 
the cash flows generated by pool assets.
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    \224\ See letter from VABSS IV (asserting that a repurchase data 
point should not be adopted because ``securitizers have been 
required to disclose repurchase demands pursuant to Rule 15Ga-1 of 
the Securities Exchange Act since February 14, 2012). But see letter 
from J. Calva (stating that investors need loan-level data in order 
to verify the accuracy of disclosures made under Rule 15Ga-1). 
Current Exchange Act Rule 15Ga-1 requires that any securitizer of an 
Exchange Act ABS provide tabular disclosure of fulfilled and 
unfulfilled demand requests aggregated across all of the 
securitizer's ABS that fall within the Exchange Act definition of 
ABS, whether or not these ABS are Securities Act registered 
transactions. See the Rule 15Ga-1 Adopting Release. With the passage 
of the Jumpstart Our Business Startups Act (Pub. L. 112-103, 126 
Stat. 306 (2012)) (the ``JOBS Act'') the Exchange Act definition of 
ABS was redesignated from section 3(a)(77) to section 3(a)(79). As a 
result of these statutory changes, we are adopting with this release 
technical amendments throughout the CFR, including in Rule 15Ga-1, 
to reflect this redesignation.
---------------------------------------------------------------------------

    To address concerns about the costs to capture and report such data 
and to make the disclosure most useful and effective, we are aligning 
the data points to the type of demands that must be reported pursuant 
to Rule 15Ga-1. We believe this should minimize confusion, make the 
disclosures consistent with Rule 15Ga-1 disclosures, and help minimize 
costs because sponsors will already be required to capture such data to 
fulfill the disclosure requirements of Rule 15Ga-1. In particular, we 
are revising the titles and definitions of this group of data points in 
order to align them with the Rule 15Ga-1 disclosure requirements.\225\ 
We expect that the information on the asset level should feed the 
aggregated disclosures already required pursuant to Rule 15Ga-1.\226\
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    \225\ For example, new Item 1(i) Asset subject to demand of 
Schedule AL requires disclosure of whether during the reporting 
period the loan was the subject of a demand to repurchase or replace 
for breach of representations and warranties, including investor 
demands upon a trustee. New Item 1(i)(3) Demand resolution date of 
Schedule AL requires disclosure of the date the loan repurchase or 
replacement demand was resolved, rather than, as proposed, the date 
the notice was resolved. See also Items 2(g) and 2(g)(3), 3(h) and 
3(h)(3), 4(h) and 4(h)(3), and 5(f) and (5)(f)(3) of Schedule AL.
    \226\ For instance, Rule 15Ga-1 requires disclosure of all 
demands; it is not limited to only those demands made pursuant to a 
transaction agreement. In cases where the underlying contracts do 
not require a repurchase notice to be made or where an investor 
makes a demand upon a trustee, consistent with Rule 15Ga-1, 
disclosure is required. See the Rule 15Ga-1 Adopting Release at 
4498.
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    We are also adding a data point to capture the status of an asset 
that is subject to a demand to repurchase or replace for breach of 
representations and warranties.\227\ A commenter suggested that we 
should include an option to indicate assets subject to a repurchase or 
replacement demand, but where the relevant parties later agreed the 
repurchase or replacement was not required.\228\ To address this 
concern, we based the coded responses for this data point on the 
requirements of Rule 15Ga-1. To this end, the data point captures 
whether the asset is pending repurchase or replacement (within the cure 
period); whether the asset was repurchased or replaced during the 
reporting period; \229\ and whether the demand is in dispute, has been 
rejected or withdrawn. Finally, while not a requirement under Rule 
15Ga-1, we are also adding ``98=Other'' to the list of coded responses. 
We believe adding ``98=Other'' accounts for dispositions of repurchase 
requests that

[[Page 57209]]

may not fall into a category listed in the coded responses.
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    \227\ See new Items 1(i)(1), 2(g)(1), 3(h)(1), 4(h)(1) and 
5(f)(1) of Schedule AL.
    \228\ See letter from SIFMA I.
    \229\ If this response is provided it would indicate the asset 
is no longer in the pool.
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    Two commenters suggested that we include a new data point to 
require issuers to provide the amount paid to repurchase the loan or 
lease from an Auto ABS transaction.\230\ One of these commenters 
recommended that this new item replace the proposed repurchase 
indicator data point \231\ because in Auto ABS there is not a lengthy 
period of time between an event requiring a repurchase and the actual 
repurchase as there may be in RMBS.\232\ This commenter believed the 
repurchase amount would give timely indication that the loan has been 
repurchased. We believe that investors across asset classes would 
benefit from this data point and, therefore, we have added a repurchase 
amount data point to the final requirements for each asset class that 
is required to provide asset-level disclosures. The proposed repurchase 
indicator data point has been subsumed into another data point we are 
adopting, based on a comment received, titled ``zero balance code.'' 
\233\ The zero balance code requires the selection, from a coded list, 
of the reason that the loan's balance was reduced to zero. One option 
is to select, ``repurchased or replaced,'' which if selected would 
indicate the loan balance was reduced to zero because the loan was 
repurchased from the pool. In effect, this data point provides the same 
information as the repurchase indicator data point would have provided.
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    \230\ See letters from VABSS IV and Vanguard.
    \231\ See proposed Item 1(i) of Schedule L-D.
    \232\ See letter from VABSS IV.
    \233\ See letter from ASF I.
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    We also are adopting data points that capture the name of the 
repurchaser \234\ and the reason for the repurchase or 
replacement.\235\ Although the transaction documents will contain the 
identity of the party that is obligated to make repurchases based on 
breaches of representations and warranties, multiple parties could 
provide representations and warranties for a pool of assets and the 
party responsible for the repurchase of individual assets may 
differ.\236\ We believe this data point will clarify that 
responsibility.
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    \234\ See new Items 1(i)(4), 2(g)(4), 3(h)(4), 4(h)(4) and 
5(f)(4) of Schedule AL.
    \235\ See new Items 1(i)(5), 2(g)(5), 3(h)(5), 4(h)(5) and 
5(f)(5) of Schedule AL. We aligned the coded list to field 26 from 
the ASF Project RESTART RMBS Reporting Package. See letter from ASF 
I.
    \236\ See letter from SIFMA I. The dealer and sponsor members 
represented by this commenter suggested that we not adopt this data 
point because the transaction agreements would contain the identity 
of the party that is obligated to make repurchases based on breaches 
of representations and warranties, but the investor members 
represented by the same commenter suggested that we adopt this data 
point because multiple parties could provide representations and 
warranties for a pool of assets and the party responsible for the 
repurchase of an individual asset may differ.
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Reporting Period Beginning and End Dates
    We proposed that the asset-level disclosures in a preliminary 
prospectus be provided, unless the data point specified otherwise, as 
of a recent practicable date, which we defined as the ``measurement 
date.'' \237\ We proposed that asset-level disclosures in a final 
prospectus be as of the ``cut-off'' date for the securitization, which 
would be the date specified in the instruments governing the 
transaction. This is the date on and after which collections on the 
pool assets accrue for the benefit of the asset-backed security 
holders. On an ongoing basis, the asset-level disclosures would be as 
of the end of the reporting period the Form 10-D covered.
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    \237\ For example, proposed Item 1(a)(10) Original interest rate 
of Schedule L would require ``the rate of interest at the time of 
origination of the asset.''
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    A commenter believed that the proposed measurement dates were 
appropriate \238\ and some commenters pointed out that the measurement 
date and cut-off date could be the same day.\239\ We also received 
comments suggesting that some data points in proposed Schedule L were 
seeking data as of a date that was different than when the information 
was normally captured. For instance, some commenters noted that certain 
data points seek information as of the measurement date, but that the 
information is usually obtained during the underwriting process or at 
origination.\240\ One of these commenters requested that we revise 
certain data points to clarify that the information was collected 
during the underwriting process or at origination.\241\ Another 
commenter believed that the disclosure of data based on measurement 
dates and cut-off dates should be consistent with current industry 
practice regarding the frequency with which issuers can generate pool 
data.\242\
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    \238\ See letter from Prudential I.
    \239\ See letters from ABA I (stating that for RMBS the 
measurement date used for the preliminary prospectus will be the 
same date as the cut-off date used for the final prospectus), MBA I 
(noting consistency with standard CMBS industry practice as well as 
CMBS investor expectations), and SIFMA I.
    \240\ See letters from BoA I (noting that some disclosure items 
in proposed Schedule L relate to information obtained from borrowers 
and is verified to the extent provided by an originator's 
underwriting policies and procedures for the underwriting process) 
and Wells Fargo I (noting that some data is collected and possibly 
captured on an origination system).
    \241\ See letter from Wells Fargo I.
    \242\ See letter from ABA I (suggesting that it would be 
burdensome or impossible to provide intra-month updates because of 
system limitations that would prevent more frequent data collection 
and that data is only comparable if consistently collected at the 
same point in time).
---------------------------------------------------------------------------

    After considering comments received, we are adopting data points 
that require the disclosure of reporting period beginning and end dates 
in lieu of our proposal to require the measurement date and cut-off 
date.\243\ We believe the date the asset-level information is provided 
in the prospectus should align with how information is normally 
captured and how it will be reported under the ongoing reporting 
requirements that will arise after issuance. Therefore, for a 
preliminary or final prospectus, the Schedule AL data is required to be 
provided as of the end of the most recent reporting period, unless 
otherwise specified in Schedule AL.\244\ For periodic reports on Form 
10-D, the Schedule AL data is required to be provided as of the end of 
the reporting period covered by the Form 10-D, unless otherwise 
specified in Schedule AL.
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    \243\ See e.g., new Items 1(b)(1) and 1(b)(2), 2(b)(1) and 
2(b)(2), 3(b)(1) and 3(b)(2), 4(b)(1) and 4(b)(2), and 5(b)(1) and 
5(b)(2) of Schedule AL.
    \244\ Information should be provided through the close of 
business on the last day of the reporting period and not some 
earlier point in time on that day.
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    We recognize that this approach may reduce benefits to investors to 
the extent that some of the information disclosed may be stale. We 
believe, however, that this change should serve to address concerns 
that the proposal would require data to be captured at times different 
than when it is normally captured and thus result in undue issuer 
costs. To further address those concerns, we also revised some data 
points to clarify the ``as of'' date of the data required. If the data 
required is typically captured at a time other than the end of a 
reporting period, such as at origination, we revised the data point to 
clarify the ``as of'' date of the data required.\245\ When making these 
changes, we either clarified the title, definition or both. These 
changes also help clarify whether we expect the response to a 
particular data point to remain static or be updated as new information 
becomes available. For instance, some data points request ``original'' 
or ``initial'' data or data as of ``origination.'' These data points 
require

[[Page 57210]]

disclosure of data about the underlying loan at origination before any 
modifications.\246\ The responses to these data points will be static 
and we do not expect updates to these responses over the life of the 
loan. The responses to these data points help to establish a baseline 
of the characteristics of each loan and will help investors monitor 
changes in the characteristics of an asset over the life of the loan. 
Therefore, unless the data point specifies a different ``as of'' date 
(e.g., asking for data created at origination or at some other time), 
the data should be as of the end of the reporting period.
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    \245\ See, e.g., new Items 1(c)(6) Original interest rate; 
1(c)(29)(xxi) HELOC draw period; 1(c)(30)(iii) Prepayment penalty 
total term; 1(c)(31)(ii) Initial negative amortization recast 
period; 1(c)(31)(viii) Initial minimum payment reset period; and 
1(d)(2) Occupancy status of Schedule AL.
    \246\ If a loan has been modified either prior to securitization 
or after securitization, responses to data points titled 
``original'' or that are requiring data as of origination or 
underwriting should consist of data about the original loan prior to 
any loan modification.
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Format of the Responses
    We proposed that responses to the asset-level disclosure 
requirements be a date, number, text, or coded response. Consistent 
with the proposal, the final requirements we are adopting require 
responses as a date, a number, text, or a coded response. We received a 
number of comments that sought changes to the format of the information 
to be collected, the range of possible responses, or the data point's 
title or definition.\247\ As noted elsewhere, we considered each of 
these comments and are making changes to mitigate cost and burden 
concerns and to implement industry standards when we believe doing so 
would not materially diminish the value of the disclosures to 
investors.
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    \247\ For instance, a commenter suggested that for numbers, the 
format should indicate whether the number should be displayed as an 
integer or as a decimal; for dates, the date field should specify 
whether the date should be displayed as a month-year (MM/YYYY) or 
month-day-year (MM/DD/YYYY); and for data points requiring a ``Yes'' 
or ``No,'' the response should be coded as ``1=Yes, 0=No'' rather 
than ``1=Yes, 2=No.'' See letter from ASF I.
---------------------------------------------------------------------------

    In the 2010 ABS Proposing Release, we also noted that situations 
may arise where an appropriate code for disclosure may not be currently 
available in the technical specifications. To accommodate those 
situations, the proposals provided a coded response for ``not 
applicable,'' ``unknown'' or ``other'' and many of the data points we 
are adopting include these potential responses. We noted in the 
proposing release that a response of ``not applicable,'' ``unknown'' or 
``other'' would not be appropriate responses to a significant number of 
data points and that registrants should be mindful of their 
responsibilities to provide all of the disclosures required in the 
prospectus and other reports.\248\ One commenter believed this language 
called into question the availability of Rule 409 under the Securities 
Act.\249\ This commenter and another commenter requested that we 
clarify the circumstances under which issuers may rely on Rule 409 to 
omit responses to asset-level data points in a registered 
offering.\250\ The rules we are adopting do not affect the availability 
of Rule 409 or Exchange Act Rule 12b-21. We remind issuers of the 
requirements of Rule 409 and, in particular, that if any required 
information is unknown and not reasonably available to the issuer, the 
issuer is to include a statement either showing that unreasonable 
effort or expense would be involved or indicating the absence of any 
affiliation with the person who has the information and stating the 
result of a request made to such person for the information. Also, in 
situations where an issuer selects ``not applicable,'' ``unknown,'' or 
``other,'' we encourage issuers to provide additional explanatory 
disclosure in an ``Asset Related Document'' \251\ describing why such a 
response was appropriate along with any other relevant detail.\252\
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    \248\ See Securities Act Rule 409 [17 CFR 230.409] and Exchange 
Act Rule 12b-21[17 CFR 240.12b-21].
    \249\ See letter from Citi.
    \250\ See letters from Citi and SIFMA I (expressed views of 
dealer and sponsors only). See also letters from ABA I (suggesting 
that the final rules should recognize that some information may not 
be available to the sponsor and, therefore, cannot be provided) and 
BoA I (suggesting that due to the significant quantity and detail of 
the proposed asset level data requirements that we adopt, consistent 
with Securities Act Rule 409, a ``comply-or-explain'' regime in 
which data would either be disclosed, or if not disclosed, the basis 
for refraining from providing the disclosure would be provided).
    \251\ See Item 1111(h)(5) of Regulation AB.
    \252\ For example, Item 1(c)(29)(i) Original ARM Index of 
Schedule AL requires the issuer to ``specify the code that describes 
the type and source of index to be used to determine the interest 
rate at each adjustment'' and one possible response is ``98=Other.'' 
If the issuer selects ``Other'' for this data point we encourage the 
issuer to provide detail about the index used to calculate the 
adjustable rate. The issuer could file the disclosure in an Asset 
Related Document filed as an exhibit to Form ABS-EE.
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(b) Asset Specific Disclosure Requirements and Economic Analysis of 
These Requirements
    Each section below discusses, for each asset type for which asset-
level disclosure is required, the proposal, comments and final 
requirements applicable to each asset class and the anticipated 
economic effects arising from the final requirements applicable to each 
asset class, including the likely costs and benefits of the 
requirements and their effect on efficiency, competition and capital 
formation. Each section also discusses changes made to each group of 
proposed data points, including the addition of data points to or 
deletion of data points from the proposed group of data points.
(1) Residential Mortgage-Backed Securities
    The proposal for RMBS included a total of 362 total data points 
between the 74 proposed general item requirements and the 288 data 
points specific to RMBS in proposed Schedules L and L-D. Based on the 
changes described below, the final requirements for RMBS, which are set 
forth in Item 1 of Schedule AL, include 270 data points. As noted in 
the 2010 ABS Proposing Release, we took into consideration standards 
that have been developed for the collection and/or presentation of 
asset-level data about residential mortgages. For instance, ASF had 
published an investor disclosure and reporting package for residential 
mortgage-backed securities. The package is part of the group's Project 
RESTART. This disclosure and reporting package includes standardized 
definitions for loan or asset-level information and a format for the 
presentation of the data to investors.\253\ We also noted that another 
organization, the Mortgage Industry Standard Maintenance Organization 
(``MISMO''), has been developing a data dictionary of standardized 
definitions of mortgage related terms and an XML format for presenting 
such data.\254\ We also considered the data that Fannie Mae and Freddie 
Mac receive from sellers of mortgage loans. In addition, we considered 
the data that the Office of the Comptroller of the Currency and the 
Office of Thrift Supervision receive from banks.\255\
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    \253\ See American Securitization Forum RMBS Disclosure and 
Reporting Package Final Release (July 15, 2009) available at http://www.americansecuritization.com/search/issuesearch.aspx?q=disclosure%20and%20reporting%20package.
    \254\ MISMO is a not-for-profit subsidiary of the Mortgage 
Bankers Association. The MISMO data dictionary is available at 
http://www.mismo.org/Specifications/ResidentialSpecifications.htm. 
MISMO standards are used to exchange standardized information about 
mortgages among mortgage lenders, investors in real estate and 
mortgages, servicers, industry vendors, borrowers and other parties.
    \255\ See ``OCC/OTS Mortgage Metrics Loan Level Data Collection: 
Field Definitions,'' Jan. 7, 2009, available at http://www.occ.treas.gov/ftp/release/2009-9a.pdf.
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    As stated in the 2010 ABS Proposing Release, in developing the 
proposal, the staff surveyed the definitions used for data collected by 
the organizations mentioned above, as well as other industry sources. 
The scope of the

[[Page 57211]]

proposed requirements was based mainly on information required to be 
provided to Fannie Mae and Freddie Mac for each loan sold to them or 
contained in the disclosure and reporting package for residential 
mortgage-backed securities developed by ASF's Project RESTART. We did 
not, however, include every requirement included in these packages. The 
presentation of the asset-level information was based, in part, on how 
information was presented under Project RESTART because that reporting 
template was designed specifically for reporting asset-level data about 
RMBS transactions to investors.
    In response to the proposal, issuers, trade associations, investors 
and others generally supported the Commission's effort to increase 
transparency in the RMBS market.\256\ Commenters differed, however, on 
the approach to requiring standardized asset-level data. Some 
commenters, mainly investors, expressed their support for the proposed 
data points. One investor group stated the granularity of the proposed 
data points was necessary because the information is critical.\257\ 
They noted that, unlike a corporate security, investors in structured 
finance can only look to the assets in the pool for their return and 
possibly to external credit enhancement if provided. Another investor 
stated that the proposal will enhance the ability of investors to 
evaluate the ongoing credit quality of mortgage loan pools and increase 
market efficiency.\258\ This investor also noted that the disclosures 
will provide new transparency into loan servicing operations. Another 
commenter believed that granular asset-level data is essential to 
restoring investor confidence in the RMBS markets and a critical 
component in encouraging greater analysis by investors of RMBS 
transactions and reducing reliance on credit ratings.\259\
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    \256\ See, e.g., letters from the American Society of Appraisers 
dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing 
Release (``ASA''), Beached Consultancy, BoA I, Capital One I, Citi, 
Community Mortgage Banking Project dated July 30, 2010 submitted in 
response to the 2010 ABS Proposing Release (``CMBP''), and MetLife 
I.
    \257\ See letter from AMI.
    \258\ See letter from MetLife I.
    \259\ See letter from ASF I.
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    In addition to the concerns commenters raised with asset-level 
disclosure requirements that applied across asset classes, some 
commenters expressed concerns with certain proposed RMBS requirements. 
For instance, commenters were concerned with the granularity of some 
proposed data points,\260\ with the potential for certain disclosure to 
compromise individual privacy,\261\ and whether some of the disclosures 
were necessary or material to an investment decision.\262\ Several 
commenters suggested we follow the MISMO data standards \263\ and two 
commenters suggested we incorporate more of the reporting package 
developed under Project RESTART into the final requirements.\264\
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    \260\ See letter from CMBP (suggesting that the following data 
points proposed in Schedule L fell into the category of requiring 
excessive detail and, without explaining why, suggesting they would 
not be useful to investors: Items 2(a)(18)(xv) ARM round indicator; 
2(a)(18)(xvi) ARM round percentage; 2(b)(6) Original property 
valuation type; (2)(b)(7) Original property valuation date; 2(b)(8) 
Original automated valuation model name; 2(b)(9) Original AVM 
confidence score; 2(b)(10) Most recent property value; 2(b)(11) Most 
recent property valuation type; 2(b)(12) Most recent property 
valuation date; 2(b)(13) Most recent AVM model name; 2(b)(14) Most 
recent AVM confidence score). We are adopting most of these data 
points as we believe they provide valuable information to investors 
with respect to property valuations and ARM loans. See new Items 
1(c)(29)(xiv) ARM round indicator; 1(c)(29)(xvi) ARM round 
percentage; 1(d)(5) Most recent property value; 1(d)(6) Most recent 
property valuation type; 1(d)(7) Most recent property valuation 
date; 1(d)(8) Most recent AVM model name; and 1(d)(9) Most recent 
AVM confidence score. But see letter from AI (indicating support for 
the Commission's proposal to increase transparency and investor 
understanding of loan and property level information and the 
``tremendous amount of information contained in real estate 
appraisals today that is underutilized by investors'').
    \261\ See, e.g., letters from ASF I, CU, and WPF I. See also 
Section III.A.3 Asset-Level Data and Individual Privacy Concerns.
    \262\ See, e.g., letters from Citi (stating that many data 
points had ``not been weighed for materiality or shown to affect the 
performance of the securities or the pricing of securities''), MBA I 
(suggesting that we limit the amount of ongoing information to only 
those items that are critical to investors) and SIFMA/FSR I-dealers 
and sponsors (requesting clarity on whether any of the asset-level 
data may be considered ``material'' under the securities laws and 
whether disclosure of asset-level data as proposed complies with 
privacy laws).
    \263\ See, e.g., letters from eSign, MBA I, MERS, and MISMO.
    \264\ See letters from ASF I and Wells Fargo I.
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    After considering the comments received, we are adopting, as 
proposed, asset-level disclosures specific to RMBS, with some 
modification to individual data points, and the addition and deletion 
of some data points from the group of proposed data points, as 
described in more detail below. Under the final rules, issuers are 
required to disclose the information described in Item 1 of Schedule AL 
for each mortgage in the pool, as applicable.\265\ These requirements 
include information about the property, mortgage, obligor's 
creditworthiness, original and current mortgage terms,\266\ and loan 
performance information.\267\
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    \265\ Our reference to ``as applicable'' means that if a 
particular data point enumerated in the requirements does not apply 
to the assets underlying the security, then a response to that data 
point is not required. For example, if the asset pool of residential 
mortgages consists only of fixed-rate mortgages, responses to all of 
the data points related to adjustable rate mortgages need not be 
included in the data file.
    \266\ This includes, but is not limited to, information about 
loans with adjustable-rates, interest only, balloon payment and 
negative amortization features.
    \267\ This includes, but is not limited to, information about 
payments scheduled and received, loan modifications and other loss 
mitigation activities.
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    We believe that the asset-level requirements we are adopting for 
RMBS will benefit investors and other market participants by providing 
them with a broader picture of the composition, characteristics and 
performance of pool assets, which we believe is critical to an 
investor's ability to make an informed investment decision about the 
securities. Further, while the requirements are granular, we believe 
the scope of the disclosures is consistent with the information that 
Fannie Mae and Freddie Mac require for each loan sold to them or that 
would likely be collected by participants in Project RESTART.\268\ We 
believe the disclosures will facilitate investor due diligence 
regarding RMBS, allow investors to better understand, analyze and track 
the performance of RMBS, and will, in turn, allow for better pricing, 
reduce the need to rely on credit ratings and increase market 
efficiency.
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    \268\ We are not adopting certain proposed requirements that are 
not required by Fannie Mae and Freddie Mac or would not likely be 
collected by participants in Project RESTART because some of the 
information is too granular and some of the same activity is 
captured by other data points. For example, proposed Items 
2(b)(19)(i) through 2(b)(19)(xiii) related to manufactured housing 
and proposed Items 1(l)(2)(i) through 1(l)(2)(ii) related to pledged 
prepayment penalties are being omitted from the final requirements.
---------------------------------------------------------------------------

    The format of the final asset-level requirements remains based, at 
least in part, on how information was presented under Project RESTART. 
In developing the final requirements, we considered, however, the 
different formats currently available for the presentation of asset-
level data about residential mortgages. For instance, we note that 
since the 2010 ABS Proposing Release, Fannie Mae and Freddie Mac have 
begun receiving asset-level data prepared in accordance with MISMO data 
standards for each loan they purchase.\269\ As a result, we understand 
that a number of market participants, including mortgage

[[Page 57212]]

originators and servicers, likely capture, store and communicate data 
in a MISMO format. Therefore, we considered whether the asset-level 
disclosures should be provided following the MISMO format.\270\
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    \269\ See Fannie Mae Loan Delivery Data requirements available 
at https://www.fanniemae.com/singlefamily/uniform-loan-delivery-dataset-uldd. See also Freddie Mac Product Delivery requirements 
available at http://www.freddiemac.com/singlefamily/secmktg/uniform_delivery.html.
    \270\ In considering this alternative, we noted that MISMO had 
developed a data dictionary of standardized definitions of mortgage 
related terms and an XML format for presenting such data. We also 
recognized that the MISMO package does not define what data should 
be provided in any particular circumstance, but instead is a 
dictionary of defined loan or asset-level terms that could be used 
in the development of a reporting standard. We also recognized that 
the definitions used in MISMO's data dictionary are defined for a 
general purpose and are not structured for a particular purpose, 
such as investor reporting.
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    We are not persuaded, however, that our reporting requirements 
should follow the MISMO format. We believe that the format for the 
presentation of the asset-level data we are adopting is more investor-
friendly, standardizes how the information is to be provided to 
investors and is easier to review. Also, the reporting package 
developed under ASF's Project RESTART was designed with the involvement 
of RMBS investors and issuers, which we believe provides some 
indication that issuers and investors support the disclosure and 
reporting of asset-level data about RMBS transactions based on that 
format. Furthermore, we note that since the Project RESTART standards 
were released, the few registered offerings of RMBS that have occurred 
have provided data based on the standards set under Project RESTART as 
part of their offering materials. We also believe this provides some 
indication that issuers and investors support this disclosure format. 
We also note that investors did not submit comment letters suggesting 
asset-level data for RMBS be presented in a MISMO format. Finally, we 
also considered that asset-level information being released by Fannie 
Mae and Freddie Mac does not appear to be presented in a MISMO format, 
although we note that the disclosures are likely compiled from asset-
level information submitted to them that is in a MISMO format.\271\
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    \271\ Currently, Fannie Mae and Freddie Mac provide on their Web 
sites a portion of the information they receive about the loans they 
purchase. At this time, Fannie Mae publicly discloses approximately 
50 items of asset-level disclosure at issuance and on a monthly 
basis for their newly-issued single-family MBS. See Fannie Mae's 
Uniform Loan Delivery Dataset available at https://www.fanniemae.com/singlefamily/uniform-loan-delivery-dataset-uldd. 
Also, Freddie Mac currently publicly discloses approximately 85 
items of asset-level disclosure at issuance and on a monthly basis 
for all newly issued fixed-rate and adjustable-rate mortgage 
participation certificate securities. See Freddie Mac's Loan-Level 
Delivery Dataset available at http://www.freddiemac.com/singlefamily/sell/uniform_delivery.html.
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    While some data points we are adopting have minor differences to 
comparable data definitions contained in MISMO's data dictionary, we 
believe that most data points we are adopting are consistent with the 
information included in the MISMO data dictionary.\272\ We believe that 
systems could be programmed, albeit at some cost, to combine data 
provided in response to multiple MISMO data definitions to one of our 
required data points.\273\ Therefore, we believe that data originating 
in the MISMO data format could be compiled to comply with the new rules 
for reporting to RMBS investors so the costs of implementing the 
requirements may be limited to the extent that some MISMO data 
definitions overlap with data points we require.
---------------------------------------------------------------------------

    \272\ See footnote 254. See also letter from MISMO (indicating 
that for RMBS the data points proposed in Item 1 General 
Requirements of Schedule L approximately 80% of the proposed data 
requested is a direct match to the MISMO standards, with 14% a close 
match and 6% with no match and that other tables applicable to RMBS 
had a similar pattern).
    \273\ For instance, we note that in many cases there is a direct 
match between a proposed data point and the MISMO data definition. 
Further, in many instances multiple fields in the MISMO data 
dictionary could be combined to respond to a data point. An example 
will best illustrate the differences between the asset-level 
requirements adopted today and how information would be reported 
under a MISMO format. For instance, we are adopting Item 
1(c)(30)(iii) Prepayment penalty total term, which requires the 
total number of months after the origination of the loan that the 
prepayment penalty may be in effect. This single data point defines 
the information required (prepayment penalty period), how to report 
the information (in months) and the time frame the information 
represents (from origination). In contrast, we believe under MISMO, 
this data point would be provided through the responses to several 
MISMO data definitions. One MISMO data definition defines the form 
of count, such as the number of periods the prepayment penalty 
applies. A second MISMO data definition would define what 
constitutes a period (e.g., day, week, month, and year). A third 
MISMO data definition indicates, for a group of responses, whether 
the information was as of closing, the current reporting period, at 
modification or at some other time frame. This approach allows the 
entity reporting the information to define prepayment penalty period 
by day, week, month or year.
---------------------------------------------------------------------------

    We understand, however, that requiring data points that deviate 
from how issuers capture and store data may raise costs for both 
issuers and investors because issuers will need to create new systems 
or adjust their current systems to provide the data to satisfy our 
rules. In addition, investors will need to adjust their existing tools 
to read and analyze the newly required data. To further minimize the 
need to revise systems to provide the required data, we are revising 
data points to better align with MISMO data definitions. If a proposed 
data point and a MISMO data definition require the same or similar data 
and aligning to the MISMO data definition would not affect the value of 
the information or deviate from how information is reported under the 
requirements, we revised the proposed data point to better align with 
the MISMO data definition.\274\ We believe these changes will help to 
minimize any burden or costs that may arise from the reporting of 
similar information under different standards.
---------------------------------------------------------------------------

    \274\ See, e.g., letters from eSign, MBA I, MERS, and MISMO (all 
suggesting that the final requirements follow the MISMO standards).
---------------------------------------------------------------------------

    We also acknowledge that some disclosures we are requiring are not 
part of the MISMO data dictionary or provided to Fannie Mae and Freddie 
Mac. Many of these disclosures relate to the ongoing performance of 
pool assets. We are requiring these disclosures so that an investor may 
conduct his or her own evaluation of the risk and return profile of the 
pool assets at issuance and throughout the life of the investment.
    We also considered the alternative of requiring asset-level data 
generally and allowing the industry to develop the reporting 
requirement. While issuers in recent RMBS offerings have been providing 
asset-level disclosure in line with the disclosure templates developed 
by Project RESTART, providing such data to investors in this format is 
not mandatory. As noted above, we believe that, unless asset-level 
disclosures are standardized across all issuers, the benefits of asset-
level data is generally limited. We believe that, without requiring and 
standardizing the asset-level requirements, issuers may choose to not 
provide asset-level data to investors, provide it inconsistently, or 
provide it under differing standards. These alternatives would limit 
the ability for investors and market participants to cost-effectively 
compare and analyze offerings of RMBS.
    Finally, we also received many comments directed at individual data 
points, many of which were seeking changes to the format of the 
information, the range of possible responses for a particular data 
point, or the data point's title or definition. Other commenters made 
suggestions on how we could make the data points better align with an 
industry standard. We also received comments suggesting that certain 
data points should not be required if the data is derivable from other 
required data points.\275\ We considered each of these comments, and we 
made changes that we believe improve or clarify the disclosure,\276\

[[Page 57213]]

mitigate cost and burden concerns and/or implement industry standards 
when doing so would not materially diminish the value of the 
disclosures to investors.
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    \275\ See letters from ASF I and Wells Fargo I.
    \276\ For example, we proposed a data point that would require 
issuers to indicate the percentage of mortgage insurance coverage 
obtained. In response to comments, we revised the data point to 
confirm that the percentage disclosed should represent the total 
percentage of the original loan balance that is covered by insurance 
(e.g., 40% for an insurance policy that covers payment default only 
from 60% of the loan balance to 100% of the balance). See new Item 
1(f)(2) of Schedule AL.
---------------------------------------------------------------------------

    In addition to revising the data points to align with industry 
standards or to address comments received,\277\ we omitted some data 
points that were proposed for other reasons, such as to address 
concerns about disclosure of sensitive information or reduce 
repetition. As discussed below, certain proposed data points would have 
required disclosure of sensitive information and could have increased 
the re-identification risk.\278\ While the changes we are making should 
reduce the risk of re-identification and the related privacy concerns, 
we do not believe that the changes will limit investors' ability to 
conduct due diligence and make informed investment decisions.
---------------------------------------------------------------------------

    \277\ As noted elsewhere, we made revisions to the title, 
definition or required response of some data points, in part, based 
on comments received. As noted in Section III.A.2.a) Disclosure 
Requirements for All Asset Classes and Economic Analysis of These 
Requirements, these changes include changes to the definition or 
title to clarify when the data should be captured. Other changes 
include, based on comments received, technical changes to clarify 
how the information should be reported. For instance, data points 
capturing ``Date'' were changed to ``YYYY/MM'' and data points 
requiring a ``%'' were changed to ``number.'' We also made revisions 
to make the terminology used throughout the template consistent. For 
example, in some instances, certain data points used the term ``note 
rate'' and others used ``interest rate.'' For consistency, we use 
``interest rate'' throughout.
    \278\ See Section III.A.3 Asset-Level Data and Individual 
Privacy Concerns.
---------------------------------------------------------------------------

    As noted below, proposed Schedules L and L-D contained identical or 
substantially identical data points, so by aggregating the schedules we 
are able to omit one of the identical or nearly identical data 
points.\279\ We also proposed data points that would have required 
information about ARM loans that were modified during a reporting 
period. This information would have included pre-modification and post-
modification characteristics of the ARM loans. We are not adopting the 
pre-modification data points since investors will have access to pre-
modification information through other asset-level data.\280\ We also 
aggregated several data points into either one data point or fewer data 
points based on comments received.\281\ We are omitting some proposed 
data points in favor of other data points that we are adding to the 
requirements to address comments received. For instance, as discussed 
further below, we replaced some data points that capture advances with 
data points that disclose different categories of advances and how 
those advances were reimbursed.\282\ We are also omitting, based on 
comments received, data points that relate to the Home Affordable 
Modification Program, a temporary government program, over concerns 
about the value of these data points over other modification data 
points and about adopting data points for a temporary government 
program.\283\ We also are not adopting a proposed data point that 
commenters suggested would provide limited value to investors.\284\
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    \279\ See Section III.B.2 The Scope of New Schedule AL.
    \280\ The following proposed data points were omitted from 
Schedule AL: Items 2(e)(4) Pre-modification interest (note) rate; 
2(e)(7) Pre-modification P&I payment; 2(e)(10) Pre-modification 
initial interest rate decrease; 2(e)(12) Pre-modification subsequent 
interest rate increase; 2(e)(14) Pre-modification payment cap; 
2(e)(17) Pre-modification maturity date: 2(e)(19) Pre-modification 
interest reset period (if changed); 2(e)(21) Pre-modification next 
interest rate change date; and 2(e)(26) Pre-modification interest 
only term.
    \281\ For instance, a data point was added to the final 
requirements to capture why a loan balance was reduced to zero. See 
new Item 1(32)(g)(ii) of Schedule AL. This data point includes a 
coded list of reasons why the loan balance was reduced to zero, such 
as the loan was liquidated, repurchased, or paid off. As a result, 
the following proposed data points contained in Schedule L-D were 
omitted from the final requirements: Items 1(i) Repurchase 
indicator; 1(l)(1) Paid-in-full indicator; 1(j) Liquidated 
indicator; 1(k) Charge-off indicator; 2(h) Deed-in-lieu date; and 
2(l)(7) Actual REO sale closing date.
    \282\ See the discussion further below in this section titled 
Advances: Principal, Interest, Taxes and Insurance, and Corporate.
    \283\ See proposed Items 2(e)(47) through 2(e)(47)(x) of 
Schedule L-D.
    \284\ We proposed a data point that would have required issuers 
to provide the date on which the original LTV ratio was calculated. 
See proposed Item 2(b)(17) of Schedule L. Some commenters suggested 
we not adopt this data point as this date is immaterial because the 
date on which the value used in the calculation was determined is 
more important. See letters from ASF I and SIFMA I. We are not 
adopting this data point as we agree with commenters that this date 
is not necessary given that the date on which the value used in the 
calculation was determined is required to be provided.
---------------------------------------------------------------------------

    Some commenters, however, suggested we expand the asset-level 
disclosures to include more data points than proposed.\285\ For 
instance, commenters suggested adding data points that would correlate 
to information captured in ASF's Project RESTART disclosure and 
reporting template,\286\ that would capture information about 
government sponsored loan modification programs,\287\ and debt-to-
income (``DTI'') ratios or property valuations.\288\ Another commenter 
suggested that we add data points that increase the granularity of 
certain obligor-related data.\289\ A commenter also suggested adding 
data points that captured more information about the characteristics of 
modified loans.\290\ We added those data points to the extent we 
believe the data point improves or clarifies the proposed requirements 
or aids an investor's ability to make an informed investment decision, 
monitor loan performance for ongoing investment decisions, or 
understand loss mitigation efforts without significantly increasing re-
identification risk.\291\ We also took into consideration whether 
issuers have ready access to the information and whether requiring the 
information in the format requested would place an undue burden on 
issuers or market participants. The final requirements do not include 
every data point that commenters recommended we add because we are 
concerned they could impose an undue burden and we are not persuaded 
that the data would aide an investor's ability to analyze or price the 
security or monitor its ongoing performance. We believe that, to the 
extent issuers want to provide additional asset-level disclosures in 
order to capture the unique attributes of a particular pool, issuers 
can provide the additional asset-level disclosures in an Asset Related 
Document.\292\
---------------------------------------------------------------------------

    \285\ See, e.g., letters from ASF I, CU, MSCI, Wells Fargo I and 
SFIG I.
    \286\ See letters from ASF I and Wells Fargo I. For example, ASF 
I suggested that, like in Project RESTART, we include a 4506-T 
indicator data point, a paid-in-full amount data point and master 
servicer, special servicer and subservicer data points. Because 
these data points are consistent with our other requirements and 
capture information that should be readily available to issuers, we 
have added them. See new Items 1(e)(8), 1(g)(30), 1(h)(3), 1(h)(4) 
and 1(h)(5) of Schedule AL.
    \287\ See letter from Wells Fargo I.
    \288\ See letter from Mass. Atty. Gen.
    \289\ See letter from SFIG II (also suggesting changes to 
clarify certain asset-level data points).
    \290\ See letter from Wells Fargo I.
    \291\ See Section III.A.3 Asset-Level Data and Individual 
Privacy Concerns.
    \292\ See Section III.B.4 Asset Related Documents.
---------------------------------------------------------------------------

    We discuss below the significant comments we received about 
individual data points along with the revisions we have made in 
response to those comments.
Information About Payment Status and Payment History
    The proposal included a group of data points that would require 
disclosure of information about the status of required payments. These 
data points would capture, both at the time of the offering and on an 
ongoing basis, current

[[Page 57214]]

delinquency status,\293\ the number of days a payment is past due,\294\ 
and current payment status.\295\ In addition, on an ongoing basis, a 
data point would capture the payment history over the past twelve 
months.\296\
---------------------------------------------------------------------------

    \293\ See proposed Items 1(b)(5) of Schedule L and 1(f)(12) of 
Schedule L-D.
    \294\ See proposed Items 1(b)(6) of Schedule L and 1(f)(13) of 
Schedule L-D.
    \295\ See proposed Items 1(b)(7) of Schedule L and 1(f)(14) of 
Schedule L-D.
    \296\ See proposed Item 1(f)(15) of Schedule L-D.
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    One commenter suggested that we add, revise or delete data points 
in this group in order to align with servicing practices or to increase 
transparency.\297\ In lieu of the proposed data points capturing 
current delinquency status, current payment status and the number of 
days a payment is past due, we are adopting, based on comments 
received, the following data points: Most recent 12-month pay 
history,\298\ number of payments past due \299\ and paid through 
date.\300\ We discuss below the group of data points we are adopting. 
Taken together, we believe this group of data points should provide 
insight into the payment performance of each pool asset and allow 
investors to track delinquencies.
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    \297\ See letter from ASF I.
    \298\ See new Item 1(g)(33) of Schedule AL.
    \299\ See new Item 1(g)(34) of Schedule AL.
    \300\ See new Item 1(g)(28) of Schedule AL.
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Paid Through Date
    The proposed data point titled ``Number of days payment is past 
due'' would have required disclosure, at the time of the offering, of 
the number of days between the scheduled payment date and the cut-off 
date if the obligor did not make the full scheduled payment. The 
proposed ongoing disclosure requirements included a similar data point, 
but required the number of days between the scheduled payment date and 
the reporting period end date, instead of the cut-off date. A commenter 
indicated the final requirements should omit the proposed data point 
because servicers currently track delinquencies in 30-day intervals, 
measured on a monthly basis, rather than number of days past due at any 
given date, including the reporting date, and because the cost to 
capture the proposed information is not justifiable.\301\ As an 
alternative, the commenter suggested the number of days past due could 
be derived from the interest paid through date reported in proposed 
Item 2(a)(14) of Schedule L and the measurement date.
---------------------------------------------------------------------------

    \301\ See letter from ASF I.
---------------------------------------------------------------------------

    We are not adopting, as a commenter suggested, the data point 
titled ``Number of days payment is past due'' because the proposed data 
point may have required data that differs from how data is 
captured.\302\ We believe an alternative approach may provide investors 
similar information with lower costs to issuers. We believe investors 
can derive information about the number of days payment is past due 
from the date through which the loan is paid. Therefore, to address the 
commenter's concern and provide information in each report to derive 
the number of days a payment is past due, we are adopting a data point 
titled ``Paid through date'' which requires disclosure of the date the 
loan's scheduled principal and interest is paid through as of the end 
of the reporting period.\303\ For each reporting period the response to 
this data point will disclose, regardless of when the last payment was 
made, the date the loan is paid through. The response to this data 
point will also indicate when a loan is paid several months in advance. 
We believe this approach addresses the commenter's cost concerns 
because the required information should be readily available.\304\
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    \302\ We do not agree, however, with the alternative the 
commenter suggested, that the number of days a payment is past due 
could be derived from the interest paid through date reported in 
proposed Item 2(a)(14) of Schedule L and the measurement date, 
because the interest paid through date is calculated on the payment 
due for that period. Therefore, in future periods where a payment is 
missed, the response to this data point would not provide the paid 
through date since no payment was made.
    \303\ See new Item 1(g)(28) of Schedule AL.
    \304\ We also note that this data has been provided in some RMBS 
offerings.
---------------------------------------------------------------------------

Most Recent 12-Month Pay History
    The proposed data point titled ``Current delinquency status'' would 
have required that issuers disclose the number of days the obligor is 
delinquent at the time of the offering \305\ and on an ongoing 
basis.\306\ One commenter suggested that for RMBS we replace this data 
point with a data point contained in the Project RESTART disclosure 
package that required a string indicating the payment status per month 
over the most recent 12 months.\307\ The commenter stated this string, 
with the addition of foreclosure and REO disclosures, would provide 
considerably more useful information than the proposed data point and 
would subsume the proposed data point instead of requiring the number 
of days an obligor is past due. We are persuaded that a payment history 
data point indicating the payment status per month over the most recent 
12 months would provide more useful information than the number of days 
an obligor is past due. In addition, we believe, as a commenter 
suggested, that the payment history data point subsumes the proposed 
data point. Therefore, we are adopting a payment history data point and 
omitting the proposed current payment status data point.\308\ Because 
this information should be readily available to issuers for the entire 
history of the loan, we believe any additional costs incurred from 
providing the disclosures in the format requested, to the extent that 
such format differs from how such information is collected and stored, 
will be limited.
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    \305\ See proposed Item 1(b)(5) of Schedule L.
    \306\ See proposed Item 1(f)(12) of Schedule L-D.
    \307\ See letter from ASF I (suggesting the adoption of field 97 
of the ASF RMBS Disclosure Package--Most Recent 12-month Pay 
History). ASF provided this comment with respect to proposed Item 
1(b)(5) Current Delinquency Status of Schedule L. They did not 
provide a similar comment with respect to proposed Item 1(f)(12) of 
Schedule L-D. We believe under the one schedule format that we are 
adopting the payment history string subsumes the data captured by 
this data point. Therefore, we are not adopting the proposed Current 
delinquency status data point.
    \308\ See new Item 1(g)(33) of Schedule AL. This data point 
requires an issuer to provide a string that indicates the payment 
status per month listed from oldest to most recent. The possible 
responses based on field 97 of ASF's RMBS Disclosure Package are: 
0=Current; 1=30-59 days delinquent; 2=60-89 days delinquent; 3=90-
119 days delinquent; 4=120+ days delinquent; 5=Foreclosure; 6=REO; 
7=Loan did not exist in period; 99=Unknown. The value furthest to 
the left in the string would be the most recent month and the value 
furthest to the right would be the 12th month. For example, for a 
loan that was current in the most recent month, 30-59 days 
delinquent from months two to five and current from months six to 
twelve the string would be as follows: 011110000000.
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Number of Payments Past Due
    We also proposed a data point titled ``Current payment status'' 
that would capture the number of payments the obligor is past due.\309\ 
We are revising the title to ``Number of payments past due'' to more 
accurately convey the information the data point requires.\310\ A 
commenter requested we omit the proposed data point because it would be 
redundant with the proposed the ``Current delinquency status'' data 
point, which would have captured the number of days the obligor is 
delinquent.\311\ There are many ways to present the status of payments, 
and the data point we are adopting will require disclosure of the 
number of payments an obligor is behind at any point in time. 
Therefore, we are not adopting the ``Current delinquency status'' data 
point

[[Page 57215]]

which should eliminate any potential redundancy.
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    \309\ See proposed Items 1(b)(7) of Schedule L and 1(f)(14) of 
Schedule L-D.
    \310\ See new Item 1(g)(34) of Schedule AL.
    \311\ See proposed Items 1(b)(5) of Schedule L and 1(f)(12) of 
Schedule L-D.
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Information About Junior Liens and Senior Liens
    We proposed data points that would require disclosure, at the time 
of the offering, about the junior liens and senior liens that existed 
at origination. For loans with subordinate liens at origination, the 
combined balances of all subordinate loans would be required.\312\ For 
junior loans being securitized, the combined balances of all senior 
mortgages at the time the junior loan was originated would be 
required.\313\ Where the associated most senior lien is a hybrid, the 
hybrid period of the most senior lien would be required.\314\ Where the 
associated most senior lien features negative amortization, the 
negative amortization limit of the senior mortgage as a percentage of 
the senior lien's original unpaid principal balance would be 
required.\315\ We did not propose a data point to capture the effort an 
originator or sponsor made to discover if the same property secures 
other loans, but we asked if this type of disclosure should be 
required.\316\
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    \312\ See proposed Item 2(a)(16) of Schedule L.
    \313\ See proposed Item 2(a)(17)(i) of Schedule L.
    \314\ See proposed Item 2(a)(17)(iii) of Schedule L.
    \315\ See proposed Item 2(a)(17)(iv) of Schedule L.
    \316\ See the 2010 ABS Proposing Release at 23363.
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    Comments on this group of data points varied. A few commenters 
requested that the data points capturing junior lien balances include 
an ``if known'' or similar qualifier to address concerns that 
originators may not always have knowledge of, or access to, balance 
information on loans not originated by them.\317\ A few commenters also 
suggested that the combined senior loan and combined junior loan 
balances, if known, be captured on an ongoing basis.\318\ Two 
commenters supported a data point capturing what effort an originator 
or sponsor made to discover if the same property secures other 
loans.\319\ One of these commenters noted, however, that there may be 
difficulties providing this disclosure because the existence of a debt 
obligation may not be discovered before the required asset-level 
disclosures are provided.\320\ The other commenter noted that the 
disclosure should be required because the failure to account for an 
additional loan will result in an inaccurately reported combined LTV 
ratio and, therefore, investors would want to know if the verification 
was made.\321\
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    \317\ See letters from ASF I and SIFMA I.
    \318\ See letters from ASF I and Wells Fargo I.
    \319\ See letters from Epicurus and Mass. Atty. Gen.
    \320\ See letter from Epicurus (suggesting that, to address the 
problem, the attorney or title company at closing should be required 
to certify that a title search was completed and whether that title 
search identified the existence of other debts, if any, held against 
the property).
    \321\ See letter from Mass. Atty. Gen.
---------------------------------------------------------------------------

    We are adopting the group of data points described above, but with 
revisions to address comments received.\322\ In response to comments 
that expressed concern that originators may not always have knowledge 
of, or access to, balance information on loans not originated by them, 
we revised this group of data points to require that the information be 
provided if the information was obtained or available to them. 
Regardless of whether the loan being securitized was originated by 
parties affiliated or unaffiliated to the issuer, we expect, however, 
that an issuer would make efforts to discern whether junior loans were 
originated concurrently to or immediately following the origination of 
the loan being securitized and the balances of those loans. We believe 
the review required under existing Rule 193 of the Securities Act, 
which requires a review of the pool assets underlying the asset-backed 
security may address concerns about verification. The review required 
under Rule 193 must be designed and effected to provide reasonable 
assurance that the disclosure regarding the pool assets in the 
prospectus, which includes the asset-level disclosures, is accurate in 
all material respects. We believe a Rule 193 review would necessarily 
include consideration of whether the disclosures about junior or senior 
liens are accurate in all material respects. We are not adopting a 
separate data point that would require disclosure of the effort an 
originator or sponsor made to discover if the same property secures 
other loans.\323\ This data would be difficult to capture in a 
standardized way, and we are uncertain, at this time, whether this 
information is best captured within these particular asset-level 
requirements.
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    \322\ See new Items 1(c)(12)(i) Most recent junior loan balance; 
Item 1(c)(12)(ii) Date of most recent junior loan balance; 
1(c)(13)(i) Most recent senior loan amount; 1 (c)(13)(ii) Date of 
most recent senior loan amount; 1(c)(13)(iii) Original loan type of 
most senior lien; 1(c)(13)(iv) Hybrid period of most senior lien; 
and 1(c)(13)(v) Negative amortization limit of most senior lien of 
Schedule AL.
    \323\ See the 2010 ABS Proposing Release at 23363.
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    We believe investors will benefit from ongoing disclosure about the 
aggregate balances of all known senior and junior lien(s) and, 
therefore, we are revising the data points to capture the most recent 
senior lien(s) and junior lien(s) balances.\324\ We understand, 
however, that obtaining updated balances on an ongoing basis may 
involve some burden and cost, particularly if the junior liens are 
originated by parties unaffiliated with the issuer. Therefore, to 
address burden concerns, these data points do not require that issuers 
obtain updated information each month. Instead, the definitions of 
these data points indicate that a response is required if the most 
recent junior or senior mortgage balances are obtained or 
available.\325\
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    \324\ See new Items 1(c)(12)(i) Most recent junior loan balance 
and 1(c)(13)(i) Most recent senior loan amount of Schedule AL. We 
are also adopting data points that capture the dates of the most 
recent loan balances. See new Items 1(c)(12)(ii) Date of most recent 
junior loan balance and 1(c)(13)(ii) Date of most recent senior loan 
amount.
    \325\ For example, if the asset in an RMBS is a senior lien, and 
subsequent to the securitization, a junior lien is originated by an 
affiliate of the depositor, the information about the junior lien 
would be available to the issuer and should be reported to the 
investors in the RMBS in an ongoing report.
---------------------------------------------------------------------------

Information About the Property
    We proposed a group of data points that would capture information 
related to the property, such as the property type, occupancy status, 
geographic locations and valuations.\326\ Taken together, these data 
points would provide insight into the physical asset underlying the 
mortgage. The response to this group of data points varied with some 
commenters suggesting the group of data points was too granular \327\ 
and others suggesting we expand the information captured about 
valuations.\328\ We discuss below the significant comments we received 
about this group of data points and the revisions we have made to data 
points within this group.
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    \326\ See proposed Items 2(b)(2) through 2(b)(19) of Schedule L.
    \327\ See, e.g., letter from CMBP.
    \328\ See, e.g., letter from Mass. Atty. Gen.
---------------------------------------------------------------------------

Property Location
    We proposed to require that the location of the property by 
Metropolitan Statistical Area, Micropolitan Statistical Area or 
Metropolitan Division (collectively, ``MSA'') be provided in lieu of 
zip code due to privacy concerns arising from providing the property's 
zip code.\329\ The response to this

[[Page 57216]]

approach varied. On the one hand, we received some comments suggesting 
we not require zip code because it would make the ability to identify 
an obligor within a loan pool easier.\330\ On the other hand, some 
commenters indicated that 5-digit zip codes or 3-digit zip codes should 
be provided instead of MSA because zip codes provide more information 
about the property.\331\ For instance, one commenter was concerned that 
disclosing only the MSA would result in less information than is 
currently available.\332\ As another commenter noted, the zip code 
provides information such as whether the property is in a flood plain 
or earthquake zone.\333\ One commenter indicated that using MSA rather 
than zip codes would restrict the information available to investors 
and, as such, issuers expect to receive substantially lower pricing for 
new RMBS offerings resulting in substantially higher costs for 
consumers of residential mortgage loans.\334\ Another commenter echoed 
this concern.\335\ Another commenter suggested that the ``County 
Code,'' which is a federal information processing standard code, is an 
appropriate alternative to other geographic location identifiers.\336\
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    \329\ MSAs are geographic areas designated by a 5-digit number 
defined by the U.S. Office of Management and Budget (OMB) for use by 
Federal statistical agencies in collecting, tabulating and 
publishing Federal Statistics. A Metropolitan Statistical Area 
contains a core urban area of at least 10,000 (but less than 50,000) 
population. Each Metro or Micro area consists of one or more 
counties and includes the counties containing the core urban area, 
as well as any adjacent counties that have a high degree of social 
and economic integration (as measured by commuting to work) with the 
urban core. The OMB also further subdivides and designates New 
England City and Town Areas. The OMB may also combine two or more of 
the above designations and identify it as a Combined Statistical 
Area.
    \330\ See letters from CU and WPF.
    \331\ See letter from ASF I (expressed views of investors only). 
See also letter from Beached Consultancy (suggesting use of 3-digit 
zip codes).
    \332\ See letter from ASF I (expressed views of investors only).
    \333\ See letter from Epicurus.
    \334\ See letter from Wells Fargo I.
    \335\ See letter from ASF I (noting that not disclosing zip 
codes for the property would be a step backwards in disclosure 
practice).
    \336\ See letter from MERS.
---------------------------------------------------------------------------

    As discussed below in response to the 2014 Re-Opening Release, 
several commenters stressed the importance of geography in assessing 
re-identification risk and recommended requiring issuers to identify 
assets by a broader geographic area to reduce the ability to re-
identify.\337\ One commenter recommended that, instead of requiring MSA 
as proposed, we require geography by 2-digit zip code.\338\ Based on 
the reasons discussed in Section III.A.3 Asset-Level Data and 
Individual Privacy Concerns, we are requiring disclosure of the 2-digit 
zip code, which will allow investors to assess market risk associated 
with a particular geographic location without resulting in unnecessary 
re-identification risk.
---------------------------------------------------------------------------

    \337\ See letters from ABA III, ELFA II, Lewtan, SIFMA/FSR I-
dealers and sponsors, SFIG II, the Treasurers of Royal Bank of 
Canada, Canadian Imperial Bank of Commerce, The Bank of Nova Scotia, 
The Toronto-Dominion Bank, Bank of Montreal and National Bank of 
Canada dated Apr. 28, 2014 submitted in response to the 2014 Re-
Opening Release (``Treasurer Group''), and Wells Fargo III.
    \338\ See letter from ABA III.
---------------------------------------------------------------------------

Property Valuations
    We proposed a group of data points that would capture information 
about original property valuations.\339\ The comments we received on 
this group of data points varied with some commenters seeking more 
granularity and others seeking less granularity. Commenters seeking 
more granularity suggested expanding this group of data points to 
require data about recent property sales, more detail about the 
characteristics of the property, such as the gross living area, room 
count, and construction style,\340\ and the disclosure of appraiser 
credentials and prior complaints against them.\341\ A commenter also 
recommended including valuations captured as part of a ``valuation 
diligence'' process, including recalculated loan-to-value ratios and 
combined loan-to-value ratios based on these valuations.\342\ Another 
commenter said there is no uniformity in how values are determined 
because the proposal would allow issuers to select from a long menu of 
valuation methods, approaches and sources for establishing property 
values.\343\ This flexibility would allow issuers to pick-and-choose 
which valuation method best serves their purposes, and the proposed 
rule would not establish any qualification requirements or standards of 
care and/or competency for valuations performed in connection with 
mortgage-backed securities.
---------------------------------------------------------------------------

    \339\ See proposed Items 2(b)(5), 2(b)(6), 2(b)(7), 2(b)(8), and 
2(b)(9) of Schedule L.
    \340\ See letter from AI.
    \341\ See letter from Epicurus. See also letter from ASA 
(suggesting issuers of mortgage-backed securities (and those with 
ongoing Exchange Act reporting requirements relative to those 
securities) be required to use state certified and licensed 
professional real property appraisers and require adherence to the 
Uniform Standards of Professional Appraisal Practice to value loan-
level real estate and real property collateral assets).
    \342\ See letter from the Mass. Atty. Gen.
    \343\ See letter from the ASA.
---------------------------------------------------------------------------

    One commenter stated that the data captured about property 
valuations was too granular and not relevant to an investor.\344\ With 
respect to the data point capturing the valuation date, a commenter 
suggested the purpose of disclosing the valuation date is to ensure 
that the loan-to-value ratio used in the underwriting process was 
current enough to not overstate the collateral value of the mortgaged 
property, particularly during periods of declining home prices.\345\ 
The commenter stated that the precise date of the valuation may be 
difficult for some originators to track. As an alternative, the 
commenter suggested that we permit issuers to either provide the 
valuation date or represent in the relevant transaction agreement that 
the valuation was conducted not more than a specified number of days 
prior to the original closing of the loan. According to the commenter, 
such a representation would ensure that the issuer or originator is 
allocated the risk of stale valuation. Further, to address any concern 
about the effectiveness of a representation in lieu of disclosure, the 
commenter's suggested alternative would only apply in a transaction in 
which the transaction agreements provide for a robust third-party 
mechanism for evaluating and resolving breaches of representations.
---------------------------------------------------------------------------

    \344\ See letter from CMBP.
    \345\ See letter from ASF I.
---------------------------------------------------------------------------

    As discussed in Section III.A.3 Asset-Level Data and Individual 
Privacy Concerns below, we are concerned that providing data about 
original property valuations may increase re-identification risk; 
therefore, we are not adopting any of the proposed data points related 
to original property valuations. In particular, we are concerned that 
data about original property valuations could provide a close 
approximation of sales price, and thus raise the same re-identification 
concern as sales price. Although we are not adopting the proposed data 
points related to original property valuations, we are adopting other 
data points, such as Original loan amount and Original loan-to-value, 
which will provide investors with key information that they need to 
perform due diligence and make an informed investment decision.
    We also proposed data points requiring disclosure about the most 
recent property value, if an additional property valuation was obtained 
after the original appraised property value.\346\ One commenter 
indicated that these data points appeared to relate only to valuations 
obtained by the originator.\347\ The commenter suggested that we 
require any sponsor who obtains an alternative property valuation as 
part of due diligence to disclose that value to the extent it is the 
most recent property value. The commenter also suggested that we 
consider disclosure of the lowest alternative property value in the 
last six months (in addition to the most recent property value) to 
prevent the sponsor from evading the requirements

[[Page 57217]]

by getting alternate values only when the most recent value is lower 
than the sponsor would like. Another commenter also suggested that the 
``Most recent property value'' data point should only require property 
values obtained by the securitization sponsor, although the investor 
members of this commenter recommended that this include affiliates of 
the securitization sponsor.\348\
---------------------------------------------------------------------------

    \346\ See proposed Items 2(b)(10), 2(b)(11), 2(b)(12), 2(b)(13), 
and 2(b)(14) of Schedule L.
    \347\ See letter from Mass. Atty. Gen.
    \348\ See letter from SIFMA I.
---------------------------------------------------------------------------

    We are adopting these data points, as proposed, with revisions to 
address comments received.\349\ In particular, we revised the 
definitions to require disclosure of any valuation obtained by or for 
any transaction party or their affiliates.\350\ This revision addresses 
comments that these data points appear to relate to valuations obtained 
only by the originator. The reference to ``obtained by or for any 
transaction party or its affiliates'' contained in each definition 
should be construed broadly and should include, but not be limited to, 
valuations obtained as part of any due diligence conducted by credit 
rating agencies, underwriters or other parties to the transaction. We 
also made conforming changes to the titles and definitions ``Most 
recent AVM model name'' and ``Most recent AVM confidence score'' 
because these disclosures are providing information about the most 
recent property value.
---------------------------------------------------------------------------

    \349\ See new Items 1(d)(5) Most recent property value; 1(d)(6) 
Most recent property valuation type; 1(d)(7) Most recent property 
valuation date; 1(d)(8) Most recent AVM model name; and 1(d)(9) Most 
recent AVM confidence score of Schedule AL.
    \350\ The final rules also require disclosure of the date on 
which the most recent property value was reported.
---------------------------------------------------------------------------

    We also considered, as a commenter suggested, adopting data points 
to capture the lowest alternative property valuation obtained in the 
last six months by, in addition to the originator, the sponsor or its 
affiliates. We did not adopt these data points because we are not 
persuaded, at this time, that the potential benefits investors may 
receive from such information would justify the potential costs and 
burdens that may be associated with providing the data. If, however, 
alternative property valuations are obtained that reflect substantially 
lower valuations, an issuer should consider whether these valuations 
need to be disclosed or whether additional narrative disclosure is 
necessary so that the disclosure about property valuations is not 
misleading.\351\ Originators, sponsors or other transaction parties are 
not required to obtain updated valuations in order to respond to the 
data points capturing information about recent valuations. Instead, 
this requirement is meant to capture valuations conducted subsequent to 
the original valuation for whatever reason, such as updated valuations 
obtained in the normal course of their business or because other facts 
or circumstances required an updated valuation.
---------------------------------------------------------------------------

    \351\ See footnote 186 and accompanying text.
---------------------------------------------------------------------------

Information About the Obligor(s)
    We proposed a group of asset-level data points that would provide 
data about an obligor's credit quality.\352\ This group of data points 
was intended to capture information about the obligor(s) income, debt, 
employment, credit score and DTI ratio. In light of privacy concerns, 
the proposal included ranges, or categories of coded responses, instead 
of requiring disclosure of an exact credit score, income or debt amount 
in order to prevent the identification of specific information about an 
individual. We discuss below the significant comments we received about 
this group of data points and the revisions we have made in response to 
those comments.
---------------------------------------------------------------------------

    \352\ See proposed Items 2(c)(1) through 2(c)(31) of Schedule L.
---------------------------------------------------------------------------

Use of Coded Ranges, Updated Information and Information About Co-
Obligors
    The comments we received on this group of data points varied. As 
discussed below, several commenters noted that some data points related 
to obligors may cause individual privacy concerns if linked to the 
obligor even if that information, like obligor credit score, was 
provided in ranges.\353\ On the other hand, some commenters generally 
opposed coded ranges because they believe exact credit scores are 
necessary to evaluate risk, appropriately price the securities or 
verify issuer disclosures.\354\
---------------------------------------------------------------------------

    \353\ See, e.g., letters from ABA I, AFSA I, CDIA, CU, Epicurus, 
SIFMA I, TYI LLC dated Aug. 2, 2010 submitted in response to the 
2010 ABS Proposing Release (``TYI''), and WPF I. See also Section 
III.A.3 Asset-Level Data and Individual Privacy Concerns.
    \354\ See letters from ASF I (expressed views of investors 
only), Interactive Data Corporation dated August 2, 2010 submitted 
in response to the 2010 ABS Proposing Release (``Interactive''), 
Prudential I, and Wells Fargo I.
---------------------------------------------------------------------------

    With respect to whether updated obligor information should be 
required, one commenter believed that servicers should provide updated 
borrower information whenever such information is obtained by the 
servicer.\355\ Other commenters, without providing a reason, also 
suggested updated credit score information should be provided.\356\ 
Another commenter, however, suggested that updated credit scores are 
obtained infrequently, if at all, and the benefit investors may receive 
from updated monthly credit scores across all securitized loans would 
not justify the costs to provide such disclosures.\357\ The commenter 
recommended requiring this information only if the servicer obtains the 
information. We also received a few comments suggesting that we 
eliminate the co-obligor categories for various reasons,\358\ and 
received a comment suggesting that we provide obligor information for 
up to four different obligors.\359\
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    \355\ See letter from MetLife I (suggesting that certain obligor 
information be disclosed whenever a servicer obtains updated 
information).
    \356\ See letters from ASF I and Wells Fargo I.
    \357\ See letter from MBA I.
    \358\ See letters from BoA I (suggesting that for proposed Items 
2(c)(1)-2(c)(12), 2(c)(23) and 2(c)(26)-2(c)(31), if there are 
multiple borrowers the data should be aggregated (e.g., income or 
assets) and if the data cannot be aggregated (e.g., DTI) the most 
conservative value should be used) and CMBP (suggesting that 
separate obligor and co-obligor categories are unnecessary because 
total obligor income to service the debt and the nature of that 
income is sufficient).
    \359\ See letter from SFIG I.
---------------------------------------------------------------------------

    We are eliminating certain data about obligor income based on 
comments received and in light of the recent adoption by the CFPB of 
the ability-to-repay requirements under the Truth in Lending Act or 
Regulation Z, which includes minimum standards for creditors to 
consider in making an ability-to-pay determination when underwriting a 
mortgage loan.\360\ We note that all originators will need to adhere to 
these requirements and, therefore, it is appropriate to align our 
disclosure requirements with how originators will be required to assess 
the obligor's income when considering their ability to repay a loan 
while not requiring the disclosure of a significant amount of 
potentially sensitive obligor information that could increase re-
identification risk.\361\ To achieve this, we omitted the data points 
capturing obligor and co-obligor wage income,\362\ obligor and co-
obligor other income,\363\ all obligor wage income,\364\ all obligor

[[Page 57218]]

total income,\365\ and monthly debt.\366\ A commenter suggested that we 
require monthly income used to calculate the DTI ratio.\367\ However, 
as discussed below in Section III.A.3 Asset-Level Data and Individual 
Privacy Concerns, to help reduce re-identification risk, we are not 
adopting a number of data points that disclose potentially sensitive 
obligor information, such as debt or income.
---------------------------------------------------------------------------

    \360\ 12 CFR 1026. See also Ability-to-Repay and Qualified 
Mortgage Standards Under the Truth in Lending Act (Regulation Z) 
(Jan. 30, 2013) [78 FR 6407], as amended by Ability-to-Repay and 
Qualified Mortgage Standards Under the Truth in Lending Act 
(Regulation Z) (June 12, 2013) [78 FR 35429] and Amendments to the 
2013 Mortgage Rules Under the Real Estate Settlement Procedures Act 
(Regulation X) and the Truth in Lending Act (Regulation Z) (July 24, 
2013) [78 FR 44686].
    \361\ Accordingly, we are not requiring that obligor information 
such as credit score, credit score type, income verification, 
employment verification, asset verification and length of employment 
be provided for more than one obligor.
    \362\ See proposed Items 2(c)(26) and 2(c)(27) of Schedule L.
    \363\ See proposed Item 2(c)(28) and 2(c)(29) of Schedule L.
    \364\ See proposed Items 2(c)(30) of Schedule L.
    \365\ See proposed Item 2(c)(31) of Schedule L.
    \366\ See proposed Item 2(c)(15) of Schedule L.
    \367\ See letter from Mass. Atty. Gen.
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    We are also adopting data points capturing the obligor credit 
score, modified from the proposal.\368\ The proposal would have 
required issuers to indicate the credit score type and score. If the 
score used was FICO, issuers would have been required to indicate the 
code that represented a range of FICO credit scores within which the 
score fell. The rules we are adopting require disclosure of the exact 
credit score used to evaluate the obligor during the origination 
process.\369\ We are persuaded by commenters that exact credit scores 
are necessary to evaluate risk and to appropriately price 
securities.\370\ We also added, in response to comments received, data 
points that capture the most recent credit score, credit score type and 
credit score date.\371\ We are persuaded that updated scores should be 
provided, if obtained, since such information will provide investors 
with a picture of the obligor's ongoing ability to repay the loan. 
These data points do not require originators, sponsors or transaction 
parties to obtain updated information. Instead, this requirement is 
meant to capture credit scores obtained, for whatever reason, after the 
original score was obtained.
---------------------------------------------------------------------------

    \368\ See new Items 1(e)(2) Original obligor credit score and 
1(e)(3) Original obligor credit score type of Schedule AL.
    \369\ The 2010 ABS Proposal required a coded response 
representing ranges of FICO score, if FICO was used. If another type 
of credit score was used, an exact score would have been required.
    \370\ See letters from ASF I (requesting exact credit score be 
required because it has historically been provided on a loan-level 
basis and stating that investor members were concerned that moving 
from disclosing precise scores to score ranges ``would represent a 
significant step backwards in loan-level transparency''), ASF II 
(noting that actual FICO score has been provided for some time in 
the RMBS industry and that loan-level investors ``believe that it 
would be extremely useful in the auto space as well'') Capital One I 
(stating that current FICO scores would be very useful for an 
investor's credit analysis), Interactive (stating that providing 
FICO score ranges would reduce precision by assuming that all loans 
within a certain band will behave the same), MetLife I (requesting 
specific FICO score for each loan), Prudential I (stating that 
ranges of FICO scores or grouped data disclosure are not sufficient 
to appreciate the linkages between collateral characteristics), 
Prudential III (discussing the importance of certain data points, 
such as credit score, to an investor's credit risk analysis and 
asserting that predictive risk factors, such as FICO score must be 
evaluated in conjunction with other factors, as the combination of 
individual loan characteristics and economic environment can add or 
diminish the risk of a given loan), Vanguard (stating that providing 
investors with specific data, such as FICO scores, that is updated 
periodically should foster independent analysis in the ABS market 
and improve pricing), and Wells Fargo I (expressing its concern that 
by providing investors with ranges of credit scores, issuers would 
receive substantially lower pricing for new offerings, which would 
lead to substantially higher costs for consumers). In addition, 
Ginnie Mae, Fannie Mae and Freddie Mac all disclose exact credit 
scores. We understand that certain asset-level information about an 
obligor, including credit score, may be considered a ``consumer 
report'' subject to regulation under FCRA. As discussed below, the 
CFPB has provided guidance to the Commission stating that FCRA will 
not apply to asset-level disclosures where the Commission determines 
that disclosure of certain asset-level information is ``necessary 
for investors to independently perform due diligence,'' in 
accordance with the mandate of Securities Act Section 7(c). For a 
discussion of the importance of credit scores to predicting 
delinquency, see Section III.A.3 below.
    \371\ See new Items 1(e)(4) Most recent obligor credit score, 
1(e)(5) Most recent obligor credit score type and 1(e)(6) Date of 
most recent obligor credit score of Schedule AL. See letters from 
ASF I, MetLife I, and Wells Fargo I.
---------------------------------------------------------------------------

Length of Employment
    We proposed data points requiring information about the length of 
time the obligor and co-obligor have been employed.\372\ We received a 
comment that this level of detail about the obligor's length of 
employment is unnecessary.\373\ As an alternative, the commenter stated 
that it would be sufficient to know if the obligor has been employed by 
his or her current employer for 24 months or less or more than 24 
months because this is the standard demarcation in industry 
underwriting standards. In line with the commenter's suggestion, we 
revised the data point to require the issuer to indicate whether the 
obligor has been employed by his or her current employer for greater 
than 24 months as of the origination date. We believe this approach 
will mitigate the burden on issuers, but still provide investors with 
valuable information about the obligor's length of employment.
---------------------------------------------------------------------------

    \372\ See proposed Items 2(c)(22) and 2(c)(23) of Schedule L.
    \373\ See letter from CMBP.
---------------------------------------------------------------------------

Months Bankruptcy and Months Foreclosure
    We proposed a data point that would require disclosure of the 
number of months since any obligor was discharged from bankruptcy.\374\ 
We also proposed a data point that would require disclosure, if the 
obligor has directly or indirectly been obligated on any loan that 
resulted in foreclosure, of the number of months since the foreclosure 
date.\375\ We received a comment suggesting this information may be 
difficult or costly for many lenders to capture, and that a suitable 
substitute would consist of a representation designed to ensure that 
the obligor has not recently been discharged from bankruptcy and a 
representation designed to ensure that the obligor has not recently 
been obligated on a loan that resulted in a foreclosure sale.\376\ The 
commenter suggested requiring representations in the relevant 
transaction agreements, in lieu of the disclosure of the number of 
months since the obligor was discharged from bankruptcy or the number 
of months since the foreclosure date, to the effect that at least a 
specified number of years have passed since any obligor was discharged 
from bankruptcy or was a direct or indirect obligor on a loan that 
resulted in a foreclosure sale.
---------------------------------------------------------------------------

    \374\ See proposed Item 2(c)(24) of Schedule L.
    \375\ See proposed Item 2(c)(25) of Schedule L.
    \376\ See letter from ASF I.
---------------------------------------------------------------------------

    Another commenter stated, with respect to the data point capturing 
the number of months since an obligor has directly or indirectly been 
obligated on any loan that resulted in foreclosure, that its dealer and 
sponsor members believe that this data point should be limited to 
direct obligations, whereas its investor members believed that 
guaranteed or co-signed obligations should be included.\377\ Both 
groups agreed that this disclosure should be limited to obligations on 
residential property that resulted in foreclosure within the last seven 
years (so that such foreclosure would appear on a credit report).
---------------------------------------------------------------------------

    \377\ See letter from SIFMA I.
---------------------------------------------------------------------------

    In response to privacy concerns, we are not adopting either 
proposed data point. Section III.A.3 Asset-Level Data and Individual 
Privacy Concerns below provides a discussion of these and other related 
data points that we are not adopting due to the potential re-
identification risk. As noted below, if an obligor had experienced a 
past bankruptcy or foreclosure, we would expect that those events would 
have been considered in generating a credit score. Because we are 
requiring disclosure of an exact credit score, investors will receive 
information they need about past payment behavior to perform due 
diligence.
Debt-to-Income
    We proposed data points that would require at the time of 
securitization disclosure about the total DTI ratio used

[[Page 57219]]

by the originator to qualify the loan.\378\ In addition, at the time of 
securitization and on an ongoing basis the front-end and back-end DTI 
\379\ ratios would be required for any modified loans.\380\
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    \378\ See proposed Item 2(c)(16) of Schedule L.
    \379\ The front-end DTI is calculated by dividing the obligor's 
total monthly housing expense by the obligor's total monthly income. 
The back-end DTI is calculated by dividing the obligor's total 
monthly debt expense, which includes expenses such as mortgage 
payments, car loan payments, child support and alimony payments, 
credit card payments, student loans payments and condominium fees, 
by the obligor's total monthly income.
    \380\ See proposed Items 2(a)(21)(iv)-(v) of Schedule L and 
Items 2(e)(23) and 2(e)(25) of Schedule L-D.
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    One commenter suggested DTI ratio disclosure provided at 
origination include both front-end and back-end DTI ratios.\381\ The 
commenter also suggested we require the DTI ratio for an ARM loan to be 
recalculated using the fully indexed interest rate and that we require 
disclosure of any subsequent calculations.\382\
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    \381\ See letter from Mass. Atty. Gen.
    \382\ Id. (also requesting other updated information be 
provided, for instance, any values that have been corrected as a 
result of due diligence process, such as monthly income and DTI, as 
well as any post-modification DTI ratios).
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    The data points we are adopting today require, as proposed and 
consistent with the comment received, front-end and back-end DTI ratios 
calculated during the loan origination process and at the time of any 
loan modification.\383\ We believe both front-end and back-end DTI 
ratios provide important data about the total debt load of the obligor, 
which provides insight into the obligor's ability to repay the loan. We 
are not adopting, as one commenter recommended, data points capturing 
information about the DTI ratio recalculated using the fully indexed 
interest rate. We believe the DTI figures provided in response to this 
data point will be adequate for investors to use, in part, to assess a 
borrower's ability to repay. We also note that our approach is 
generally consistent with Regulation Z, which requires all loans 
covered by Regulation Z to consider DTI ratios calculated using the 
fully indexed interest rate.
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    \383\ See new Items 1(e)(9) Originator front-end DTI, 1(e)(10) 
Originator back-end DTI, 1(m)(12) Modification front-end DTI, and 
1(m)(13) Modification back-end DTI of Schedule AL.
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Information About Servicer Advances
Servicer Advances
    We made various changes to the group of data points capturing 
information about servicer advances. The proposal included information 
about the servicer's responsibility, if any, to advance principal or 
interest on a delinquent loan, the method of those advances, the 
outstanding cumulative balance advanced and how those advances were 
subsequently reimbursed. The requirements we are adopting today include 
the information proposed and described above, but also include the 
addition and deletion of some data points capturing advances to address 
comments received. We discuss immediately below the various changes to 
the group of data points capturing information about servicer advances.
Advancing Method
    The final rule includes a data point suggested by a commenter 
titled ``Advancing method.'' \384\ The data point includes a coded list 
that indicates the servicer's responsibility for advancing principal or 
interest on delinquent loans. We believe that the response to this data 
point will help investors understand the servicer's responsibility with 
respect to advances for each particular loan and the pool as a whole.
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    \384\ See new Item 1(g)(5) Advancing method of Schedule AL. See 
letter from ASF I.
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Advances: Principal, Interest, Taxes and Insurance, and Corporate
    We proposed a general disclosure data point that would require, if 
amounts were advanced by the servicer during the reporting period, the 
disclosure of the amount advanced.\385\ One commenter \386\ suggested 
that for RMBS, we split this information into three categories that 
would capture principal and interest advances,\387\ tax and insurance 
advances,\388\ and corporate advances because these categories of 
information are more useful.\389\ In addition, the investor membership 
of another commenter requested disclosure about the servicer's 
methodologies regarding advances of interest and principal on 
delinquent loans, the reimbursement of those advances,\390\ and, for 
modified loans, disclosure about non-capitalized and capitalized 
advances.\391\ The commenter also suggested aggregating the data points 
capturing, for liquidated loans, the various advances the servicer had 
made to cover expenses incurred due to concerns that the information 
was too granular and the information is immaterial to investors.\392\
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    \385\ See proposed Item 1(g)(4) of Schedule L-D.
    \386\ See letter from ASF I.
    \387\ Id. (noting that principal and interest advances consist 
of due but unpaid principal and/or interest on the loan for the 
period, as required by the methodology specified in the transaction 
agreements).
    \388\ Id. (stating that tax and insurance advances consist of 
due but unpaid escrow amounts for payment of property taxes and 
insurance payments with respect to the mortgaged property).
    \389\ Id. (defining corporate advances as consisting of property 
inspection and preservation expenses with respect to defaulted 
loans).
    \390\ See letter from SIFMA I (suggesting that we amend current 
pool-level disclosure requirements so that more disclosure is 
provided about a servicer's methodologies for advancement of 
principal and interest and the reimbursement of advances).
    \391\ Id. (referring to the disclosures required under proposed 
Items 2(e)(45) Reimbursable modification escrow and corporate 
advances (capitalized) and 2(e)(46) Reimbursable modification 
servicing fee advances (capitalized) of Schedule L-D).
    \392\ See proposed Items 2(m)(1)(iv) through 2(m)(1)(xii) of 
Schedule L-D.
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    In light of these comments, we have split the final data points 
into the following four categories: Principal advances, interest 
advances, taxes and insurance advances, and corporate advances. While 
one commenter recommended aggregating the principal advances and 
interest advances into one data point, the final rule includes data 
points capturing interest and principal advances separately since that 
is consistent with how other information that relates to principal and 
interest is captured in Schedule AL.
    We agree with commenters that requiring disclosures about advances 
made by the servicer, the outstanding cumulative balance advanced and 
how those advances were subsequently reimbursed or addressed will 
provide investors insight into the payment status of a particular asset 
within the pool and the potential losses that may pass on to the trust. 
Therefore, in order to capture how these advances were reimbursed, the 
final rule includes additional data points that capture for these same 
categories of advances, the cumulative outstanding advanced amount or, 
if these advances were subsequently reimbursed, how they were 
reimbursed or resolved, such as through the obligor becoming current on 
payments, or being reimbursed at the time the loan was liquidated. 
Since this information is likely readily available to issuers, we 
believe the cost to provide this data should be low.
    We have omitted from the final requirements, as a commenter 
recommended, proposed data points that would have required the 
disclosure of the amount of various expenses advanced and reimbursed, 
such as property inspection expenses, insurance premiums, attorney fees 
and property taxes paid for liquidated loans. Since the asset-level 
reporting requirements do not require that advances be reported in this 
fashion at each reporting period, we are uncertain at this time whether 
this level of granularity about outstanding advances at loan 
liquidation would be beneficial to

[[Page 57220]]

investors. In general, we believe these expenses are captured by other 
data points that detail reimbursements at loan liquidation for advances 
of taxes and insurance and corporate expenses.\393\
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    \393\ See new Items 1(t)(1)(iii) Servicer advanced amounts 
reimbursed--principal; 1(t)(1)(iv) Servicer advanced amounts 
reimbursed--interest; 1(t)(1)(v) Servicer advanced amount 
reimbursed--taxes and insurance; and 1(t)(1)(vi) Servicer advanced 
amount reimbursed--corporate of Schedule AL.
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Information About Modified Loans
    We proposed a group of data points that would capture information 
about modified loans. The responses to this group of data points would 
provide data about whether a loan has been modified, the modification 
terms and the loan characteristics that were modified. We received 
comments suggesting we add \394\ or delete \395\ data points from this 
group of data points, and comments suggesting we revise certain data 
points within this group.\396\ A commenter suggested adding a 
requirement for data that details the number of modification requests 
that are granted and denied and the average time that elapses between a 
borrower's request for a loan modification and a determination of that 
application.\397\ The commenter also requested disclosure of the number 
and percentage of modified loans which have re-defaulted.
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    \394\ See letters from ASF I and Wells Fargo I.
    \395\ See letter from ASF I.
    \396\ See letter from SIFMA I.
    \397\ See letter from CU.
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    We are adopting most of this group of proposed data points,\398\ as 
well as additional data points, mainly based on comments received to 
provide further transparency around modifications, including any change 
in loan characteristics or other loan features.\399\ For instance, the 
final requirements include, in addition to the proposed data points, 
data points that capture information about step provisions,\400\ the 
actual and scheduled ending balances of the total debt owed,\401\ the 
date a trial modification was violated,\402\ and the interest rate and 
amortization type after modification.\403\ For loans that remain an 
adjustable rate mortgage after a modification, additional data points 
capture information, such as the index look-back, the post-modification 
initial interest rate, the maximum amount a rate can increase or 
decrease and information about negative amortization caps.\404\ We did 
not add, as a commenter suggested, requirements about the number of 
modification requests received, the average time that elapses between a 
borrower's request for a loan modification and when a determination is 
made, or the number and percentage of modified loans which have re-
defaulted.\405\ We are not persuaded these disclosures would provide a 
clear benefit to investors, especially in light of the costs issuers 
would incur to provide such information.
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    \398\ We are not adopting certain items related to a 
modification that would be captured elsewhere in the requirements, 
such as information on servicer advances. See, e.g., proposed Items 
2(e)(44) through 2(e)(46) of Schedule L-D.
    \399\ See letters from ASF I and Wells Fargo I.
    \400\ See new Items 1(m)(24)(i) Post-modification interest rate 
step indicator; 1(m)(24)(ii) Post-modification step interest rate; 
1(m)(24)(iii) Post-modification step date; 1(m)(24)(iv) Post-
modification--step principal and interest; and 1(m)(24)(v) Post-
modification--number of steps of Schedule AL.
    \401\ See new Items 1(m)(19) Actual ending balance--total debt 
owed and 1(m)(20) Scheduled ending balance--total debt owed of 
Schedule AL.
    \402\ See new Item 1(n)(3) Most recent trial modification 
violated date of Schedule AL.
    \403\ See new Items 1(m)(4) Post-modification interest rate type 
and 1(m)(5) Post-modification amortization type of Schedule AL.
    \404\ See, e.g., new Items 1(m)(21)(vi) Post-modification index 
look-back; 1(m)(21)(vii) Post-modification ARM round indicator; 
1(m)(21)(viii) Post-modification ARM round percentage; 1(m)(21)(xi) 
Post-modification ARM payment recast frequency; 1(m)(21)(xx) Post-
modification ARM interest rate teaser period; 1(m)(21)(xxiii) Post-
modification ARM negative amortization cap; 1(m)(22)(ii) Post-
modification interest only last payment date; 1(m)(24)(ii) Post-
modification step interest rate and 1(m)(24)(iv) Post-modification--
step principal and interest. The group of data points capturing data 
about modifications include some data points beyond those proposed 
or those that commenters suggested be added. These additional data 
points were added to make the required disclosure about modified ARM 
loans consistent with the required disclosure about original ARM 
loans. See new Items 1(m)(21)(ii) Post-modification ARM Index; 
1(m)(21)(ix) Post-Modification initial minimum payment; 
1(m)(21)(xiv) Post-modification initial interest rate increase; 
1(m)(21)(xvii) Post-modification subsequent interest rate decrease; 
and 1(m)(21)(xix) Post-modification payment method after recast of 
Schedule AL.
    \405\ See letter from CU.
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Most Recent Loan Modification Event Type
    We also proposed a data point as part of the ongoing disclosure 
requirements that would require the issuer to specify, if the loan has 
been modified, the code that describes the type of action that has 
modified the loan terms.\406\ The proposed codes were: 
1=capitalization-fees or interest have been capitalized into the unpaid 
principal balance; 2=change of payment frequency; 3=construction to 
permanent; and 4=other. One commenter requested we delete this data 
point because the coded list only describes a subset of possible loan 
modifications and the type of modification can be determined based on a 
comparison of pre-modification and post-modification 
characteristics.\407\ Another commenter recommended we expand the coded 
list to add forgiveness of principal, rate reductions, maturity 
extensions and forgiveness of interest to the list of possible 
responses.\408\
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    \406\ See proposed Item 2(a)(21)(ii) of Schedule L.
    \407\ See letter from ASF I.
    \408\ See letter from SIFMA I.
---------------------------------------------------------------------------

    We are adopting this data point because we believe this disclosure 
will allow investors to focus on what terms may have changed due to a 
modification, which should allow investors to quickly assess whether 
changes in the terms of an asset will affect future cash flows or the 
risk profile of the asset pool.\409\ We added, as a commenter 
recommended, additional codes to the coded list.\410\ We also note that 
a loan may go through several loan modifications. Therefore, we revised 
the data point to clarify that information about the most recent loan 
modification is required each time the disclosure is filed.\411\
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    \409\ See new Item 1(m)(1) Most recent loan modification event 
type of Schedule AL.
    \410\ The coded list was revised to also include the following 
possible responses: 4=forgiveness of principal, 5=rate reductions, 
6=maturity extensions and 7=forgiveness of interest. If, however, 
the type of action that has modified the loan terms is not 
identified in the list of possible responses, the issuer should 
select the code ``other'' and we encourage the issuer to provide 
explanatory language in an Asset Related Document. See Section 
III.B.4 Asset Related Documents for a discussion on providing 
additional explanatory disclosure about the asset-level disclosures.
    \411\ Because asset-level data will be provided monthly, 
investors will be able to track previous loan modifications.
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Effective Date of the Most Recent Loan Modification
    We proposed a data point titled ``Loan modification effective 
date,'' which is the date on which the most recent modification of the 
loan has gone into effect. A commenter suggested omitting this data 
point from the RMBS requirements because loan modifications are 
effective on the mortgage loan's next due date after entry.\412\ While 
we acknowledge that may be current practice, we are adopting this data 
point as we are mindful that other practices regarding loan 
modifications may develop. Further, since responses to this data point 
will be provided on an ongoing basis after a loan is modified, we 
believe this date will provide a clear indication about the length of 
time that has passed since the loan was last modified. We are adopting 
this data point with a revision to clarify that only information about 
the most recent loan modification is required because, as noted above, 
a loan

[[Page 57221]]

may go through several modifications.\413\
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    \412\ See letter from ASF I.
    \413\ See new Item 1(m)(2) Effective date of the most recent 
loan modification of Schedule AL.
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(2) Commercial Mortgage-Backed Securities
    Between Schedule L and Schedule L-D, we proposed 108 data points 
that relate specifically to CMBS. The data points we proposed to 
require in Schedule L and Schedule L-D were primarily based on the data 
template included in the CREFC Investor Reporting Package (``CREFC 
IRP''), current Regulation AB requirements, and staff review of current 
disclosure. We did not propose, however, to include every piece of 
information exactly as specified in the CREFC IRP for two reasons. 
First, some of the disclosures required by the CREFC IRP would have 
already been captured by proposed data points in the Item 1 General 
Requirements, and we believed that those data points would apply to all 
types of ABS. Second, we did not believe the level of detail in the 
CREFC IRP was necessary for investor analysis because we believed that 
the most important data for CMBS is data that relates to the loan term 
and the property.
    The response to the proposal indicated a general preference for 
CREFC IRP in lieu of the proposed requirements.\414\ The preference 
applied to both information in the prospectus and ongoing 
reporting.\415\ For asset-level reporting at the time of 
securitization, commenters seemed to favor initial reporting schedules 
commonly attached by issuers to the prospectus (typically referred to 
as Annex A) that frequently contain asset-level data based on the 
specific types of commercial mortgages in the transaction. Some of 
these commenters suggested that the proposed requirements would 
duplicate the data provided in the Annex A schedules provided with the 
prospectus \416\ and the existence of duplicative data may confuse 
investors.\417\ One commenter, who supported requiring Annex A in lieu 
of the proposed Schedule L disclosures, suggested that Schedule L does 
not reflect the practices that CMBS market participants have developed 
to provide ``CMBS investors with clear, timely and useful disclosure 
specifically tailored for use by those investors.'' \418\ Finally, one 
investor believed it is reasonable to require the disclosures because 
much of the same information is currently provided in Annex A of the 
offering documents.\419\ The investor suggested, however, that 
additional disclosure items to improve current industry disclosure 
practices, such as requiring disclosure of actual versus underwritten 
property performance metrics, including disclosure of the same 
performance metrics for the preceding three years, complete tenant 
information versus top three tenant information, rent rolls, full 
indebtedness information for each property and standardized tenant and 
borrower information.
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    \414\ See, e.g., letters from ABA I (suggesting that we conform 
Schedule L data points to IRP standards and the Schedules L and L-D 
standards should be a ``guideline'' and that the ``traditional 
standards of materiality'' should be the overriding factor in 
determining the appropriateness of the disclosure in the offering 
document), BoA I (suggesting that we require asset-level disclosure 
generally, but allow the industry to set the requirements for 
disclosure in the prospectus because requiring a separate Schedule L 
would be repetitive of the relevant information already provided in 
CREFC's Annex A), CREFC I (suggesting that we conform proposed 
Schedule L asset-level data disclosure to the then-current ``Annex 
A'' data points formulated by the CREFC ``Annex A'' Committee and/or 
consider that the Schedule L filing requirement be satisfied if the 
issuer files a Schedule L with the data points identical to the 
then-current form of ``Annex A'' adopted by CREFC), CREFC III, MBA I 
(suggesting that to the extent we believe more standardized 
terminology and a defined core of shared data points for Schedule L 
would be benefit investors, that we adopt the core disclosures in 
the current industry Annex A schedules and leverage the definitions 
already provided in CREFC's IRP), MBA IV, and Wells Fargo I 
(suggesting that proposed Schedule L asset-level data disclosure 
conform to the then-current ``Annex A'' data points contained in 
CREFC's IRP).
    \415\ See letters from ABA I, BoA I, CMBS.com I (suggesting that 
we establish rules consistent with existing standards where possible 
to limit disruptions and costs), CoStar, CREFC I, CREFC III, MBA I, 
MBA IV, MetLife I, and Wells Fargo I.
    \416\ See letters from BoA I, MBA I, and MBA IV.
    \417\ See letter from MBA I (urging that we consider any 
increase in cost to be incurred by the issuer to provide the 
additional data and cautioning against including duplicative or 
extraneous data points at securitization that may hinder rather than 
enhance investor review of the loans in the pool).
    \418\ See letter from Wells Fargo I.
    \419\ See letter from MetLife I.
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    For ongoing reporting, commenters indicated a preference for 
previously established industry standards in lieu of the proposal for 
several reasons.\420\ For instance, one commenter was concerned that 
requiring data points unrelated to CMBS, such as those found in the 
general requirements, would cause undue programming burdens without a 
material benefit to investors.\421\ Another commenter stated that ``IRP 
guidelines identify which data points are restricted (i.e., only 
available to certain users), while the SEC data filings to be contained 
in Schedule L-D would be public information.'' \422\ The commenter then 
stated that publicly disclosing certain sensitive information could put 
the underlying properties at a competitive disadvantage, which could 
negatively influence the securities. Other commenters also believed 
that proprietary information should be considered sensitive 
information, and therefore CMBS issuers should not be required to 
publicly disclose such information on EDGAR.\423\ Commenters also noted 
that based on current requirements, investors would receive CREFC IRP 
disclosures 15 days prior to the required filing date of the Schedule 
L-D disclosure.\424\ One of these commenters also stated that CMBS 
transactions often involve multiple loans with different financial 
reporting dates, and the information has to be reviewed by the 
appropriate parties, and therefore, any particular reporting date may 
not reflect information for the current reporting period.\425\ One 
investor suggested, in lieu of adopting our ongoing disclosure 
proposal, that we require disclosure of complete rent rolls at least 
once per year, the alternatives evaluated with respect to 
modifications, all terms related to a modification or assumption and 
that we require the format of the industry reporting standard to be in 
XML.\426\
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    \420\ See letters from CREFC I (suggesting that we tailor 
Schedule L-D to take into consideration the data already captured by 
the IRP), CREFC III, CoStar, MBA I, MBA IV, MetLife I, and Wells 
Fargo I (suggesting that all of the data captured by Schedule L-D is 
either captured by the IRP or is not applicable to CMBS with the 
exception of only two data points, which they indicated would be 
added to what is captured by the IRP).
    \421\ See letter from CREFC I.
    \422\ See letter from Wells Fargo I.
    \423\ See letters from CREFC III (stating that ``the CRE Finance 
Council's member constituencies, including investment-grade 
investors, believe that most--if not all--of the information on 
Schedule L and Schedule L-D should be considered sensitive, and 
therefore should continue to be hosted on the issuer's (or trustee's 
or third-party's) Web site''), MBA IV, and SFIG II.
    \424\ See letters from CREFC I, MetLife I, MBA IV, and Wells 
Fargo I.
    \425\ See letter from Wells Fargo I.
    \426\ See letter from MetLife I.
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    After considering the comments we received, we are adopting a 
requirement that issuers of CMBS provide the disclosures contained 
under Item 2 of Schedule AL. We believe that investors and market 
participants should have access to information to assess the credit 
quality of the assets underlying a securitization transaction at 
inception and over the life of a security. While we recognize the 
current market practice is to include provisions in CMBS transactions 
that provide investors with asset-level data for each pool asset, we 
note that this market practice is not a mandatory requirement and is 
subject to change. As such, we believe the asset-level disclosure 
requirements that we are adopting will require a minimum level of 
standardized asset-level

[[Page 57222]]

disclosures in the prospectus and over the life of a security 
regardless of market practices. We acknowledge commenters' concerns 
that requiring asset-level disclosures that deviate from the data 
template in the CREFC IRP may raise costs for both issuers and 
investors because users are accustomed to working with the CREFC IRP 
data templates. We also understand that investors are involved in the 
ongoing development of the CREFC IRP. For these reasons, we made 
efforts to align our requirements, as much as possible, with pre-
established industry codes, titles and definitions to allow for the 
comparability of future offerings with past offerings and to minimize 
the burden and cost of reporting similar information in different 
formats.
    The requirements that we are adopting contain several revisions 
from the proposal aimed at aligning our standards with the CREFC IRP. 
We reconsidered and are not adopting some data points that do not 
correspond to the CREFC IRP or are typically disclosed in Annex A 
because they are no longer necessary due to other changes we made, such 
as aggregating Schedules L and L-D, or because we are adding data 
points based on the CREFC IRP to capture the same or similar 
information.\427\ Some data points that we are adopting, however, do 
not correspond exactly to data captured by the CREFC IRP, but we 
believe the responses to these data points will improve or clarify the 
requirements, or aid an investor's ability to make an investment 
decision.\428\ We are also adding some data points that correspond to 
data captured by the CREFC IRP based on comments received, because the 
responses to these data points clarify other data points or they add 
more granularity to the data captured by other data points.\429\ In 
total, the proposal for CMBS included a total of 182 data points 
between the proposed general item requirements of Schedules L and L-D 
and the data points specific to CMBS in proposed Schedules L and L-D. 
Based on the changes described above, the final requirements include 
152 data points.
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    \427\ See, e.g., proposed Items 1(a)(17) Servicing fee--flat 
dollar; 1(b)(5) Current delinquency status; 1(b)(6) Number of days 
payment is past due; 3(a)(9) Current hyper-amortizing date of 
Schedule L and 1(f)(3) Actual principal paid; 1(f)(4) Actual other 
amounts paid; 1(f)(14) Current payment status; 1(g)(5) Cumulative 
outstanding advanced amount; 1(g)(8) Other loan level servicing 
fee(s) retained by servicer; 1(g)(9) Other assess but uncollected 
servicer fees; 1(l)(2)(ii) Pledged prepayment penalty waived; 
1(l)(2)(iii) Reason for not collecting pledged prepayment penalty; 
3(a)(4)(i) Rate at next reset; and 3(a)(4)(iii) Payment at next 
reset of Schedule L-D.
    \428\ See new Items 2(a)(1) Asset number type; 2(b)(1) Reporting 
period begin date; 2(b)(2) Reporting period end date; 2(c)(1) 
Originator; 2(c)(2) Origination date; 2(c)(11) Original interest-
only term; 2(c)(13) Underwriting indicator; 2(c)(25) Prepayment 
premium indicator; 2(d)(15) Valuation source at securitization; 
2(e)(16)(i) Servicing advance methodology; 2(f)(1) Primary servicer; 
2(g) Asset subject to demand; 2(g)(3) Demand resolution date; 
2(g)(4) Repurchaser; 2(g)(5) Repurchase or replacement reason; 
2(k)(5) Post-modification maturity date and 2(k)(6) Post-
modification amortization period of Schedule AL.
    \429\ See, e.g., new Items 2(c)(18) Scheduled principal balance 
at securitization; 2(d)(2) Property address; 2(d)(3) Property city; 
2(d)(4) Property state; 2(d)(5) Property zip code; 2(d)(6) Property 
county; 2(d)(13) Year last renovated; 2(d)(28)(i) Date of financials 
as of securitization; 2(d)(28)(xiv) Most recent debt service amount; 
2(d)(28)(xxi) Date of the most recent annual lease rollover review; 
2(e)(3) Reporting period beginning scheduled loan balance; 2(e)(10) 
Unscheduled principal collections; 2(e)(14) Paid through date; 
2(e)(16)(iv) Total taxes and insurance advances outstanding; 
2(e)(16)(v) Other expenses advance outstanding; 2(e)(17) Payment 
status of loan; 2(e)(18)(i) ARM index rate; 2(f)(2) Most recent 
special servicer transfer date; 2(f)(3) Most recent master servicer 
return date; 2(h) Realized loss to trust; 2(i)(1) Liquidation/
Prepayment code; 2(i)(2) Liquidation/Prepayment date; 2(k)(2) 
Modification code of Schedule AL. We are also adopting a few data 
points that do not correspond to data captured by the CREFC IRP 
because our data points clarify the requirements or we received 
comments requesting the data points be added and we believe the data 
points aid an investor's ability to make an informed investment 
decision. See, e.g., new Items 2(d)(19) Most recent valuation 
source; 2(e)(1) Asset added indicator; 2(g)(1) Status of asset 
subject to demand; and 2(g)(2) Repurchase amount of Schedule AL.
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    Finally, we are adjusting the codes, titles, and definitions of 
many of the data points to make them largely comparable to the data 
definitions set in the CREFC IRP.\430\ We believe that through these 
changes and by making the asset-level data requirements for CMBS 
largely align with the CREFC IRP many of the disclosures provided under 
the CREFC IRP can be used to provide the required disclosures. As a 
result, we believe we have mitigated, to a great extent, cost and 
burden concerns expressed by commenters and the concern that CMBS 
investors will not be able to compare the data with the data from past 
deals.
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    \430\ See, e.g., new Items 2(c)(28)(xi) Rate of reset frequency; 
2(d)(7) Property type; 2(d)(11) Number of units/beds/rooms at 
securitization; 2(d)(15) Valuation source at securitization; 
2(d)(24) Defeasance status; 2(d)(28)(vii) Operating expenses; and 
2(d)(28)(xii) Net operating income/net cash flow indicator at 
securitization.
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    We also considered concerns raised by commenters as well as 
alternatives to the final rules. For instance, one commenter suggested 
that the proposed ongoing reporting requirement would add no value to 
investors since the industry standard is to make ongoing asset-level 
disclosures available earlier than when the proposal would require 
them.\431\ We are not persuaded by this comment. We believe that many 
transaction agreements, while they provide investors with access to 
asset-level disclosures on an ongoing basis, they do not guarantee that 
these disclosures will remain available or continue. We believe that 
requiring asset-level disclosures, which to a large extent aligns with 
how data is currently provided to investors, to be filed on EDGAR will 
preserve the information and result in greater transparency in the CMBS 
market.
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    \431\ See letter from Wells Fargo I.
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    We also considered the concerns raised by some commenters about 
requiring disclosure of proprietary information due to the sensitive 
nature of the entire data set.\432\ While we acknowledge this concern, 
we believe that information about the underlying properties, including 
information about the borrowers, will provide CMBS investors and 
potential investors with information they need to perform due diligence 
and make informed investment decisions and therefore should be 
disclosed. We also note that some of the asset-level data that we are 
adopting is available to the public, for a fee, through third-party 
data providers.\433\
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    \432\ See letters from CREFC III, MBA IV, SFIG II, and Wells 
Fargo I. Commenters did not identify specific data points that 
should be revised or eliminated to help address potential 
competitive harm.
    \433\ See, e.g., Trepp (providing CMBS data and analytics 
services), https://www.trepp.com/cmbs/.
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    We considered, as an alternative to the final rules, that issuers 
provide standardized asset-level disclosures based solely on an 
industry standard, such as the CREFC IRP. We are not persuaded that 
this alternative is appropriate because as market practices evolve the 
consistency of the data provided by each transaction may differ since 
there is no mandatory requirement that all transactions provide the 
same type of data. Therefore, we believe adopting a standardized set of 
asset-level disclosures helps ensure that investors and other market 
participants will always have access to a minimum set of asset-level 
disclosures, both at the time of the offering and on an ongoing basis. 
While we have tailored the asset-level disclosure requirements for each 
asset class, we also understand from comments received that certain 
commercial mortgages in a pool may have unique features and that the 
standardized set of requirements may not capture all of the unique 
attributes of a particular asset or pool due to the various types of 
commercial properties.\434\ Although we are not adopting all of the 
data points in the CREFC IRP, CMBS issuers may provide

[[Page 57223]]

those data points as additional asset-level disclosures in an Asset 
Related Document, as appropriate.\435\
---------------------------------------------------------------------------

    \434\ See letter from CREFC I.
    \435\ See Section III.B.4 Asset Related Documents for further 
discussion on how to provide such additional disclosures.
---------------------------------------------------------------------------

    With respect to ongoing reporting, we are not adopting a 
commenter's suggestion that disclosures about alternatives evaluated 
related to a modification or disclosure of all terms related to a 
modification or assumption be provided. We believe this information 
would be difficult to capture in a standardized way, and we are 
uncertain, at this time, whether this information is best captured 
within these particular asset-level requirements. We are adopting as 
proposed, with revisions to address comments received, expanded 
disclosures about tenants. We discuss the comments received on tenant 
disclosures below. We are also requiring that asset-level disclosures 
be provided in XML. We discuss the requirement that asset-level 
disclosures be provided in XML in Section III.B.3 XML and the Asset 
Data File.
Tenant Disclosures
    We proposed data points about the three largest tenants (based on 
square feet), including square feet leased by the tenant and lease 
expiration dates of the tenant. Several commenters suggested that we 
expand the scope of these disclosures.\436\ For instance, one 
commenter, an investor, suggested the initial reporting requirements 
include a requirement to capture rent roll information (i.e., detailed 
schedules of lease payments for each tenant over time) and additional 
tenant and operating performance information, full indebtedness 
information and a way to identify borrowers and tenants.\437\ This 
commenter also suggested that we require full rent rolls for every 
property in a transaction at least once per year. Other commenters also 
supported requiring full rent roll and tenant information.\438\
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    \436\ See letters from CMBS.com I, CoStar, MetLife I, and 
Realpoint LLC dated Aug. 2, 2010 submitted in response to the 2010 
ABS Proposing Release (``Realpoint'').
    \437\ See letter from MetLife I (suggesting that we also 
require: (1) A minimum 3-year history of operating performance for 
each underwriting performance metric such as NOI, NCF, etc.; (2) 
complete tenant information versus providing information on just the 
top three tenants; (3) rent rolls for every property detailing lease 
terms for every tenant; (4) full indebtedness information for each 
property and terms for any other debt that is serviced with the cash 
flows from the property regardless of the ranking of such other debt 
in relation to the securitized debt and the conditions under which 
borrowers are permitted under the transactions documents to place 
additional debt on the same property in the future; and (5) a 
practical way to quickly identify borrowers and tenants, perhaps 
through a standardized convention to allow investors to more easily 
be able to identify their portfolio level exposures). See also 
letters from CMBS.com I and Realpoint (suggesting that we require 
similar information).
    \438\ See letters from CoStar (suggesting that we require 
disclosures of the full rent roll rather than just the largest three 
tenants and that these disclosures should include: (1) Tenant name 
(unless a residential property); (2) tenant business line; (3) lease 
start date; (4) lease amount including any concessions or associated 
expenses such as tenant improvements; (5) expense sharing 
arrangements; (6) co-tenancy clauses; and (7) lease renewal 
options), CMBS.com I, and Realpoint (suggesting that we require 
disclosure of either the entire rent roll, or at least the largest 
tenants and all other tenants with lease expiration dates that occur 
within five years of the cut-off date, and that these disclosures 
should include: (1) Base rent; (2) pass-through expense 
reimbursements (taxes, insurance, repairs, maintenance, utilities 
and other operating expenses); and (3) capital improvement 
reimbursements because these disclosures would permit them to 
conduct testing of gross rents, net operating income, net cash flow, 
debt service coverage ratio and other financial metrics).
---------------------------------------------------------------------------

    We are adopting as proposed data points about the three largest 
tenants (based on square feet), including square feet leased by the 
tenant and lease expiration dates of the tenant.\439\ While some 
commenters requested several changes to the tenant disclosures for 
CMBS, the consensus among commenters was that rent roll information for 
each property supporting the mortgages underlying the CMBS was needed. 
We are not adopting a requirement within the asset-level requirements 
to require rent roll information at this time because it is not clear 
how to standardize detailed schedules of lease payments for each tenant 
over time on an asset-level basis, and we did not receive comment 
suggesting how this could be done.
---------------------------------------------------------------------------

    \439\ See new Items 2(d)(25)(i) Largest tenant; 2(d)(25)(ii) 
Square feet of largest tenant; 2(d)(25)(iii) Date of lease 
expiration of largest tenant; 2(d)(26)(i) Second largest tenant; 
2(d)(26)(ii) Square feet of second largest tenant; 2(d)(26)(iii) 
Date of lease expiration of second largest tenant; 2(d)(27)(i) Third 
largest tenant; 2(d)(27)(ii) Square feet of third largest tenant and 
2(d)(27)(iii) Date of lease expiration of third largest tenant of 
Schedule AL.
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Valuations
    Proposed Schedule L and Schedule L-D both included data points 
aimed at capturing valuation information on the properties underlying 
the commercial mortgages.\440\ The valuation data points contained in 
Schedule L would provide disclosure of the most recent property 
valuation as of the measurement date in the prospectus. The valuation 
data points contained in Schedule L-D would require the most recent 
property valuation available as of the reporting period that the 
Schedule L-D covered. One commenter suggested that the final rule 
should capture data on periodic updating and monitoring of commercial 
real estate assets because periodic (annual) appraisal and evaluation 
``updates'' of commercial real estate are commonly performed.\441\
---------------------------------------------------------------------------

    \440\ See proposed Items 3(b)(7), 3(b)(8) and 3(b)(9) of 
Schedule L.
    \441\ See letter from AI.
---------------------------------------------------------------------------

    We are adopting, with some revisions, data points that capture the 
most recent appraisals or valuations available at the time of the 
securitization and on an ongoing basis.\442\ While the information 
required by these data points is substantially similar to information 
captured by the CREFC IRP, the data points that we are adopting 
specifically require, in line with revisions made to RMBS property 
valuation data points, disclosure of any valuation ``obtained by or for 
any transaction party or its affiliates.'' The reference to ``obtained 
by or for any transaction party or its affiliates'' contained in each 
definition should be construed broadly to include, but not be limited 
to, valuations obtained as part of any due diligence conducted by 
credit rating agencies, underwriters or others parties to the 
transaction. We are also adopting data points that identify the source 
of the property valuation and the date of the valuation.\443\ These 
data points do not require that originators, sponsors or transaction 
parties obtain updated valuations. Instead, this requirement is meant 
to capture valuations conducted subsequent to the original valuation 
for whatever reason, such as updated valuations obtained in the normal 
course of their business or because other circumstances require an 
updated valuation. We believe providing investors updated valuation 
information will allow them to understand changes in the value of 
collateral that is meant to protect against losses. Furthermore, since 
we are requiring issuers to disclose the information only if it is 
already available to them, we believe that the disclosures will not be 
unduly burdensome.
---------------------------------------------------------------------------

    \442\ See Items 2(d)(14) Valuation amount at securitization and 
2(d)(17) Most recent value of Schedule AL.
    \443\ See Items 2(d)(15) Valuation source at securitization, 
2(d)(16) Valuation date at securitization, 2(d)(18) Most recent 
valuation date, and 2(d)(19) Most recent valuation source of 
Schedule AL.
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(3) Automobile Loan or Lease ABS
    Between Schedule L and Schedule L-D, we proposed 110 data points 
that relate to ABS backed by auto loans and 116 data points that relate 
to ABS backed by auto leases. These proposed data points were comprised 
of a combination of data points, some of which were proposed to apply 
to all

[[Page 57224]]

asset types and others which were proposed to apply only to auto loans 
or auto leases. The proposed data points were derived from the 
aggregate pool-level disclosure that has been commonly provided in Auto 
ABS prospectuses. The proposal also included data points related to 
obligor and co-obligor income, assets, employment and credit scores.
    For Auto ABS, support for the proposal varied between issuers and 
investors. Many investors supported the asset-level model with certain 
modifications from the proposal.\444\ Investor commenters stated that 
``the provision of loan-level data will strengthen the Auto ABS market 
and make it more resilient over the long term.'' \445\ We note, 
however, that even the investors that support asset-level disclosure 
have suggested various modifications and limitations to address issues 
such as privacy and competitive concerns. One investor commenter 
acknowledged that the incremental benefit of some proposed fields may 
be difficult to justify as compared to the costs of providing such 
information.\446\ In light of standard industry practices and issuer 
concerns about costs and the disclosure of proprietary information, 
investor commenters recommended adopting fewer data points than were 
originally proposed.\447\
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    \444\ See letters from ASF II (expressed views of loan-level 
investors only), MetLife I, and Vanguard. There were, however, other 
investors who did not support the asset-level model. See letters 
from ASF II (expressed views of grouped-account investors only) 
(supporting a grouped account approach for Auto ABS) and Capital One 
II (noting that they invest in more senior tranches of Auto ABS and 
recommending that no additional asset-level disclosure be adopted 
for Auto ABS).
    \445\ See letter from ASF II (expressed views of loan-level 
investors only).
    \446\ See letter from MetLife I.
    \447\ See letters from ASF II (expressed views of loan-level 
investors only), MetLife I, and Vanguard.
---------------------------------------------------------------------------

    Issuers typically commented that asset-level reporting was not 
necessary for Auto ABS because they claimed that the Auto ABS market 
continues to be robust and active despite no material changes to 
disclosure practices.\448\ One group of issuers also raised concerns 
that asset-level data requirements would push certain investors \449\ 
and issuers \450\ out of the Auto ABS market. They were also concerned 
that the auto industry could be affected if Auto ABS sponsors have to 
pass increased costs to automobile purchasers because Auto ABS sponsors 
are unable to access more cost-effective financing through the Auto ABS 
market.\451\ These issuer commenters noted that several Auto ABS 
sponsors estimated the costs and employee hours necessary to reprogram 
systems and business procedures to capture, track and report all of the 
items for auto loans currently set forth in the proposal. The average 
cost estimated by those sponsors was approximately $2 million, and the 
average number of employee hours was approximately 12,000.\452\ This 
group of issuer commenters also argued that Congress never intended to 
require asset-level data for Auto ABS by pointing to a Senate report 
published three months prior to the adoption of the Dodd-Frank 
Act.\453\ One trade association commented that such requirements were 
not necessary for Auto ABS because ``most investors have been able to 
adequately underwrite auto loan transactions--including during the 
economic downturn--on the basis of current disclosure, due to the 
conservative nature of the structure, the deleveraging and granularity 
of the underlying assets, and their understanding of the issuer's 
servicing capabilities.'' \454\ One group of issuer commenters noted 
possible re-identification risks.\455\ These same commenters also 
expressed concern about the potential release of proprietary 
information.\456\
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    \448\ See letter from VABSS IV.
    \449\ See letter from VABSS IV (stating that they ``understand 
that some investors who do not have the internal resources to 
analyze data at the loan-level may choose not to invest in Auto ABS 
because they perceive that they would be at an informational and 
analytic disadvantage to other investors or because they believe 
they have a potential risk of liability to their own investors for 
not being able to utilize all the available data in their 
analysis'').
    \450\ See letter from VABSS IV (stating that they ``believe that 
loan-level disclosure requirements could act as a barrier to entry 
for smaller finance companies that may not have the necessary 
systems, personnel or resources to capture, track and report loan-
level data, thus discouraging the entry of new issuers into the Auto 
ABS market . . . [and] that these sponsors that are unable to access 
the Auto ABS markets due to concerns about loan-level disclosure 
could be placed at a competitive disadvantage to banks and more 
highly-rated sponsors that are able to either comply with loan-level 
disclosure or access other less burdensome sources of funding (e.g., 
bank deposits)'').
    \451\ See letter from VABSS IV.
    \452\ Id.
    \453\ See letter from VABSS III (quoting a portion of the 
Committee on Banking, Housing, and Urban Affairs' discussion of 
Section 942 of the Dodd-Frank Act in Senate Report No. 111-176: 
``The Committee does not expect that disclosure of data about 
individual borrowers would be required in cases such as 
securitizations of credit card or automobile loans or leases, where 
asset pools typically include many thousands of credit agreements, 
where individual loan data would not be useful to investors, and 
where disclosure might raise privacy concerns'').
    \454\ See letter from ASF II (expressed views of issuer members 
and grouped account investors only).
    \455\ See letter from VABSS IV.
    \456\ See letter from VABSS IV (noting that Auto ABS sponsors 
make ``considerable investments in technology and human capital to 
capture, maintain and analyze [the asset-level] data, and to build 
proprietary credit scoring models and models that predict residual 
value of leased vehicles'' and stating that making such data 
publicly available could harm them in the marketplace).
---------------------------------------------------------------------------

    Issuer commenters generally noted that, if any data reporting was 
to be required, alternative models such as grouped account data, more 
robust pool-level reporting or some combination of the two would be 
sufficient.\457\ Several commenters argued that alternatives such as 
grouped account data or expanded pool stratification would provide 
additional meaningful information to investors while at the same time 
addressing individual privacy concerns and proprietary concerns.\458\ 
One group of issuer commenters suggested we consider conditioning the 
provision of asset-level reporting to compliance with potential risk 
retention rules.\459\ These commenters also stated that certain data 
points are often the same for all assets in an Auto ABS.\460\ They 
suggested that, if we adopt asset-level reporting for Auto ABS such 
data points should not be required if (1) the responses would be 
identical for each asset in the pool \461\ and (2) adequate pool-level 
disclosure is given in the prospectus. In response to the 2014 Re-
Opening Release, some commenters expressed opposition to asset-level 
requirements for Auto ABS.\462\
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    \457\ See, e.g., letters from ABA I, AmeriCredit, ASF II 
(expressed views of dealers and sponsors only), BoA I, Capital One 
I, VABSS I, and Wells Fargo I.
    \458\ See letters from ABA I and VABSS IV (in which the 
commenters also conceded that ``presenting grouped data is in many 
ways more difficult, as it required more time and resources to 
gather the loan-level data and then compile it for presentation as 
grouped data).
    \459\ See letter from VABSS IV (suggesting that we consider ``an 
outright exemption from all loan-level data requirements for any 
Auto ABS sponsor that satisfies the final risk retention 
requirements adopted by the Commission'' or, at the very least, ``an 
exemption for Auto ABS sponsors who retain a horizontal or first-
loss position as required by the final risk retention requirements 
given the direct alignment of interests of sponsors, servicers and 
investors in Auto ABS and the absorption of all possible losses on 
these structures by the horizontal `slice' retained by the 
sponsor'').
    \460\ See letter from VABSS IV.
    \461\ These commenters also suggested that a response to a data 
point may be omitted if no more than 1% of the securitized pool 
would have a different response. See letter from VABSS IV.
    \462\ See, e.g., letters from AFSA II (opposing requirements for 
Auto ABS for several reasons including its belief that the Auto ABS 
market is liquid, many proposed data points would not apply to Auto 
ABS and for proprietary concerns), Capital One II (opposing 
requirements for Auto ABS by suggesting that asset-level data is not 
necessary for investor due diligence, and also noting that the 
benefits for Auto ABS do not outweigh the costs), SFIG II (noting 
auto loan ABS has not traditionally included asset-level 
disclosures), and Wells Fargo III (suggesting that asset-level data 
for Auto ABS would provide little to no incremental value to 
investors).

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[[Page 57225]]

    As we developed the standards we are adopting today, we took into 
consideration how the proposed data points relate to how information is 
collected, tracked and reported in the Auto ABS marketplace, as well as 
how auto loans and leases differ from RMBS and CMBS, and how those 
differences impact the type of information available for collection and 
the utility of such information to investors. We also considered 
potential impacts on the automobile industry if Auto ABS sponsors pass 
down higher financing costs to consumers. After considering the 
comments received, we are adopting, as proposed, with some modification 
to individual data points and some reduction in the amount of data 
required to be provided, asset-level disclosures specific to Auto ABS. 
We did consider, as an alternative, whether asset-level reporting 
should be required in Auto ABS at all. We considered the legislative 
history of Section 942 of the Dodd-Frank Act, which was cited by 
commenters.\463\ We also considered whether an alternative reporting 
model, such as grouped account data, pool stratifications or some 
combination of the two, would provide adequate information to 
investors. In the end, we concluded that none of these alternatives 
provide the benefits that we believe investors should receive. We 
agreed with investors that ``[g]rouped data is preset, which prohibits 
a customizable analysis of pool information by an investor and 
presupposes that critical credit metrics and indicators do not change 
over time . . . [while] the transparency afforded by loan-level data 
will allow all investors to evaluate, in any market and on an 
independent basis, whether the pools and structures are robust and the 
ratings assigned are appropriate.'' \464\ We also do not agree that 
Auto ABS sponsors should be exempt from providing asset-level data if 
that sponsor has retained a certain amount of risk. As stated in 
Section II.A Economic Motivations, while we expect risk retention rules 
will result in better underwriting practices, we believe that more is 
needed to fully restore incentive alignment and credit screening in the 
securitization market. If sponsors are exempt from asset-level 
disclosure based on compliance with risk retention requirements, 
investors and market participants would have fewer Auto ABS pools 
available for asset-level comparisons. Finally, we are not making any 
data points optional on the basis that such data point may be the same 
across an Auto ABS pool. While we understand that commenters intended 
to consolidate repetitive data points, we believe that the asset-level 
presentation of data in a standardized format is an important tool to 
investors who want to make asset-to-asset comparisons across different 
Auto ABS pools. If responses to certain data points are omitted, an 
investor wanting to make pool-to-pool comparisons would first have to 
locate the omitted information in one or more prospectuses and then 
recreate portions of the asset-level data files before accurate 
comparisons could be made.
---------------------------------------------------------------------------

    \463\ We note that we first proposed asset-level disclosure 
requirements for Auto ABS prior to the enactment of the Dodd-Frank 
Act. While we believe the asset-level disclosure requirements being 
adopted today are consistent with the mandate in Section 7(c) of the 
Securities Act, as added by Section 942 of the Dodd-Frank Act, we do 
not view that mandate as limiting our long standing authority to 
prescribe disclosure standards, as necessary and appropriate, for 
purposes of federal securities laws.
    \464\ See letter from ASF II (expressed views of loan-level 
investors only).
---------------------------------------------------------------------------

    We believe that the requirements we are adopting for Auto ABS will 
provide a better picture of the composition and characteristics of the 
pool assets, which is critical to an investor's ability to make an 
informed investment decision about the securities. We have considered 
commenters' concerns that Auto ABS is, in many ways, different from 
RMBS and CMBS, including that Auto ABS generally fared better during 
the recent financial crisis. We do not believe, however, that the 
grouped account data model proposed by commenters would provide 
information in sufficient detail for investors to compare and evaluate 
various Auto ABS pools and structures. With asset-level data, users 
would not have to rely on pre-determined groupings of information, and 
instead would be able to compare and evaluate the underlying assets 
using the individual pieces of information they consider to be 
material.\465\
---------------------------------------------------------------------------

    \465\ Id. See also letter from Prudential I.
---------------------------------------------------------------------------

    While we are requiring that Auto ABS issuers provide asset-level 
data, we have significantly reduced the scope of the asset-level data 
required from the amount proposed. In doing so, we considered an 
estimate provided by several Auto ABS sponsors that, if we only adopted 
the data points proposed in their comment letter,\466\ the average 
costs and employee hours necessary to reprogram systems and otherwise 
comply with the asset-level disclosures would be approximately $750,000 
and 3,500, respectively.\467\ In line with this suggestion, we have 
attempted to reduce burden and cost concerns by reducing the scope of 
the asset-level data required to align with the smaller scope of 
information that commenters, including investors, believed should be 
required for Auto ABS. While the final rules do not exactly mirror the 
scope of information the group of Auto ABS sponsors suggested be 
required, we believe that the significantly smaller scope of 
information we are requiring, coupled with revisions to align the data 
points with current industry standards should lead to substantially 
lower costs versus what was originally proposed. These substantially 
lower costs should also reduce any potential impact on the automobile 
industry. We also believe that the smaller scope of information and the 
revisions we made to the data points still provide investors with 
sufficient information to evaluate the security. Under the final 
requirements we are adopting, issuers are required to disclose the 
information described in Item 3, with respect to auto loans, and Item 
4, with respect to auto leases, of Schedule AL for each auto loan or 
lease in the pool, as applicable. As noted above, we proposed 110 data 
points that relate to ABS backed by auto loans and 116 data points that 
relate to ABS backed by auto leases. In addition to the data points 
that were eliminated when Schedules L and L-D were condensed,\468\ 40 
of the proposed data points for auto loans are not being adopted and 57 
of the proposed data points for auto leases are not being adopted. We 
are adopting 12 new data points for auto loans and 15 new data points 
for auto leases.\469\ Accordingly, the final rules will require issuers 
to provide 72 data points for ABS backed by auto loans and 66 data 
points for ABS backed by auto leases. Fewer data points should reduce 
the cost of providing asset-level data for Auto ABS issuers and also 
should help to address

[[Page 57226]]

individual privacy concerns.\470\ We also believe that this reduction 
in scope should help address competitive concerns that were raised by 
issuers. While we acknowledge that some competitive concerns may still 
exist, we believe that the information we are requiring about the 
underlying assets will provide Auto ABS investors and potential 
investors with information they need to perform due diligence and make 
informed investment decisions and therefore should be disclosed. We 
also note that some of the asset-level data that we are adopting is 
available to the public, for a fee, through third-party data 
providers.\471\
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    \466\ See letter from VABSS IV. For ABS backed by auto loans, 
these commenters proposed that 29 data points should be adopted 
unconditionally (i.e., for each asset regardless of the response or 
the structure of the transaction) and 28 data points be adopted 
conditionally (i.e., they may be omitted if certain conditions are 
met, such as homogenous responses). For ABS backed by auto leases, 
these commenters proposed that 30 data points should be adopted 
unconditionally and 26 data points be adopted conditionally.
    \467\ The estimate of $750,000 and 3,500 hours is in contrast to 
this commenter's estimate of $2 million and 12,000 hours for all of 
the Auto ABS data points as originally proposed.
    \468\ When the Schedules L and L-D were condensed (as discussed 
in Section III.B.2 The Scope of New Schedule AL), we eliminated 10 
repetitive data points for ABS backed by auto loans and 8 repetitive 
data points for ABS backed by auto leases.
    \469\ Data points that have been added since the proposing 
release were either based on comments or added for purposes of 
clarity or consistency.
    \470\ See Section III.A.3 Asset-Level Data and Individual 
Privacy Concerns.
    \471\ See letter from VABSS II (stating that there are 
relatively inexpensive databases containing car owner information 
linked to vehicle make, model, year, and more). New and used vehicle 
values can also be obtained for free via publicly available sources. 
See, e.g., www.kbb.com.
---------------------------------------------------------------------------

    We are not adopting a significant number of data points where we 
agreed with commenters that the data point was not applicable to Auto 
ABS or where we are concerned that the benefits investors may receive 
from the disclosures may not justify the potential costs and burdens to 
issuers to provide the disclosures.\472\ Solely with respect to ABS 
backed by auto leases, we are also not adopting several data points 
that were part of the general schedule of data points proposed for all 
asset classes because the information required to be provided in the 
items is not something that is relevant for auto leases (for example, 
items that require issuers to provide interest, principal or 
amortization information would not be relevant because auto leases do 
not have amortization, interest, interest rates or principal 
balances).\473\
---------------------------------------------------------------------------

    \472\ For all Auto ABS, these include the following Schedule L 
data points: Item 1(a)(3) Asset group number; Item 1(a)(9) Original 
amortization term; Item 1(b)(6) Number of days payment is past due; 
Item 1(b)(7) Current payment status; Items 4(b)(1) and 5(b)(1) 
Geographic location of dealer; Items 4(c)(13) and 5(c)(13)--Length 
of employment: obligor; and Items 4(c)(11) and 5(c)(11) Obligor 
asset verification. And the following Schedule L-D data points: Item 
1(c) Asset group number; Item 1(f)(8) Current scheduled asset 
balance; Item 1(f)(13)--Number of days payment is past due; Item 
1(f)(14) Current payment status; Item 1(f)(15) Pay history; Item 
1(f)(16) Next due date; Item 1(g)(5) Cumulative outstanding advance 
amount; Item 1(g)(7) Stop principal and interest advance date; Item 
1(j) Liquidated indicator; Item 1(k) Charge-off indicator; Item 
1(k)(2) Charged-off interest amount; Item 1(l)(1) Paid-in-full 
indicator; Item 1(l)(2)(i) Pledged prepayment penalty paid; Item 
1(l)(2)(ii) Pledged prepayment penalty waived; and Item 1(l)(2)(iii) 
Reason for not collecting pledge prepayment penalty.
    \473\ For ABS backed by auto leases, these include the following 
additional Schedule L data points: Item 1(a)(11) Interest type; Item 
1(a)(12) Amortization type; Item 1(a)(13) Original interest only 
term; and Item 1(b)(3) Current interest rate. And the following 
Schedule L-D data points: Item 1(f)(2) Actual interest paid; Item 
1(f)(3) Actual principal paid; Item 1(f)(4) Actual other amounts 
paid; Item 1(f)(17) Next interest rate; and Item 1(k)(1) Charged-off 
principal.
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    As with RMBS and CMBS, we believe that, unless the individual data 
points are standardized across all issuers of Auto ABS, the utility of 
asset-level data is generally limited. While commenters have pointed 
out several areas where there is a difference between how we have 
proposed that data be presented and how information is generally 
collected in Auto ABS,\474\ we are unaware of any publicly available 
investor reporting data standards for Auto ABS. We also received many 
comments directed at individual data points, many of which were seeking 
changes to the format of the information, the range of possible 
responses for a particular data point, or the data point's title or 
definition. Some commenters also made suggestions on how we could make 
the data point better align with common business practices. 
Accordingly, we considered each of these comments, and we made changes 
that we believe improve or clarify the disclosure, mitigate cost 
concerns, and/or implement industry standards when doing so would not 
materially diminish the value of the disclosures to investors. We 
discuss below the significant comments we received about individual 
data points along with the revisions we have made in response to those 
comments.
---------------------------------------------------------------------------

    \474\ See letter from VABSS IV.
---------------------------------------------------------------------------

Information About the Obligors
    We proposed a group of asset-level data points that would provide 
data about an obligor's credit quality.\475\ This group of data points 
was intended to capture information about the obligor(s) income, debt, 
employment, credit score and assets. In light of privacy concerns, the 
proposal proposed ranges, or categories of coded responses instead of 
requiring disclosure of an exact credit score, income or amount of 
assets in order to prevent the identification of specific information 
about an individual. We discuss below the significant comments we 
received about this group of data points and the revisions we have made 
in response to those comments.
---------------------------------------------------------------------------

    \475\ See proposed Items 4(c)(1) through 4(c)(21) and Items 
5(c)(1) through 5(c)(21) of Schedule L.
---------------------------------------------------------------------------

Obligor Income and Payment-to-Income Ratio
    We proposed ten obligor income data points (five for auto loans and 
five for auto leases) that would require issuers to provide responses 
to various data points that relate to the obligor's income.\476\ 
Several commenters suggested that these proposed obligor income data 
points be replaced with a new payment-to-income ratio data point, where 
the issuer would specify the code indicating the scheduled monthly 
payment amount as a percentage of the total monthly income of all 
obligors at the origination date while providing its methodology for 
determining monthly income in the prospectus.\477\ We agree that the 
new payment-to-income ratio data point provides investors with 
sufficient information about the obligor's income, and accordingly, we 
are not adopting any of the ten proposed obligor income data points and 
instead are adopting the new payment-to-income ratio data point 
proposed by commenters.\478\
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    \476\ See proposed Items 4(c)(6), 4(c)(15), 4(c)(17), 4(c)(19) 
and 4(c)(20) of Schedule L-D for auto loans and proposed Items 
5(c)(6), 5(c)(15), 5(c)(17), 5(c)(19) and 5(c)(20) of Schedule L-D 
for auto leases.
    \477\ See letters from ASF II (expressed views of loan-level 
investors only) and VABSS IV.
    \478\ See new Items 3 (e)(6) and 4 (e)(6) of Schedule AL.
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Obligor Income and Employment Verification
    We proposed data points that would require issuers to indicate the 
codes describing the extent to which the obligor's income and 
employment have been verified.\479\ One group of issuer commenters 
stated that it is standard industry practice for obligors to self-
report income and employment on the credit application and this 
information is only verified for the riskiest customers, but then went 
on to say that Auto ABS sponsors do not systematically capture this 
information in their origination files, and if they do, they do not 
keep it for more than 90 days.\480\ We cannot reconcile these two 
comments. If most income and employment information is self-reported on 
the credit application, then that information should be captured in the 
loan file. Furthermore, if it is standard industry practice to not 
verify the self-reported information except for the riskiest customers, 
we assume that such verification is part of the loan or lease approval 
process that goes to the creditworthiness of the obligor or lessee. 
These same commenters also argued that obligor income and employment 
verification data points would only provide marginal additional value 
if other data points, such as obligor FICO

[[Page 57227]]

score, payment-to-income ratio and LTV ratio, were provided. Investor 
commenters stated that obligor income and employment verification data 
points would provide valuable information.\481\ Accordingly, we are 
adopting these data points substantially as proposed.\482\
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    \479\ See proposed Items 4(c)(7) and 4(c)(9) of Schedule L-D for 
auto loans and proposed Items 5(c)(7) and 5(c)(9) of Schedule L-D 
for auto leases.
    \480\ See letter from VABSS IV.
    \481\ See letter from ASF II (expressed views of loan-level 
investors only) (``Verifying a borrower's income and employment can 
offset not having a top credit score. Conversely, not verifying 
these items can exacerbate an average or below average credit 
score.'').
    \482\ See new Items 3(e)(3), 3(e)(4), 4(e)(3), and 4(e)(4) of 
Schedule AL.
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Co-Obligor Items
    We proposed a total of eighteen co-obligor data points (nine for 
auto loans and nine for auto leases) that would require issuers to 
provide information about co-obligors such as credit score data \483\ 
and data about income, employment and assets used for qualification 
purposes.\484\ Several commenters suggested that all eighteen of the 
proposed co-obligor data points be deleted as they are not particularly 
relevant to the analysis of Auto ABS \485\ and that providing all of 
these co-obligor data points is not warranted given the additional time 
and expense associated with gathering the information.\486\ These 
commenters suggested that the proposed co-obligor data points be 
replaced with a data point that would indicate whether the loan or 
lease has a co-obligor.\487\ A group of commenters representing Auto 
ABS investors commented that it is sufficient to note the presence of a 
co-obligor, which would indicate that the primary obligor was not 
creditworthy enough to sustain the loan or lease on its own.\488\ We 
agree, and we are not adopting any of the eighteen proposed co-obligor 
data points and instead are adopting only the co-obligor (or co-lessee, 
as applicable) present indicator data point suggested by 
commenters.\489\
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    \483\ See proposed Items 4(c)(4), 4(c)(5) and 4(c)(6) of 
Schedule L-D for auto loans and proposed Items 5(c)(4), 5(c)(5) and 
5(c)(6) of Schedule L-D for auto leases.
    \484\ See proposed Item 4(c)(8), 4(c)(10), 4(c)(12), 4(c)(14), 
4(c)(16) and 4(c)(18) of Schedule L-D for auto loans and proposed 
Item 5(c)(8), 5(c)(10), 5(c)(12), 5(c)(14), 5(c)(16) and 5(c)(18) of 
Schedule L-D for auto leases.
    \485\ See letter from VABSS IV.
    \486\ See letter from ASF II (expressed views of loan-level 
investors only).
    \487\ See letters from ASF II (expressed views of loan-level 
investors only) and VABSS IV.
    \488\ See letter from ASF II (expressed views of loan-level 
investors only).
    \489\ See new Items 3 (e)(5) and 4 (e)(5) of Schedule AL.
---------------------------------------------------------------------------

Information About Terms of the Loan or Lease and Payment Activity
    We proposed a group of data points that would capture information 
related to the terms of the loan or lease and payment activity, such as 
original and current loan or lease terms, interest rates, prepayments, 
interest paid-through dates and servicer advances. Taken together, the 
responses to these data points would provide insight into how the loan 
or lease has performed versus how it was intended to perform when 
originated. Commenters' response to this group of data points varied, 
with some commenters suggesting that some data points in this group 
were unnecessary or redundant and others advising that these data 
points provide valuable information about the loan or lease. We discuss 
below the significant comments we received about this group of data 
points and the revisions we have made to data points within this group.
Original and Current Terms and Initial Grace Periods
    We proposed data points that would require issuers to indicate 
original and current loan terms in months.\490\ One group of issuer 
commenters noted that, for marketing reasons, auto loans and leases are 
occasionally offered with first payment dates that are deferred for up 
to 90 days, during which time interest or financing fees accrue but no 
payments are due.\491\ These commenters proposed that these items 
should be reported to reflect the number of scheduled payments due or 
remaining (converting non-monthly pay loans to monthly pay) to clearly 
indicate the payments on the loan in order to avoid odd month 
terms.\492\ We believe it is important for investors to be provided the 
actual number of months in the term, even if such number includes a 
grace period where no payments are being made. We agree with 
commenters, however, that any grace period should be accounted for. 
Therefore, in addition to adopting the original and current term data 
points (with minor revisions for timing clarifications, as detailed in 
other sections of this release), we are also adopting a new initial 
grace period data point, which requires the issuer to indicate the 
number of months during which interest accrues but no payments are due 
from the obligor (or, for auto leases, the number of months during the 
term of the lease for which financing fees are calculated but no 
payments are due from the lessee).\493\ If there is no initial grace 
period for an auto loan or lease, the response to this new data point 
would be zero.
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    \490\ See proposed Items 1(a)(7) and 1(a)(8) of Schedule L and 
Item 1(f)(18) of Schedule L-D.
    \491\ See letter from VABSS IV.
    \492\ Id.
    \493\ See new Items 3(c)(12) and 4(c)(8) of Schedule AL.
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Original Interest Rate
    We proposed a data point that would require issuers to provide the 
rate of interest at the time of origination.\494\ One group of issuer 
commenters believed that this item is generally not readily available 
or easily trackable by Auto ABS sponsors because it is industry 
practice to track only the current interest rate on auto loans.\495\ 
Although we understand that there may be some costs to the sponsor or 
issuer associated with tracking the original interest rate, we believe 
it is important for investors to be able to compare the current 
interest rate to the original interest rate and we note that any costs 
associated with tracking the original interest rate would be one-time 
costs, as the response to this data point would be static. Therefore, 
we are adopting the original interest rate data point for ABS backed by 
auto loans substantially as proposed, with minor clarifying 
modifications as described elsewhere in this release.\496\ Because auto 
leases do not have interest rates in the same manner as auto loans, we 
are not adopting this data point for ABS backed by auto leases.
---------------------------------------------------------------------------

    \494\ See proposed Item 1(a)(10) of Schedule L.
    \495\ See letter from VABSS IV.
    \496\ See new Item 3(c)(5) of Schedule AL.
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Scheduled Payments and Actual Amounts Collected
    We proposed data points that would require issuers to provide the 
principal and interest payments that were scheduled to be collected for 
the reporting period\497\ and provide any unscheduled principal or 
interest adjustments during the reporting period.\498\ We also proposed 
data points that would require issuers to indicate actual amounts 
collected during the reporting period.\499\ As suggested by commenters, 
we are not adopting data points that separate interest and principal 
payment streams for ABS backed by auto leases.\500\ Instead, for ABS 
backed by auto leases, we are adopting one data point that will capture 
the payment amount that was scheduled to be collected for the

[[Page 57228]]

reporting period and another requiring issuers to provide the total of 
any other amounts collected during the reporting period.\501\ With 
respect to ABS backed by auto loans, a group of issuer commenters 
stated that the scheduled payment data points are not relevant because 
auto loans are simple interest loans which have no scheduled principal 
or interest payment amounts and are not subject to principal or 
interest adjustments.\502\ These same commenters stated that data 
points relating to actual amounts collected should only be required to 
be disclosed if a transaction is structured with separate interest and 
principal waterfalls or separate allocations of other amounts paid to 
the investors.\503\ One investor commenter asked that both the 
scheduled payment and actual amounts collected data points be included 
for ABS backed by auto loans.\504\ We believe that the scheduled 
interest amount, scheduled principal amount and other principal 
adjustments data points provide valuable information about payments 
that are expected to be received, and we are adopting these data points 
as proposed. The scheduled interest amount and scheduled principal 
amount data points will require the issuer to provide the amount of 
interest and principal, respectively, that were due to be paid during 
the reporting period, which will show quantitatively how far in advance 
a loan was paid or how far behind the obligor is in making 
payments.\505\ The other principal adjustments data point would show 
the amount of any adjustments that are made to the principal balance of 
the loan, including but not limited to prepayments.\506\ We agree with 
the issuer commenters that the other interest adjustment data point is 
unnecessary as interest adjustments would be reflected between 
responses to the original interest rate data point and the current 
interest rate data point. Accordingly, we are not adopting the other 
interest adjustment data point. We also believe that the actual 
payments collected data points provide relevant information about how 
each asset is performing, regardless of whether the transaction is 
structured with separate principal and interest waterfalls or a single 
waterfall. Furthermore, only requiring that responses to these data 
points be provided for transactions that have separate principal and 
interest waterfalls runs counter to the goal of facilitating investors' 
ability to compare the underlying asset-level data of a particular 
asset pool with other pools. Therefore, we are adopting each of these 
proposed data points for ABS backed by auto loans.
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    \497\ See proposed Items 1(f)(10) and 1(f)(11) of Schedule L-D.
    \498\ See proposed Items 1(f)(5) and 1(f)(6) of Schedule L-D.
    \499\ See proposed Items 1(f)(2), 1(f)(3) and 1(f)(4) of 
Schedule L-D.
    \500\ See letter from VABSS IV.
    \501\ See new Items 4(f)(13) and 4(f)(15) of Schedule AL.
    \502\ See letter from VABSS IV.
    \503\ Id.
    \504\ See letter from Vanguard.
    \505\ See new Items 3(f)(13) and 3(f)(14) of Schedule AL.
    \506\ See new Item 3(f)(15) of Schedule AL.
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Prepayment and Interest Paid Through Date
    One commenter suggested we add a new ``voluntary prepayment'' data 
point.\507\ We agree that an asset-level prepayment data point will 
provide valuable information to investors about how prepayments will 
alter the timing of expected cash flows. Accordingly, we have slightly 
modified this commenter's suggestion for clarification purposes and to 
better coordinate with other asset-level requirements. For ABS backed 
by auto loans, we are adopting an interest paid through date data point 
that requires issuers to provide the date through which interest is 
paid with the current payment, which is the effective date from which 
interest will be calculated for the application of the next 
payment.\508\ For ABS backed by auto leases, we are adopting a similar 
data point which requires issuers to provide the date through which 
scheduled payments have been made, which is the effective date from 
which amounts due will be calculated for the application of the next 
payment.\509\
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    \507\ See letter from Vanguard.
    \508\ See new Item 3(f)(23) of Schedule AL.
    \509\ See new Item 4(f)(18) of Schedule AL.
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Servicer Advanced Amount
    We proposed a data point that would require issuers to specify the 
amount advanced by the servicer during the reporting period (if any 
such amounts were advanced).\510\ One group of issuer commenters stated 
that this information was already provided under the proposed current 
delinquency status data point.\511\ We do not agree that the responses 
to these two data points provide the same information, as servicing 
advances can be made if payment on a loan or lease is less than 30 days 
late (depending on when payments to investors are due in relation to 
the due date of the loan or lease payment). The current delinquency 
status data point only provides information to investors after the loan 
or lease becomes more than 30 days delinquent. Therefore, we are 
adopting the servicer advanced amount data point as proposed.\512\
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    \510\ See proposed Item 1(g)(4) of Schedule L-D.
    \511\ See letter from VABSS IV.
    \512\ See new Items 3(f)(22) and 4(f)(17) of Schedule AL.
---------------------------------------------------------------------------

Modifications and Extensions
    We proposed a data point that would require issuers to indicate 
whether an asset was modified from its original terms during the 
reporting period.\513\ A group of investor commenters suggested that 
this data point be replaced with a new modification type data 
point.\514\ As suggested by commenters, the modification type data 
point would require issuers to indicate the code that describes the 
reason for the modification and would only be required if the asset was 
modified.\515\ A group of issuer commenters suggested that the 
modification indicator data point be replaced with a new payment 
extension data point.\516\ The payment extension data point would 
require issuers to indicate the number of months the loan was extended 
during the reporting period and would only be required if the loan or 
lease was extended beyond its original terms during the applicable 
reporting period.\517\ Investor commenters also suggested that we 
replace the proposed lease term extension indicator data point \518\ 
with a lease extension data point that would require the issuer to 
indicate whether the lease has been extended and would capture any 
incremental lease payments to the trust.\519\ We agree with the 
commenters that these new and modified items are both useful and 
applicable to Auto ABS. We believe that it is important to include the 
proposed modification indicator data point so that investors can easily 
confirm whether the loan was modified during the reporting period. We 
also believe that the suggested modification type data point provides 
valuable information to investors based on the concerns that were 
raised by issuer commenters. If, in fact, modifications other than 
payment and term extensions are rare and usually lead to a repurchase, 
investors should

[[Page 57229]]

be alerted to loans or leases that have these rare modifications. 
Accordingly, we are adopting the proposed modification indicator data 
point for all Auto ABS, as well as the modification type data point and 
the payment extension data point for ABS backed by auto loans and the 
lease extension data point for ABS backed by auto leases (rather than 
adopting the lease term extension indicator data point as 
proposed).\520\
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    \513\ See proposed Item 1(h) of Schedule L-D.
    \514\ See letter from ASF II (expressed view of loan-level 
investors only).
    \515\ Id.
    \516\ See letter from VABSS IV. This commenter opposed including 
the modification type data point suggested by loan-level investors, 
stating that ``[o]ther than payment extensions and term extensions, 
there simply are not a material number of credit-related 
modifications to auto loans [and leases] where the auto loan [or 
lease] is not required to be repurchased by the servicer and 
therefore remains in the Auto ABS transaction.''
    \517\ Id.
    \518\ See proposed Item 5(h) of Schedule L-D.
    \519\ See letter from ASF II (expressed views of loan-level 
investors only).
    \520\ See new Items 3(f)(3), 3(j)(1), 3(j)(2), 4(f)(3), and 
4(j)(2) of Schedule AL.
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Lease-Specific Data Points
    We proposed several data points that only apply to ABS backed by 
auto leases that relate to information such as residual values, 
termination, wear and tear, mileage, sale proceeds, and 
extensions.\521\ Commenters also pointed out several proposed data 
points in the general item requirements that were not applicable to ABS 
backed by auto leases. For instance, a group of issuer commenters noted 
that the securitization value, which is widely used in the lease 
securitization industry, is the correct valuation of the size of the 
lease.\522\ The same group of commenters also suggested that the 
proposed original asset amount data point \523\ be revised to an 
acquisition cost data point that requires the issuer to provide the 
original acquisition cost of the lease.\524\ We agree with both 
comments, so we are adopting the securitization value and 
securitization value discount rate data points,\525\ rather than the 
asset balance data points,\526\ and are adopting the acquisition cost 
data point \527\ rather than the proposed original asset amount data 
point.
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    \521\ See proposed Items 5(b)(9) through 5(b)(10) of Schedule L 
and Items 5(b) through 5(h) of Schedule L-D.
    \522\ See letter from VABSS IV.
    \523\ See proposed Item 1(a)(6) of Schedule L.
    \524\ See letter from VABSS IV.
    \525\ See new Items 4(f)(5) and 4(f)(6) of Schedule AL.
    \526\ See proposed Items 1(f)(7) and 1(f)(8).
    \527\ See new Item 4(c)(3) of Schedule AL.
---------------------------------------------------------------------------

    With respect to the residual value of the lease, we proposed 
several data points that require the issuer to provide the base and 
updated residual values of the vehicle and provide the source of such 
residual values.\528\ Both issuer and investor commenters agreed that 
the base residual value data point should be adopted (although one 
group of issuer commenters suggested that the data point be amended to 
capture ``the securitized residual value of the leased vehicle, as 
determined by the sponsor and described in the prospectus'').\529\ 
Investor commenters also stated that it is important for the issuer to 
disclose how the base residual value is calculated.\530\ One group of 
issuer commenters stated that neither the updated residual value nor 
the source of the updated residual value data points should be adopted 
because the Auto ABS structure for leases is set up based on an 
original residual value that does not change, that it is enhanced to 
withstand residual losses and any gains just benefit investors while 
the costs and burdens to provide this information would be high.\531\ 
While investor commenters did not specifically comment on either the 
updated residual value or the source of the updated residual value data 
points, they did request that we adopt a contractual residual value 
data point, as it would be valuable in determining the likelihood that 
the lessee will purchase the vehicle at the end of the lease or turn it 
back in.\532\ Issuer commenters noted that the contractual residual 
value data point suggested by investor commenters is not as relevant as 
the base residual value or securitization residual value.\533\ We agree 
with investors that the base residual value data point, the source of 
the base residual value data point and the contractual residual value 
data point each provide different and valuable information about a 
lease. Therefore, we are adopting the base residual value and source of 
base residual value data points as proposed as well as the new 
contractual residual value data point as suggested by investor 
commenters.\534\ We are not adopting the proposed updated residual 
value data point or the source of updated residual value data point as 
these data points do not provide enough additional beneficial 
information to investors to justify the additional costs that would be 
imposed upon issuers.
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    \528\ See proposed Items 5(b)(9) and 5(b)(10) of Schedule L and 
Items 5(b) and 5(c) of Schedule L-D.
    \529\ See letters from ASF II (expressed views of loan-level 
investors only) and VABSS IV.
    \530\ See letter from ASF II (expressed views of loan-level 
investors only).
    \531\ See letter from VABSS IV.
    \532\ See letter from ASF II (expressed views of loan-level 
investors only) (suggesting that under this contractual residual 
value data point, issuers would provide the stated amount that a 
lessee needs to pay to purchase the vehicle at the end of the lease 
term).
    \533\ See letter from VABSS IV.
    \534\ See new Items 4(d)(8), 4(d)(9), and 4 (d)(10) of Schedule 
AL.
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(4) Debt Security ABS
    We proposed that issuers of debt security ABS provide responses to 
the general data points enumerated in Item 1 of Schedule L and the nine 
data points specific to debt security ABS.\535\ The comment we received 
on the proposal suggested that we require the disclosure of the CUSIP 
number, ISIN number, or other industry standard identifier of the debt 
security.\536\
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    \535\ The asset-level requirements for debt security ABS were 
proposed under the title ``corporate debt.'' ABS backed by corporate 
debt securities are typically issued in smaller denominations than 
the underlying security and the ABS are typically registered under 
Section 12(b) of the Exchange Act for trading on an exchange. 
Additionally, a pool and servicing agreement may also permit a 
servicer or trustee to invest cash collection in corporate debt 
instruments which may be securities under the Securities Act. An 
asset pool of an issuing entity includes all other instruments 
provided as credit enhancement or which support the underlying 
assets of the pool. If those instruments are securities under the 
Securities Act, the offering must be registered or exempt from 
registration if the instruments are included in the asset pool as 
provided in Securities Act Rule 190, regardless of their 
concentration in the pool. See Securities Act Rule 190(a) and (b). 
See also Section III.A.6.a of the 2004 ABS Adopting Release.
    \536\ See letter from SIFMA I.
---------------------------------------------------------------------------

    As noted above, under the final rule we are integrating the general 
item requirements into the requirements for each asset type. Therefore, 
under the final rule, issuers of debt security ABS are only required to 
provide the asset-level disclosures required under new Item 5 Debt 
Securities. After integrating the proposed general data points, the 
final requirements for debt security ABS have been reduced from 83 
possible proposed data points to 60 data points.
    Also, in response to comments received, we have revised the asset 
number data point to require a standard industry identifier assigned to 
the security be provided for each security, if such number is 
available. Public access to the responses to these data points and to 
the responses to other data points that require disclosure of the SEC 
file number and Central Index Key (``CIK'') number for the debt 
security will provide investors, including secondary market investors, 
access to more information about each debt security in the pool. As 
proposed, the final rules will require that issuers provide more 
standardized information to investors about the debt securities 
underlying the ABS. The disclosures we are adopting today require the 
title of the underlying security, origination date, the minimum 
denomination of the underlying security, the currency of the underlying 
security, the trustee, whether the security is callable, the frequency 
of payments that will be made on the security and whether an underlying 
security or agreement is interest bearing along with other basic 
characteristics of the debt securities. At a minimum, these asset-level 
disclosures will provide investors with

[[Page 57230]]

the basic characteristics of the underlying debt securities in a 
standardized format.
    Public availability of all of the asset-level information we are 
requiring to be disclosed regarding debt security ABS should reduce the 
burden on investors, including secondary market investors, to obtain 
this information, which should reduce investors' costs of conducting 
their own independent analysis and, thereby, reduce their need to rely 
on credit ratings. In addition, we believe that having an issuer 
collect and report asset-level information will improve efficiency, 
since a single entity, as opposed to multiple investors, will incur the 
information gathering costs.
    We recognize that although investors will benefit from receiving 
these asset-level disclosures, issuers will face an increase in 
information gathering and reporting costs, including costs related to 
system re-programming and technological investment. We recognize that 
the costs registrants may face will depend on the extent to which the 
information required to be disclosed is already available to issuers or 
will have to be newly collected, as well as the extent to which the 
information is already being disclosed to investors in some 
transactions. Although we are unable to estimate the magnitude of these 
costs with any precision, we believe the costs registrants will incur 
to provide the data should be nominal since the data that is required 
should already be readily available to registrants, especially since 
the asset-level disclosures required primarily relate to the 
performance of the security and the basic characteristics of the 
security, such as the title of the security, payment frequency, or 
whether it is callable. A description of each data point required for 
debt security ABS is provided in Item 5 of Schedule AL.
(5) Resecuritizations
    In a resecuritization, the asset pool is comprised of one or more 
ABS. We proposed that issuers of a resecuritization provide, at the 
time of the offering and on an ongoing basis, asset-level data for each 
ABS in the pool and for each asset underlying each ABS in the pool. 
Under the proposal, resecuritizations would provide the same data as 
required for debt security ABS for each ABS in the asset pool. In 
addition, issuers would provide asset-level data for the assets 
underlying each ABS in the asset pool in accordance with the asset-
level disclosure applicable to that particular asset class.
    We received several comments that expressed concern about the 
proposal. Some commenters expressed concern over the cost and burden to 
provide the asset-level disclosures for the assets underlying the 
securities in comparison to what they believed to be a limited 
benefit.\537\ One of these commenters was concerned about securities 
law liability for the asset-level disclosures of the assets underlying 
the securities.\538\ Other commenters were concerned that asset-level 
data may not be available for the assets underlying an ABS that was 
originated prior to the compliance date of the rule.\539\ Finally, to 
address some of these concerns, some commenters suggested exemptions 
from the asset-level disclosure requirements for some 
resecuritizations.\540\
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    \537\ See, e.g., letters from MBA I (stating that asset-level 
data about the underlying ABS would not be useful because only 
certain classes of an ABS are resecuritized, and the loans backing a 
particular class are typically supported by the underlying loan pool 
and do not correlate to specific classes of ABS) and Wells Fargo I 
(suggesting that the asset-level data required for a 
resecuritization would be of little benefit to investors in cases 
where a resecuritization involved a mixture of bonds because 
investors would have to understand the payment structure of each 
underlying ABS and the effort involved in doing this would likely be 
prohibitive for most investors in such cases). See also SIFMA I 
(expressing concerns about the cost to provide the information 
without providing their own cost estimate).
    \538\ See letter from Wells Fargo I (suggesting that with 
respect to the proposed ongoing disclosure requirements that 
subjecting the issuer, underwriter or any other resecuritization 
transaction party to securities law liability for such information 
is not appropriate because (i) such information has already been 
filed, subject to securities law liability, with respect to the 
underlying transactions, and (ii) there is no practical way for the 
resecuritization parties to do the due diligence with respect to the 
underlying filings that would need to be done to accept securities 
law liability for them).
    \539\ See, e.g., letters from ABA I, ASF I, BoA I, J.P. Morgan 
I, MBA I (with respect to RMBS), and SIFMA I. See also letter from 
Citi (indicating that issuers will often be unable to meet the 
disclosure requirements because they generally do not have access to 
the underlying asset-level files).
    \540\ See letters from SIFMA I (suggesting an exemption from the 
proposed asset-level disclosures requirements for (1) 
resecuritizations with ``seasoned'' pool assets or (2) 
resecuritizations where the underlying securities fall below some 
percentage of the asset pool (e.g., 10 percent as supported by the 
dealers and sponsor members or ``a substantially lower percentage'' 
as supported by the investor members)) and Wells Fargo I (suggesting 
an exemption from the proposed asset-level disclosures requirements 
for ``all bonds that are re-securitized that are from transactions 
which closed prior to the effective date of Regulation AB'' because 
a failure to do so ``would eliminate the availability of re-
securitizations as an important tool for investors to prudently 
restructure or de-risk legacy positions'' and it ``could impair the 
value of such positions due to the resultant illiquidity'').
---------------------------------------------------------------------------

    After considering the comments received, we are adopting the 
proposal with revisions. For each registered resecuritization, issuers 
must provide, at the time of the offering and on an ongoing basis for 
each ABS in the asset pool, the same disclosures that are required for 
debt security ABS. Therefore, information about the security, such as 
the title of the security, payment frequency, whether it is callable, 
the name of the trustee and the underlying SEC file number and CIK 
number is required.\541\ If a resecuritization consists of securities 
where we have adopted asset-level disclosure requirements (i.e., RMBS, 
CMBS, or Auto ABS), then a second tier of asset-level information is 
required. The second tier of asset-level disclosure is about the assets 
(such as each mortgage, loan or lease) underlying the ABS being 
resecuritized. For instance, in an offering where the asset pool 
includes RMBS, then the data points in Item 5 of Schedule AL would be 
required for every RMBS security in the asset pool, as well as the data 
points in Item 1 for each loan underlying each RMBS security. 
Accordingly, if asset-level disclosures are not required for a 
particular asset type, then an issuer is only required to provide the 
debt security ABS disclosures for each ABS in the underlying asset 
pool.
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    \541\ See Section III.A.2.b)(4) Debt Security ABS.
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    We are adopting an exemption from the new requirement to provide 
asset-level disclosure about the underlying ABS if the underlying ABS 
was issued prior to the compliance date for the asset-level disclosure 
requirements. We noted concerns about the cost to provide the 
disclosures, whether the information would be available, securities law 
liability for information provided by third parties and the other 
concerns raised by commenters. We acknowledge that investors will not 
have access to asset-level data for the resecuritized ABS for some 
period of time. We do not believe that providing this exemption would 
negatively affect investors because the resecuritization will still be 
subject to existing disclosure requirements, including pool-level 
disclosure requirements and the exemption will be limited over time by 
the underlying ABS becoming subject to the asset-level disclosure 
requirements. We also note that there have been no registered 
resecuritization offerings in the last few years. Further, as noted 
above, existing Securities Act Rule 190 requires that all information 
about the underlying ABS be disclosed in accordance with our 
registration rules and forms.\542\ Therefore, if the underlying ABS was 
issued prior to the compliance date for the asset-level disclosure 
requirements, investors in a resecuritization will receive updated and 
current information about pool data, static pool, risk factors,

[[Page 57231]]

performance information, how the underlying securities were acquired, 
and whether and when the underlying securities experienced any trigger 
events or rating downgrades.
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    \542\ See Securities Act Rule 190. See also Section III.A.6.a of 
the 2004 ABS Adopting Release.
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    The final requirement to provide asset-level data in the prospectus 
and in periodic reports will require that issuers provide more 
information to investors about resecuritizations than previously 
required. The asset-level disclosures about the ABS in the asset pool 
will provide investors, at a minimum, with the basic characteristics of 
a resecuritization. Further, by requiring disclosure of the SEC file 
number and CIK number for ABS being resecuritized, it will be easier 
for investors to locate more information about each resecuritized ABS. 
Public access to such information, including, when applicable, access 
to information about the assets underlying the ABS being resecuritized, 
should reduce investors' burden to obtain this information, and reduce 
their need to rely on credit ratings because investors will have access 
to the information in order to conduct their own independent analysis. 
In turn, this will allow for a more effective and efficient analysis of 
the offering and should help foster more efficient capital formation.
    We do not agree with a commenter's view that there is a limited 
correlation between loan performance and bond performance and, as a 
result, there is little benefit from investors receiving asset-level 
data about the assets underlying the ABS being resecuritized. 
Specifically, the commenter believed that the asset-level data about 
the underlying ABS would not be useful because only certain classes of 
an ABS are resecuritized, and the loans backing a particular class are 
typically supported by the entire underlying loan pool, and therefore 
do not correlate to any specific classes of ABS. We disagree and 
believe that to determine the performance of any particular 
resecuritization, an understanding of each loan in the underlying loan 
pool is necessary in order to analyze how the underlying loans impact 
the cash flows to the resecuritization.
    In addition, with respect to the availability of information, 
Section 942(a) of the Dodd-Frank Act eliminated the automatic 
suspension of the duty to file under Section 15(d) of the Exchange Act 
for ABS issuers and granted the Commission the authority to issue rules 
providing for the suspension or termination of such duty.\543\ As a 
result, ABS issuers with Exchange Act Section 15(d) reporting 
obligations will be required to report asset-level information, thereby 
easing concerns that the asset-level information for residential 
mortgages, commercial mortgages, auto loans, auto leases, or debt 
securities underlying the ABS in the resecuritization would not be 
available on an ongoing basis.
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    \543\ See Suspension of the Duty to File Reports for Classes of 
Asset-Backed Securities Under Section 15(d) of the Securities 
Exchange Act of 1934, Release No. 34-65148 (Aug. 17, 2011) [76 FR 
52549].
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    With respect to the cost and burden to provide the disclosures and 
concerns about securities law liability for information obtained from 
third parties, we believe the existing ability to reference third party 
information, in part, addresses these concerns. As is the case today, 
issuers may satisfy their disclosure requirements by referencing third-
party reports if certain conditions are met.\544\ New Forms SF-1 and 
SF-3 require that the asset-level information be filed on Form ABS-EE 
and incorporated into the prospectus.\545\ Similarly, revised Form 10-D 
requires incorporation by reference to Form ABS-EE.\546\ If the 
underlying ABS is of a third-party, we will permit issuers to reference 
the third-party's filings of asset-level data provided that they 
otherwise meet the existing third-party referencing conditions. 
Consequently, reports of all third parties, not only those that are 
significant obligors, may be referenced. Because issuers are not 
incorporating third-party filings by reference, but instead merely 
referencing these filings, we believe we have addressed concerns about 
issuers' filing burdens and securities law liability for asset-level 
information filed by third parties.
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    \544\ See Item 1100(c)(2) of Regulation AB [17 CFR 
229.1100(c)(2)]. In many instances, the issuer of the ABS being 
resecuritized would be considered a significant obligor as defined 
in Item 1101(k) of Regulation AB. If so, issuers may reference 
information about the significant obligors located in third-party 
reports as set forth in Item 1100(c)(2).
    \545\ See Section III.B.5 New Form ABS-EE, General Instruction 
IV and Item 10 of Form SF-1 and General Instruction IV and Item 10 
of Form SF-3.
    \546\ See Item 1A of Form 10-D.
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    While some commenters raised concerns about the cost to implement 
such requirements, commenters did not provide any quantitative cost 
estimates to comply with this requirement. Implementation of this 
requirement, even if a registrant can reference third-party filings, 
will require system re-programming and technological investment. In 
addition, registrants will incur a nominal cost to provide data about 
the securities being resecuritized. In general, the data about the 
securities, which track the debt security ABS requirements, should 
include data already readily available to issuers, especially since the 
requirements primarily include basic characteristics of the security, 
such as the title of the security, payment frequency, and whether it is 
callable. Registrants will incur a nominal cost to provide this data in 
the format requested. If asset-level data is required for the assets 
underlying the securities being resecuritized, registrants will, to the 
extent they cannot otherwise incorporate by reference or reference 
third-party filings, incur costs to obtain the data required about the 
assets underlying the securities being resecuritized or to convert data 
available to them into the required format. These costs were discussed 
earlier in the release in the context of complying with asset-level 
disclosure for RMBS, CMBS and Auto ABS. We believe such costs are 
appropriate because investors should receive information about the 
securities that will allow them to conduct their own independent 
analysis. In addition to the items noted above that mitigate cost 
concerns, we also believe the extended timeframe for compliance of 24 
months lowers the overall burden placed on registrants and market 
participants and should provide ample time for registrants and market 
participants to assess the availability of the asset-level information 
required for resecuritizations and to put the information in the format 
required.
3. Asset-Level Data and Individual Privacy Concerns
(a) Proposed Rule
    As we noted in the 2010 ABS Proposing Release and the 2011 ABS Re-
Proposing Release and as the staff noted in the 2014 Staff Memorandum, 
we are sensitive to the possibility that certain asset-level 
disclosures may raise concerns about the underlying obligor's personal 
privacy. In particular, we noted that asset-level data points requiring 
disclosures about the geographic location of the obligor or the 
collateralized property, credit scores, income and debt may raise 
privacy concerns. We also noted, however, that information about credit 
scores, employment status and income would permit investors to perform 
better risk and return analysis of the underlying assets and therefore 
of the ABS.
    In light of privacy concerns, we did not propose to require issuers 
to disclose an obligor's name, address or other identifying 
information, such as

[[Page 57232]]

the zip code of the property.\547\ We also proposed ranges, or 
categories of coded responses, instead of requiring disclosure of an 
exact credit score \548\ or income or debt amounts in order to prevent 
the identification of specific information about an individual.\549\
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    \547\ We proposed to require the broader geographic delineations 
of MSAs in lieu of the narrower geographic delineation of zip codes.
    \548\ For asset-level data points that require disclosure of 
obligor credit scores, we proposed coded responses that represent 
ranges of credit scores (e.g., 500-549, 550-599, etc.). The ranges 
were based on the ranges that some issuers used in pool-level 
disclosure.
    \549\ For monthly income and debt ranges, we developed the 
ranges based on a review of statistical reporting by other 
governmental agencies (e.g., $1,000-$1,499, $1500-$1,999, etc.). See 
the 2010 ABS Proposing Release at 23357.
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    The 2014 Staff Memorandum summarized the comments received related 
to potential privacy concerns and outlined an approach to address these 
concerns that would require issuers to make asset-level information 
available to investors and potential investors through an issuer-
sponsored Web site rather than having issuers file on EDGAR and make 
all of the information, including potentially sensitive information, 
publicly available. Under the Web site approach, issuers could take 
steps to address potential privacy concerns associated with asset-level 
disclosures, including through restricting Web site access to 
potentially sensitive information. The Web site approach also would 
require issuers to file a copy of the information disclosed on a Web 
site with the Commission in a non-public filing to preserve the 
information and to enable the Commission to have a record of all asset-
level information provided to investors. The prospectus would need to 
disclose the Web site address for the information, and the issuer would 
have to incorporate the Web site information by reference into the 
prospectus. In addition, issuers would be required to file asset-level 
information that does not raise potential privacy concerns on EDGAR in 
order to provide the public with access to some asset-level 
information.
(b) Comments on Proposed Rule
    In response to the 2010 ABS Proposal, several commenters noted that 
the asset-level requirements would raise privacy concerns.\550\ These 
commenters suggested that, while the proposed asset-level disclosures 
would not include direct identifiers, if the responses to certain 
asset-level data requirements are combined with other publicly 
available sources of information about consumers it could permit the 
identity of obligors in ABS pools to be uncovered or ``re-identified.'' 
\551\ A number of commenters noted that, if an obligor was identified 
through this process, then the obligor's personal financial status 
could be determined.\552\ The commenters noted that if obligors are re-
identified, then information about an obligor's credit score, monthly 
income and monthly debt would be available to the general public 
through the EDGAR filing. Commenters also noted that if personal 
information was linked to an individual through the asset-level 
disclosures this may conflict with \553\ or undermine \554\ the 
consumer privacy protections provided by federal and foreign laws 
restricting the release of individual information and increase the 
potential for identity theft and fraud.\555\
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    \550\ See, e.g., letters from ABA I, CU, MBA I (suggesting that 
the use of Metropolitan Statistical Areas or Divisions in lieu of 
zip code would not mask the location of particular properties), 
VABSS I, and WPF I (also suggesting that the proposed asset-level 
disclosures would not mask the location of particular properties and 
additionally that they may provide information useful in the re-
identification process). In general, these commenters were concerned 
that it may be possible to identify an individual obligor by 
matching asset-level data about the underlying property or asset 
with data available through other public or private sources about 
assets and their owners.
    \551\ See, e.g., letter from WPF I (suggesting that attempts to 
mask the location of particular properties and the identity of 
borrowers are not workable because there is too much information 
about mortgages available that would allow the location of a 
particular property to be found).
    \552\ See, e.g., letters from ABA I, AFSA I, American Resort 
Development Association dated July 22, 2010 submitted in response to 
the 2010 ABS Proposing Release, ASF II, CDIA, CNH I, CU, Anita B. 
Carr dated May 12, 2010 submitted in response to the 2010 ABS 
Proposing Release, Daniel Edstrom dated May 12, 2010 submitted in 
response to the 2010 ABS Proposing Release, Epicurus, ELFA I, FSR, 
MBA I, National Association of Federal Credit Unions dated Aug. 2, 
2010 submitted in response to the 2010 ABS Proposing Release, 
Navistar, SIFMA I, SLSA, TYI, VABSS I, Vantage Score Solutions LLC 
dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing 
Release (``Vantage I''), and WPF I.
    \553\ See, e.g., letters from ABA I (stating that the asset-
level disclosures would potentially result in release to the public 
of detailed non-public personal financial information (as defined in 
Title V of the Gramm-Leach-Bliley Act (``GLBA'')) as well as 
consumer report information (as defined in FCRA), CDIA (suggesting 
that certain data may fall under the protections of FCRA, GLBA, or 
both), Epicurus, TYI (suggesting that if the disclosures could be 
used to identify a borrower in a European-based ABS, this may 
violate European privacy laws), and WPF I.
    \554\ See letter from WPF I (suggesting that if data that may 
fall under the scope of FCRA is posted on EDGAR and subsequently 
linked to an individual, the data may become public and, therefore, 
the transfer of this information to others may contravene FCRA 
restrictions).
    \555\ See letters from CDIA, VABSS II, and WPF I (suggesting 
that the cost of identity theft would not only fall on borrowers, 
but also on asset holders and, therefore, investors would demand 
higher returns to protect against those losses).
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    Most commenters did not support the use of coded ranges, noting it 
would not address privacy concerns \556\ and would not further the 
Commission's objective of improving disclosure for ABS investors. Two 
commenters noted that using coded ranges would not mitigate privacy 
concerns because the ranges are so narrowly defined they would identify 
the actual score or dollar amount of income.\557\ Other commenters 
believed that the use of ranges for disclosures, such as credit scores 
and income, or requiring a broader geographic identifier for the 
property, such as MSAs, would greatly reduce the utility of the 
information.\558\ Commenters also noted that disclosure of data that 
relates to the credit risk of the obligor, such as an obligor's exact 
credit score, income, or employment history, would strengthen 
investors' risk analysis of ABS involving consumer assets.\559\ 
Commenters also suggested that exact income and credit scores are 
necessary to appropriately price the securities \560\ and verify issuer 
disclosures.\561\
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    \556\ But see letters from CDIA (noting that the proposed ranges 
or categories may provide some privacy protection) and ASF II 
(expressed views of loan-level investors only) (suggesting the use 
of range-based reporting for certain credit sensitive fields may 
also provide a solution to privacy concerns).
    \557\ See letters from CDIA and MBA I.
    \558\ See letters from ASF I (expressed views of investors 
only), Beached Consultancy (suggesting that the metropolitan area is 
too broad to be useful, and, therefore, a ``3-digit zip code'' 
should be permitted), and Wells Fargo I.
    \559\ See letters from ASF I (requesting disclosure of exact 
credit score and noting that requiring ranges would be a step back 
in terms of transparency), Interactive (noting that asset-level 
granularity is essential for robust evaluation of loss, default and 
prepayment risk associated with RMBS), Prudential I (suggesting that 
ranges of FICO score bands are not sufficient to appreciate the 
linkages between collateral characteristics), and Wells Fargo I 
(expressing concern that restricting information available to 
investors could result in substantially lower pricing for new 
residential mortgage backed securities offerings). See also SIFMA I 
(expressed views of investors only) (recommending 25-point buckets 
for credits scores rather than the 50-point buckets as proposed).
    \560\ See, e.g., letters from ASF I, Prudential I, and Wells 
Fargo I.
    \561\ See letter from ASF I (expressed views of investors only) 
(suggesting that exact income allows them to double check the 
issuer's DTI calculations).
---------------------------------------------------------------------------

    We received few suggestions for alternative approaches to balancing 
individual privacy concerns and the needs of investors to have access 
to detailed financial information about obligors. Commenters suggested 
we work with other federal agencies to evaluate whether the proposed 
asset-level information was in fact anonymized \562\ and to assess 
whether the required asset-level disclosures would subject issuers to 
liability under

[[Page 57233]]

the federal privacy laws.\563\ Many commenters that supported grouped-
account disclosures rather than asset-level disclosures indicated that 
grouped disclosures also could address privacy concerns with asset-
level disclosures.\564\ Other commenters suggested addressing privacy 
concerns by changing the disclosure format, such as by requiring that 
disclosure be presented in ratios rather than dollar amounts,\565\ 
requiring a default propensity percentage in lieu of a credit 
score,\566\ or only requiring narrative disclosure.\567\
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    \562\ See letters from ABA I and ASF I.
    \563\ See letter from ABA I.
    \564\ See, e.g., letters from ASF II (expressed views of issuers 
and a portion of investors only) and VABSS II.
    \565\ See letter from CU (suggesting that liquid cash reserves 
be expressed as a ratio relative to the borrower's debt).
    \566\ See letter from Vantage I (describing default propensity 
as the chance that a consumer will become 90 or more days late on a 
debt that he or she owes expressed as a percentage).
    \567\ See letter from ABAASA I.
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    We also received suggestions that we should restrict access to or 
impose conditions on the use of sensitive data. For instance, a 
commenter suggested that we establish a central ``registration system'' 
where access to sensitive data is only made to persons who have 
independently established their identities as investors, rating 
agencies, data providers, investment banks or other categories of users 
while forbidding others to use the data or include the data in 
commercially distributed databases.\568\ Another commenter suggested 
that the Commission consider restricting access to registered users who 
acknowledge the potentially sensitive nature of the data and agree to 
maintain its confidentiality.\569\ This commenter suggested that 
requiring users to identify themselves and accept appropriate terms of 
use would provide a deterrent to those who might attempt to abuse 
personal financial data and permit identification of such users should 
any abuse occur. Another commenter suggested establishing rules 
applicable to the posting, use and dissemination of potentially 
sensitive data disclosed on EDGAR, including penalties for violation of 
the rules.\570\
---------------------------------------------------------------------------

    \568\ See letter from VABSS II.
    \569\ See letter from CDIA.
    \570\ See letter from Epicurus.
---------------------------------------------------------------------------

    In light of the comments received raising individual privacy 
concerns and the requirements of new Section 7(c) of the Securities 
Act, we requested additional comment on privacy generally in the 2011 
ABS Re-Proposing Release.\571\ We received limited additional feedback 
on how to address the potential privacy issues surrounding the proposed 
asset-level disclosures. Commenters again stated that the asset-level 
requirements, as proposed, would raise privacy concerns.\572\ One 
commenter suggested that the Commission could address privacy concerns 
by not requiring the disclosure of social security numbers, only 
requiring MSA information about the property instead of a property's 
full address, and replacing borrower name with an ID number.\573\ Other 
commenters stated or reiterated that for some asset classes a grouped-
account or pool-level disclosure format may mitigate privacy 
concerns.\574\ One commenter repeated the suggestions that it provided 
in previous comment letters that the Commission could establish and 
manage (or have a third-party manage) a central ``registration system'' 
that could provide restricted access.\575\
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    \571\ For instance, we asked how asset-level data could be 
required, both initially and on an ongoing basis, to implement 
Section 7(c) effectively, while also addressing privacy concerns. We 
asked which particular data elements could be revised or eliminated 
for each particular asset class in a manner that would address 
privacy concerns, while still enabling an investor to independently 
perform due diligence. We also requested comment on whether it would 
be appropriate to require issuers to provide an obligor's credit 
score and income on a grouped basis in a format similar to the 
proposal for credit cards in the 2010 ABS Proposing Release.
    \572\ See, e.g., letter from Mortgage Bankers Association dated 
Oct. 4, 2011 submitted in response to the 2011 ABS Re-Proposing 
Release (``MBA III'') (reiterating that several of the data points 
proposed could allow someone to identify the obligor and that ``the 
income and credit score ranges do not mitigate privacy issues 
because the suggested ranges are so narrowly defined that they 
virtually identify the actual score or dollar amount of income'').
    \573\ See letter from MetLife II.
    \574\ See letters from Sallie Mae, Inc. (SLM Corporation) dated 
Oct. 4, 2011 submitted in response to the 2011 ABS Re-Proposing 
Release (``Sallie Mae II'') (suggesting that ``data presented on a 
grouped basis should address all privacy concerns''), VABSS III 
(again suggesting that a grouped data approach minimizes, but does 
not eliminate, privacy concerns), and VABSS IV (stating that they 
believe a grouped data approach is the best way to provide 
additional information to investors while addressing obligor privacy 
and competitive concerns).
    \575\ See letters from VABSS III (suggesting that it would not 
be an ``overwhelming process to establish and maintain a restricted-
access system'' and that Section 7(c) does not require that data 
that raises privacy concerns be made publicly available) and VABSS 
IV.
---------------------------------------------------------------------------

    On February 25, 2014, we re-opened the comment period to permit 
interested persons to comment on the Web site approach described in the 
2014 Staff Memorandum. Only a few commenters indicated support for the 
Web site approach.\576\ Most commenters generally opposed the Web site 
approach as a means to address privacy concerns,\577\ and some 
commenters also noted that the Web site approach creates or shifts 
legal and reputational risks to issuers.\578\ Commenters expressed 
concern about whether the Web site approach could result in issuer 
liability under applicable privacy laws.\579\ Several commenters were 
specifically concerned that the Web site approach might create a risk 
that the issuer could be considered a ``consumer reporting agency'' 
under the FCRA and thus subject to its rules and regulations.\580\ One 
commenter noted that the FCRA would not be relevant most of the time 
because the type of information contemplated by the Web site approach 
would be beyond the reach of the FCRA while also noting that privacy 
laws do not protect most consumer data, including the proposed asset-
level data, regardless of how it may be disseminated.\581\ A number of

[[Page 57234]]

commenters requested that the Commission obtain an authoritative 
interpretation or some other form of guidance from the CFPB to clarify 
issuer liability under the privacy laws when an issuer provides asset-
level data before moving forward.\582\ A few commenters suggested that 
under the Web site approach data could still be widely 
distributed,\583\ and two commenters stated that taking steps to reduce 
the ability to re-identify a person would be more appropriate than 
limiting access to sensitive data.\584\ Some other general concerns 
about the Web site approach included: the costs and burdens of the Web 
site approach; \585\ the possibility of data breaches and the impacts 
from data breaches; \586\ potential negative market impacts; \587\ and 
the possibility that inconsistencies in technical standards between Web 
sites may make the Web sites difficult to use.\588\
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    \576\ See letters from AFR (noting the advantages of the Web 
site approach include the disclosure of more granular data and the 
ability to restrict the data to those who agree to accept legal 
liability for privacy violations), CII (stating, however, that the 
restrictions placed on accessing the Web site should not be any more 
restrictive than user accounts and confidentiality agreements and 
that issuers should provide, instead of coded ranges, specific 
credit scores, income, and debt), A. Schwartz (stating that the Web 
site approach places the liability for errors in the asset-level 
data on issuers and preserves the privacy interests of borrowers), 
and World Privacy Forum dated Apr. 18, 2014 submitted in response to 
the 2014 Re-Opening Release (``WPF II'') (suggesting, however, that 
the Commission rather than issuers be responsible for maintaining 
the data).
    \577\ See, e.g., letters from ABA III, AFSA II, Capital One II, 
Deutsche Bank dated Mar. 28, 2014 submitted in response to the 2014 
Re-Opening Release (``Deutsche Bank''), MBA IV (with respect to 
RMBS), SIFMA/FSR I-dealers and sponsors, and Treasurer Group.
    \578\ See, e.g., letters from AFSA II (also suggesting that the 
Web site approach did not conform to the White House's Consumer 
Privacy Bill of Rights because the Web site approach does not 
specify requirements to provide control or choice to consumers on 
the sharing of their data with others), Deutsche Bank, MBA IV (also 
stating that the Web site approach shifts operational risks to 
issuers), and SFIG II.
    \579\ See, e.g., letters from AFSA II, CCMR, Deutsche Bank, 
Lewtan (suggesting that there is uncertainty surrounding FCRA 
liability for issuers, investors, and all deal parties who touch 
data originally obtained in the process of underwriting a loan to 
the consumer), MBA IV, SFIG II (also noting that issuers may be 
subject to restrictions under state laws), SIFMA/FSR I-dealers and 
sponsors, and Wells Fargo III. See also letters from ELFA II (noting 
that the dissemination of asset-level data under the Web site 
approach or through EDGAR would create legal and reputational 
risks), and Treasurer Group (noting the requirements of Canada's 
privacy laws).
    \580\ See letters from ABA III, CCMR, Lewtan, SIFMA/FSR I-
dealers and sponsors, SFIG II, and Wells Fargo III (noting, for 
example, that if an issuer is considered a consumer reporting 
agency, among other things, it will have a duty to update and 
correct information about the consumer and failure to comply with 
these duties could subject the issuer to consumer actions and CFPB 
enforcement).
    \581\ See letter from WPF II.
    \582\ See, e.g., letters from SIFMA/FSR II-dealers and sponsors, 
Wells Fargo III, MBA IV (with respect to RMBS), and SFIG II (noting 
concerns that the CFPB has not affirmed past FTC guidance on the 
transfer of information incident to the transfer of an asset in a 
securitization and stating that while it strongly believed that an 
issuer would not become a consumer reporting agency under FCRA by 
disclosing asset-level information, the CFPB needs to provide a rule 
or authoritative interpretation that the data posted in accordance 
with the Web site approach would not be a consumer report and that 
the issuer would not become a consumer reporting agency). See also 
letter from CCMR (requesting that the Commission, CFPB and Federal 
Trade Commission (FTC) provide assurance that misuse of disclosures 
made under the Web site approach would not render the issuer liable 
for privacy law violations).
    \583\ See, e.g., letters from ABA III (stating that in the case 
of registered offerings ABS may be sold to any person, including 
individuals, without restriction, resulting in a potentially 
unlimited pool of investors and potential investors), Capital One 
II, and SFIG II.
    \584\ See letters from ABA III and Treasurer Group. These 
comments are discussed in more detail below.
    \585\ See letters from AFSA II, ELFA II, Lewtan, MBA IV (with 
respect to RMBS) (suggesting that the costs would include improving 
security protocols and designing controls to minimize sharing of the 
information once a party accesses the Web site), SFIG II, SIFMA/FSR 
I-dealers and sponsors (objecting to a requirement that issuers file 
non-sensitive data on EDGAR because it is redundant, imposes 
unnecessary costs and is incomplete since certain fields would be 
omitted), and Wells Fargo III.
    \586\ See, e.g., letters from ABA III, AFSA II, ELFA II, Lewtan, 
MBA IV (with respect to RMBS), and Wells Fargo III.
    \587\ See, e.g., letters from ELFA II (expressing concern that 
issuers may leave the ABS capital markets due to cost and liability 
concerns) and Lewtan (noting that issuers and investors may leave 
the market or move to the Rule 144A market because they cannot get 
comfortable with the risks associated with FCRA, while acknowledging 
that similar risks exist in the Rule 144A market).
    \588\ See letter from AFR.
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    Some commenters disagreed with the description in the 2014 Staff 
Memorandum of how issuer Web sites were being used at the time the 2014 
Staff Memorandum was released.\589\ For instance, one commenter noted 
that while Web sites were being used at that time to provide 
information to investors, the information is not the same as what the 
Commission had proposed to require and does not raise the same privacy 
concerns.\590\ Another commenter noted that current disclosure of 
asset-level information through Web sites is available only to a 
limited number of known institutional investors.\591\
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    \589\ See letters from ABA III, AFSA II, and SFIG II.
    \590\ See letter from AFSA II. See also letter from ABA III 
(noting that the amount of information proposed for release under 
the Web site approach exceeds the amount of information typically 
made available through Web sites).
    \591\ See letter from SFIG II.
---------------------------------------------------------------------------

    Several commenters stated that additional information was necessary 
to fully assess the potential implications of the Web site approach. 
For instance, commenters requested clarity on the scope of asset-level 
disclosures that the Commission is considering adopting, what data 
would be disclosed on EDGAR and on the Web site, what type of 
restrictions on access would be reasonable and what information is 
``necessary'' for investor due diligence.\592\ Another commenter sought 
information about whether the Commission is still considering asset-
level disclosures for certain non-RMBS asset classes.\593\ Five 
commenters urged the Commission to re-open the 2010 ABS Proposal and 
the 2011 ABS Re-Proposal, in general, to permit further consideration 
of the concerns surrounding asset-level disclosures.\594\
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    \592\ See, e.g., letters from ABA III, Deutsche Bank, Lewtan 
(noting that they did not comment on data point requirements due to 
the brief comment period and uncertainty about which aspects of the 
2010 ABS Proposals remain under consideration), SIFMA/FSR I-dealers 
and sponsors (requesting clarity on whether any of the asset-level 
data may be considered ``material'' under the securities laws and 
whether disclosure of asset-level data as proposed complies with 
privacy laws), and Wells Fargo III (requesting clarification of 
which data points would require specific values in order to evaluate 
privacy issues).
    \593\ See letter from SIFMA/FSR I-dealers and sponsors.
    \594\ See letters from Capital One II, ELFA II (asking the 
Commission to reconsider requirements for equipment ABS), SFIG II 
(noting uncertainty as to whether ranges or specific values will be 
required for sensitive data points and whether the rules will apply 
to the Rule 144A market), SIFMA/FSR I-dealers and sponsors 
(suggesting that any re-proposal should include definitive, 
coordinated federal guidance about compliance with privacy laws, 
whether the disclosure requirements will apply to the Rule 144A 
market, which asset classes will be subject to the disclosure 
requirements and assurances about whether the data can be re-
identified), and Wells Fargo III.
---------------------------------------------------------------------------

    A number of commenters responded to the 2014 Re-Opening Release by 
commenting generally on privacy concerns. Several commenters reiterated 
the re-identification concerns that were raised in response to the 2010 
ABS Proposing Release and the 2011 ABS Re-Proposing Release.\595\ 
Commenters again suggested that obligors may suffer harm if personal 
data is used to re-identify them.\596\ Several commenters noted that 
the asset-level requirements, as proposed in 2010, contain a variety of 
highly sensitive personal information that consumers would not expect 
to be available to the general public, such as information about debt, 
income, bankruptcies, foreclosures, job losses, and even whether the 
consumer has experienced marital difficulties.\597\ One commenter 
raised particular concern with disclosure of actual income as such data 
is highly desirable to the consumer data industry but hard to 
obtain.\598\ One commenter requested that the Commission provide 
assurance that the data required to be filed on EDGAR could not be 
reasonably linked to an individual consumer.\599\ Some commenters 
expressed concern that the proposed requirements could result in the 
disclosure of ``Personally Identifiable Information'' or ``PII,'' which 
could result in legal liability or reputational damage.\600\ In 
addition, a few commenters identified various laws that may apply to 
the asset-level disclosures, including non-privacy related laws.\601\ 
Another commenter noted, however, that the availability of potentially 
sensitive obligor data is not new to the market.\602\ Another commenter 
believed criminal actors

[[Page 57235]]

would prefer to obtain access to other databases containing information 
more conducive to identity theft, such as social security numbers and 
date of birth, neither of which would be required by the 
Commission.\603\
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    \595\ See, e.g., letters from ABA III, Capital One II, Deutsche 
Bank, SFIG II (noting that whether an obligor underlying a foreign 
loan can be re-identified through the proposed asset-level data will 
depend on the jurisdiction), SIFMA/FSR I-dealers and sponsors, 
Treasurer Group (suggesting that the final requirements not include 
geographic identifiers or other individual identifiers that can 
identify a borrower), and WPF II.
    \596\ See, e.g., letters from ABA III, SFIG II, and SIFMA I 
(expressed view of issuers and sponsors only).
    \597\ See, e.g., letters from Deutsche Bank, SIFMA/FSR I-dealers 
and sponsors, and Wells Fargo III.
    \598\ See letter from WPF II.
    \599\ See letter from SIFMA/FSR I-dealers and sponsors.
    \600\ See letter from SIFMA/FSR I-dealers and sponsors 
(questioning whether some or all of the asset-level information 
could be considered PII under federal and state laws). See also 
letters from ABA III and MBA IV (with respect to RMBS).
    \601\ See letters from ABA III (noting questions about the 
application of the GLBA, FCRA and Freedom of Information Act 
(``FOIA'')), and SIFMA/FSR-dealers and sponsors (noting questions 
about the application of GLBA and the Fair Debt Collections 
Practices Act, and whether the information would be subject to 
FOIA).
    \602\ See letter from Lewtan (noting that they collect and 
disseminate ABS-related data, including asset-level data).
    \603\ See letter from AFR. Despite its belief that the Web site 
approach would not create a new target for criminal actors, AFR 
recommended that the Commission not adopt such an approach because: 
(i) Issuers could inappropriately discriminate in providing access 
to the restricted Web site; (ii) there is a potential that not all 
issuers would have the technical capacity to implement appropriate 
privacy controls; and (iii) if the design of the data is left to 
issuers, standardization of the data format would not be possible, 
making it more difficult to use.
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    Many commenters expressed particular concern with the disclosure of 
a property's geographic location because it, along with other data 
points, can be used with other public databases to match a property 
with a specific borrower.\604\ Commenters' recommendations to revise 
the geographic data point varied. One commenter recommended that the 
Commission limit disclosure of the zip code to only the first two 
digits.\605\ Another commenter, without providing a specific 
recommendation, believed that any geographic data point must be 
sufficiently broad to ensure that there is no risk of re-
identification.\606\ One commenter reiterated its support for 
aggregation of geographic location.\607\ In contrast, another commenter 
noted its opposition to the 2010 ABS Proposal to require only MSA 
because it would compromise the utility of the data for investors.\608\
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    \604\ See letters from ABA III, ELFA II, Lewtan, SIFMA/FSR I-
dealers and sponsors, SFIG II, Treasurer Group, and Wells Fargo III.
    \605\ See letter from ABA III (noting that the Department of 
Health and Human Services, as part of its efforts to keep consumers' 
health information anonymous, has limited disclosure of zip codes to 
the first three digits, and also noting that the European Securities 
and Market Authority has created draft templates for asset-level 
disclosure, including for RMBS, in which it requires only the first 
two or three digits of the postal code).
    \606\ See letter from Treasurer Group.
    \607\ See letter from CFA Institute dated Apr. 28, 2014 
submitted in response to the 2014 Re-Opening Release.
    \608\ See letter from AFR.
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    Several commenters suggested various alternatives and modifications 
to the Web site approach. Three commenters suggested aggregating the 
asset-level data.\609\ These commenters, however, did not specify what 
they meant by ``aggregated.'' \610\ Another commenter suggested 
development of a system that permits investors to conduct analysis and 
produce models without providing access to asset-level 
information.\611\ One commenter said the requirements should mirror the 
disclosures that the GSEs make with respect to RMBS and that issuers 
should have the discretion not to disclose sensitive information.\612\ 
Others suggested that issuers should have the flexibility to modify the 
disclosures and decide the method of delivery to address privacy 
concerns.\613\ Another commenter agreed that the better approach would 
be to modify the disclosure requirements such that the data increases 
transparency while still respecting the privacy of borrowers' 
information, but did not specify how those disclosures should be made 
available to investors.\614\ Several commenters suggested that we adopt 
mechanisms or controls to restrict access to asset-level information 
filed with the Commission to investors and potential investors.\615\
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    \609\ See letters from ABA III, Lewtan (noting that aggregation 
would significantly reduce the risk of re-identification and data 
security breaches, but data security concerns related to internal 
operations would remain), and MBA IV (with respect to RMBS).
    \610\ For example, they did not specify whether they were 
referring to pool-level data, grouped-account data similar to the 
disclosures proposed for credit card ABS in the 2010 ABS Proposal, 
less granular loan-level information or some other form of data 
aggregation.
    \611\ See letter from Treasurer Group.
    \612\ See letter from MBA IV (with respect to RMBS).
    \613\ See, e.g., letters from ABA III (suggesting that if the 
Commission adopts the Web site approach, then issuers should be able 
to aggregate, group or anonymize the data, as needed, to comply with 
the privacy laws or be allowed to omit data under Securities Act 
Rule 409, and also suggesting that issuers should have the 
flexibility to determine the method of delivery of the disclosure) 
and SIFMA/FSR II-dealers and sponsors (suggesting that issuers be 
allowed to withhold, aggregate, or otherwise modify the asset level 
disclosures in order to comply with legal and regulatory 
obligations, reduce re-identification risk or otherwise protect 
consumer privacy, or to limit disclosure of information that is not 
material to an investment decision).
    \614\ See letter from Capital One II.
    \615\ See letters from CDIA (suggesting that the Commission 
require parties that want to access the data on EDGAR register to 
use the data, acknowledge the sensitive nature of the data, and 
agree to maintain its confidentiality), Epicurus (suggesting that 
the Commission establish rules applicable to the posting, use and 
dissemination of potentially sensitive data disclosed on EDGAR, 
including penalties for violation of the rules), WPF I, and WPF II.
---------------------------------------------------------------------------

    Another commenter suggested a central repository or ``aggregated 
data warehouse'' to house the asset-level data because such an approach 
would simplify enforcement of access policies, ensure consistent data 
formats and lower incentives to exclude certain users.\616\ Similarly, 
another commenter suggested that issuers disclose all asset-level data 
to a consumer reporting agency administered repository, along with a 
unique identification number for each asset, which would allow 
investors to access all the asset-level data for these assets.\617\ 
Another commenter also suggested that credit bureaus, instead of 
issuers, should provide credit related information.\618\ One commenter 
outlined revisions to the Web site approach that it believed are 
necessary if such an approach is adopted, including a data chain of 
custody, privacy and security rules and public disclosure of each 
issuer's privacy and security policies.\619\
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    \616\ See letter from AFR (suggesting either a single data 
warehouse managed by a federal agency (e.g., the Commission, the 
Federal Reserve (similar to the Bank of England model), or the 
Office of Financial Research) or a non-profit data warehouse owned 
and managed by private sector entities under Commission oversight 
(similar to the European Data Warehouse).
    \617\ See letter from SIFMA/FSR II-dealers and sponsors (noting 
that this approach would apply to all ABS asset classes and also 
noting certain developmental challenges, such as identifying a 
consumer reporting agency willing to act as a repository and 
application of FCRA). See also SFIG II (stating that issuers should 
have the option to use third party agents (which may be a consumer 
reporting agency or a central Web site data aggregator) to make the 
data available and control access, but also noting that such an 
approach still raises privacy law concerns and concerns about who 
pays for the third-party service).
    \618\ See letter from ABA III.
    \619\ See letter from WPF II. The commenter also outlined the 
elements of an appropriate data use agreement, such as disclosure 
restrictions, standards to qualify recipients, and providing 
consumers a private right of action for those who misuse the data.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    After considering the comments received related to privacy concerns 
and on the Web site approach, and our obligations under Section 7(c) of 
the Securities Act,\620\ we are adopting new rules to require that 
issuers file asset-level disclosures on EDGAR both at the time of the 
offering and on an ongoing basis in periodic reports. We are revising 
the required disclosures contained in the proposal to address the risk 
of parties being able to re-identify obligors and the associated 
privacy concerns. Specifically, as discussed below, we are modifying or 
omitting certain asset-level disclosures relating to RMBS and Auto ABS 
to reduce both the amount of potentially sensitive data about the 
underlying obligors and the potential risk that the obligors could be 
re-identified. In addition, in response to commenters' suggestions, we 
have sought and obtained guidance from the CFPB on the application of 
the FCRA to the required disclosures. As discussed

[[Page 57236]]

below, the CFPB has issued a letter \621\ to the Commission stating 
that the FCRA will not apply to asset-level disclosures where the 
Commission determines that disclosure of certain asset-level 
information is ``necessary for investors to independently perform due 
diligence,'' in accordance with Section 7(c). We believe these steps 
implement the statutory mandate of Section 7(c) and will provide 
investors with the asset-level information they need while reducing 
concerns about potential re-identification risk associated with 
disclosing consumers' personal and financial information.
---------------------------------------------------------------------------

    \620\ As noted above, Section 7(c) of the Securities Act 
requires that we adopt rules to require ABS issuers to disclose 
asset-level information if the data is necessary for investors to 
independently perform due diligence.
    \621\ See letter from the Consumer Financial Protection Bureau 
dated August 26, 2014.
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    While we have considered the Web site approach described in the 
2014 Staff Memorandum, as discussed below, we are not adopting this 
approach due to concerns about the practical difficulties and 
unintended consequences of limiting access to only investors and 
potential investors.\622\ Commenters also indicated that the Web site 
approach could negatively affect the ability of investors and the 
broader ABS market to have adequate access to the data.\623\
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    \622\ See, e.g., letters from ABA III (noting concern that 
without guidance as to who is a potential investor issuers may apply 
their own bias filters to public offerings, such as limiting public 
offerings to only institutional investors), AFR (expressing concern 
that if issuers are given the ability to limit access to asset-level 
data they may use this ability to discriminate between investors by, 
for example, giving investors with more market power preferential 
access to the data), CCMR, MBA IV, and SFIG II.
    \623\ See, e.g., letters from ABA III, Moody's II, and R&R.
---------------------------------------------------------------------------

    We continue to believe that the disclosure of data that relates to 
the credit risk of the obligor, such as an obligor's credit score, 
income, or employment history, would strengthen investors' risk 
analysis of ABS involving consumer assets.\624\ We believe these 
disclosures, combined with other asset-level disclosures, such as the 
terms and performance of the underlying loan and information about the 
property, will enable investors to conduct their own due diligence for 
ABS involving consumer assets, and thus facilitate capital formation in 
the ABS market. Consequently, it is critically important that the 
manner in which such information is disseminated enables all investors 
to receive access to the required asset-level disclosures. The ability 
of other market participants, such as analysts and academics, to access 
this information may also benefit the market by encouraging a broader 
range of commentary and analysis with respect to ABS.\625\
---------------------------------------------------------------------------

    \624\ See footnotes 559, 560 and 561 (discussing commenters' 
views on the importance of receiving granular data about obligors, 
such as exact income and credit scores).
    \625\ See letters from ABA III, Moody's I, Moody's II, M. Joffe, 
and R&R.
---------------------------------------------------------------------------

    Although we did not propose to require that an obligor's name, 
address, or other identifying information be disclosed, we are 
sensitive to the possibility that an obligor in an asset pool could be 
identified (now or in the future) due to the availability of the 
required disclosures (coupled with the XML requirement), the amount of 
data about obligors that is publicly available through other sources, 
and information about real estate transactions and other types of 
transactions that is available or that may become available in the 
future. In the event the obligor was re-identified, the information 
that would have been required by the proposal, even in ranges, might 
reveal information about the obligor's financial condition.
    This issue is especially pronounced for securitizations backed by 
residential mortgages, as an obligor could potentially be re-identified 
using a combination of asset-level disclosures and real estate 
transaction data that is routinely disclosed by certain local 
governments.\626\ Commenters noted that property address, sales price, 
and closing date are typically disclosed by local governments and could 
be used to link the asset-level disclosures to an individual.\627\ If a 
specific mortgage is re-identified, sensitive financial data about an 
obligor (e.g., credit score, DTI, and payment history) could 
potentially be connected to the obligor.
---------------------------------------------------------------------------

    \626\ These issues potentially exist but are less pronounced for 
Auto ABS. We are not aware of any public databases of auto loan and 
lease records made available by local governments. It is possible 
that these types of databases could be available from other sources 
for a fee. After the time of purchase, an obligor may move and 
register the automobile in a different state. In contrast, the 
property that is collateral for a mortgage is connected to a 
permanent address and therefore could be matched more easily with 
publicly available information from land records.
    \627\ See, e.g., letters from ABA III, CU, SIFMA/FSR I-dealers 
and sponsors, SFIG II, and Treasurer Group.
---------------------------------------------------------------------------

    In light of this concern, we are revising the proposed data set for 
RMBS as follows.\628\ First, we are modifying the required geographic 
identifier from MSA, as proposed, to a 2-digit zip code.\629\ Several 
commenters emphasized the importance of geography in assessing the re-
identification risk for RMBS asset-level disclosure.\630\ We believe 
that, because publicly available information like property records is 
typically sorted and searchable by geography, requiring issuers to 
identify assets by a broader geographic area should decrease the 
ability to re-identify individual obligors. In considering how to 
broaden the geographic area, we considered both the specific 
recommendations of commenters as well as current disclosure practices, 
including those of the GSEs and Ginnie Mae.\631\ As noted above, one 
commenter specifically recommended that we require disclosure of either 
a 2-digit or 3-digit zip code.\632\ There are currently less than 99 
distinct 2-digit zip codes and approximately 900 distinct 3-digit zip 
codes.\633\ By contrast, our proposal would have required disclosure of 
MSA, which represents approximately 960 unique geographic areas. We 
understand that Ginnie Mae currently discloses state (60 distinct 
areas, including Washington, DC and U.S. territories and associated 
states).\634\ Depending on the data set, Fannie Mae and Freddie Mac 
disclose MSA, 3-digit zip code or state.\635\ After considering the 
various alternatives, we are adopting a 2-digit zip code. In reaching 
this conclusion, we considered that a 3-digit zip code would not 
significantly reduce the re-identification risk relative to the 
proposal's use of MSA and that use of state may be too broad of an area 
to be useful to RMBS investors.\636\
---------------------------------------------------------------------------

    \628\ Although the changes discussed relate to RMBS data points, 
we also indicate, where relevant, corresponding changes we have made 
to the data points for Auto ABS that address privacy concerns.
    \629\ See new Item 1(d)(1) of Schedule AL. For Auto ABS, at the 
suggestion of commenters, we are modifying the geographic identifier 
of the obligor to state. See new Items 3(e)(7) and 4(e)(7). See also 
letters from ASF II (expressed views of loan-level investors only) 
and VABSS IV. We are not adopting proposed data points that would 
have disclosed the geographic location of the dealership. See 
proposed Items 4(b)(1) and 5(b)(1) of Schedule L.
    \630\ See letters from ABA III, ELFA II, Lewtan, SIFMA/FSR I-
dealers and sponsors, SFIG II, Treasurer Group, and Wells Fargo III.
    \631\ See letter from MBA IV (with respect to RMBS).
    \632\ See letter from ABA III.
    \633\ See the U.S. Postal Service Web site for a list of 3-digit 
zip codes, http://pe.usps.com/text/LabelingLists/L002.htm.
    \634\ See Ginnie Mae's MBS Loan-Level Disclosure File available 
at http://www.ginniemae.gov/doing_business_with_ginniemae/investor_resources/mbs_disclosure_data/Lists/LayoutsAndSamples/Attachments/105/mbsloanlevel_layout.pdf.
    \635\ See Fannie Mae's Loan-Level Disclosure File available at 
http://www.fanniemae.com/resources/file/mbs/pdf/filelayout-lld.pdf 
and Loan Performance Data Disclosure File available at https://loanperformancedata.fanniemae.com/lppub-docs/lppub_file_layout.pdf. See also Freddie Mac's Loan-
Level Disclosure requirements available at http://www.freddiemac.com/mbs/docs/fs_lld.pdf and Single Family 
Loan-Level Dataset General User Guide available at http://www.freddiemac.com/news/finance/pdf/user_guide.pdf.
    \636\ See also footnote 670 and accompanying text.
---------------------------------------------------------------------------

    To further reduce the risk of re-identification, we are also 
omitting several data points that, while

[[Page 57237]]

potentially useful to investors, could increase the ability to identify 
underlying obligors. Specifically, we are omitting the unique broker 
identifier data point \637\ as well as the sales price,\638\ 
origination date, and first payment date \639\ data points. In 
addition, we are omitting some information about an obligor's 
bankruptcy and foreclosure history,\640\ although, if an obligor had 
experienced a past bankruptcy or foreclosure, we would expect that 
those events would have been considered in generating a credit score. 
As noted above, the final rules require disclosure of an exact credit 
score.
---------------------------------------------------------------------------

    \637\ See proposed Item 2(a)(11) of Schedule L. For RMBS, we are 
adopting a data point that indicates whether or not a broker 
originated or was involved in the origination of the loan as well as 
a data point that discloses the National Mortgage License System 
registration number for the company that originated the loan. These 
data points will allow investors to compare loans by particular 
originators and across originators. Investors will also be able to 
compare loans where a broker was used. Together, these data points 
will provide investors with information they need to perform due 
diligence and make informed investment decisions. See new Items 
1(c)(24) and 1(c)(26) of Schedule AL. These data points were not 
proposed and are not relevant for Auto ABS.
    \638\ See proposed Item 2(b)(3) of Schedule L. We are also 
omitting the original property valuation data points because we 
believe they could provide a close approximation of sales price, and 
thus could have raised the same re-identification concern as sales 
price. See also proposed Items 2(b)(5), 2(b)(6), 2(b)(7), 2(b)(8), 
and 2(b)(9) of Schedule L. For RMBS, we believe that certain other 
data points we are adopting, such as Original loan amount and 
Original loan-to-value, will provide investors with information they 
need to perform due diligence and make informed investment 
decisions. See new Items 1(c)(3) and 1(d)(11) of Schedule AL. For 
Auto ABS, we are adopting data points that capture the vehicle 
value, as these values are already made publicly available from 
sources such as the Kelly Blue Book. See new Items 3(d)(7), 3(d)(8), 
4(d)(6) and 4(d)(7) of Schedule AL.
    \639\ See proposed Items 1(a)(5) and 1(a)(14)of Schedule L. See 
also letters from ABA III, Lewtan, MBA I, and SFIG II. We believe 
that certain other data points we are adopting, such as Original 
loan maturity date, Original amortization term and Remaining term to 
maturity, will provide investors with information they need to 
perform due diligence and make informed investment decisions. See 
new Items 1(c)(4), 1(c)(5) and 1(g)(2) of Schedule AL. Because the 
same publicly available property records are not available for auto 
loans and leases, we are adopting data points that capture the month 
and year of origination and the original first payment date for Auto 
ABS. See new Items 3(c)(2), 3(c)(10), 4(c)(2), and 4(c)(10) of 
Schedule AL.
    \640\ See proposed Items 2(c)(24) and 2(c)(25) of Schedule L and 
proposed Items 2(c)(1), 2(c)(2), 2(c)(3), 2(c)(4), 2(c)(5), 2(c)(6), 
2(c)(7), 2(c)(8), 2(h), 2(k)(2), 2(k)(3), 2(k)(4), 2(k)(5), 2(k)(7), 
2(k)(8), 2(k)(11), 2(k)(12), 2(k)(13), and 2(m)(3) of Schedule L-D. 
While commenters did not specifically note that these data points 
would pose re-identification risk, we received letters about the 
sensitivity of the data. See, e.g., letters from Deutsche Bank, MBA 
IV, and SIFMA/FSR I-dealers and sponsors. RMBS issuers will, 
however, be required to provide information about an asset in the 
pool that is subject to a foreclosure, or if the reason for non-
payment by an obligor is due to bankruptcy. See new Items 1(g)(33), 
1(r)(1), 1(r)(2), 1(r)(3), 1(r)(4), 1(r)(5), 1(v)(1) and 1(v)(2) of 
Schedule AL. These data points were not proposed and are not 
relevant for Auto ABS.
---------------------------------------------------------------------------

    Another step that we are taking to address commenters' concerns 
about re-identification risk is to omit the proposed income and debt 
data points. While we believe that income and debt information would 
strengthen an investor's risk analysis of ABS involving consumer 
assets,\641\ we are not requiring them based on concerns about the 
sensitive nature of this information and increased re-identification 
risk posed by this information.\642\ As discussed in Section 
III.A.2.b)(1) Residential Mortgage-Backed Securities, however, we are 
requiring DTI ratios.\643\ These are key calculations used to assess an 
obligor's ability to repay the loan that, we believe, will permit 
investors to perform due diligence in the absence of specific debt and 
income data points.
---------------------------------------------------------------------------

    \641\ Investor members of one commenter noted that this 
information is useful for verifying DTI calculations. See letter 
from ASF I.
    \642\ See letters from VABSS IV, Wells Fargo III, and WPF II.
    \643\ See Section III.A.2.b)(3) Automobile Loan or Lease ABS 
above for a discussion of the payment-to-income ratio data points 
that are being adopted in lieu of proposed data points that would 
have collected obligor or lessee income information. There were no 
data points proposed for Auto ABS that would have collected obligor 
or lessee debt information.
---------------------------------------------------------------------------

    We also are revising \644\ or removing \645\ certain other proposed 
data points to further mitigate re-identification risk concerns since 
the responses to these items will be made available to the public 
through EDGAR.\646\ We do not believe these proposed requirements 
necessarily would have increased re-identification risk alone, but we 
have concluded that these data points, if adopted as proposed, could 
disclose sensitive obligor data without providing additional 
information necessary for investor due diligence.
---------------------------------------------------------------------------

    \644\ See, e.g., proposed Item 2(l)(13) Eviction start date of 
Schedule L-D (revised to new Item 1(s)(8) Eviction indicator of 
Schedule AL). Similar data points were not proposed for Auto ABS.
    \645\ See, e.g., proposed Items 2(c)(13) Liquid/cash reserves, 
2(c)(14) Number of mortgages properties, 2(c)(18) Percentage of down 
payment from obligor own funds, 2(c)(20) Self-employment flag; 
2(c)(21) Current other monthly payment, 2(d)(6) Mortgage insurance 
certificate number, 2(a)(1) Non-pay reason, and 2(l)(14) Eviction 
end date of Schedule L-D. Similar data points were not proposed for 
Auto ABS.
    \646\ These changes involved modifying the possible responses, 
such as removing certain responses from the coded list of possible 
responses. For example, in new Item 1(c)(1) Original loan purpose of 
Schedule AL, which was proposed as Item 2(a)(1) of Schedule L, we 
are removing certain possible responses from the enumerated list of 
codes due to privacy concerns.
---------------------------------------------------------------------------

    Finally, in response to commenters' suggestions, we have obtained 
guidance from the CFPB on the application of the FCRA to the proposed 
disclosure requirements.\647\ In a letter issued to the Commission 
dated August 26, 2014, the CFPB stated that the FCRA will not apply to 
asset-level disclosures that exclude direct identifiers where the 
Commission determines that disclosure of such information is 
``necessary for investors to independently perform due diligence.'' 
\648\ Specifically, the CFPB letter confirms that (i) issuers and the 
Commission would not become consumer reporting agencies by obtaining 
and disseminating asset level information, and (ii) no violation of 
Section 604(f) of the FCRA \649\ would occur if issuers or the 
Commission obtain or disseminate any information that is a consumer 
report (such as a credit score), in each case if the Commission 
determines that disclosure of the information is necessary for 
investors to independently perform due diligence and that the 
information should be filed with the Commission and disclosed on EDGAR 
to best fulfill a Congressional mandate. As noted above, we have 
revised or eliminated certain asset-level data points that implicate 
consumer privacy concerns where we determined that doing so would not 
compromise investors' ability to perform due diligence on the 
underlying assets. We believe the asset-level data points that we are 
requiring about underlying obligors for ABS involving consumers assets 
are necessary for investors to perform due diligence, as required by 
Section 7(c). After taking these steps and after careful consideration 
of alternative means of disseminating such information, we have 
determined that having the information filed with the Commission and 
disclosed on EDGAR is the most effective means of ensuring that 
investors have access to asset-level data.
---------------------------------------------------------------------------

    \647\ Commenters also raised concerns about the applicability of 
other federal and state privacy laws and analogous foreign laws. We 
do not believe the final rules are likely to implicate these other 
laws for a variety of reasons, including that they do not require 
disclosure of direct identifiers (PII) and because certain of these 
laws provide an exemption for the disclosure of information in order 
to comply with federal, state or local laws and other applicable 
legal requirements. More generally, we believe the changes we are 
adopting to help address privacy concerns should help to mitigate 
concerns about the applicability of other privacy laws.
    \648\ See Section 7(c) of the Securities Act [15 U.S.C. 77g(c)].
    \649\ 15 U.S.C. 1681b(f).
---------------------------------------------------------------------------

    As discussed above, we have taken significant steps to reduce the 
re-identification risk associated with providing certain asset-level 
data while adhering to the statutory mandate in Section 7(c) to require 
disclosure of such information to the extent necessary

[[Page 57238]]

for investors to independently perform due diligence. We do recognize, 
however, that the final rules do not completely eliminate the risk of 
obligor re-identification \650\ and there may be costs associated with 
providing certain sensitive information required by the final rules. 
These costs may include costs to issuers of consulting with privacy 
experts to understand the impact of providing these disclosures. We 
also recognize that some issuers and investors may move to unregistered 
offerings, which may affect capital formation.\651\ Alternatively, the 
increased costs may be passed on to the underlying obligors in the form 
of a higher cost to borrowers (e.g., interest rates or fees).
---------------------------------------------------------------------------

    \650\ In this regard we note that there is continuing debate 
about the ability to fully anonymize or ``de-identify'' a data set 
and whether it is possible to have any confidence that re-
identification risk can be totally mitigated. See, e.g., Paul Ohm, 
``Broken Promises of Privacy: Responding to the Surprising Failure 
of Anonymization,'' 57 UCLA L. Rev. 1701 (2010); Arvind Narayana and 
Vitaly Shmatikov, ``Myths and Fallacies of `Personally Identifiable 
Information,''' 53 Comm. ACM 24, 26 n.7 (2010) (``The emergence of 
powerful reidentification algorithms demonstrates not just a flaw in 
a specific anonymization technique(s), but the fundamental 
inadequacy of the entire privacy protection paradigm based on `de-
identifying' the data.''). But see Jane Yakowitz, ``Tragedy of the 
Data Commons,'' 25 Harv. J.L. & Tech., 1 (2011) (expressing concern 
about the impact of reducing the availability of de-identified data 
for medical research purposes).
    \651\ But see letter from Lewtan (noting that this course is 
less likely, because although unregistered offerings may provide for 
more customized data delivery where an issuer has more direct 
control, the issues surrounding FCRA exposure are the same as if the 
securitization were made through a registered offering).
---------------------------------------------------------------------------

    Re-identification risk can also increase the cost of capital due to 
obligor preferences. If an obligor is particularly sensitive to the 
possibility of re-identification, the obligor may prefer to transact 
with originators that offer additional methods for preserving 
anonymity, which could increase that obligor's cost of or access to 
capital. For example, if a loan agreement gives an obligor the ability 
to opt out of disclosure, thereby prohibiting the ability to securitize 
the loan where asset-level information would be disclosed, originators 
may pass costs on to the obligor. Originators could also bear some 
increased costs if, as a result of being unable to securitize the loan 
or sell it to the GSEs, the originator would hold the asset on its 
balance sheet, thus limiting its ability to redeploy capital to more 
productive or efficient uses. In addition, the risk of re-
identification could limit an obligor's access to capital if the 
obligor is unable to obtain assurances, even at a higher cost, that his 
or her loan would not be securitized in a way that gives rise to a 
potential risk of re-identification. Ultimately, an obligor's 
sensitivity to re-identification risk could lead to a reduction in the 
number of loans available for securitization. This could, in turn, lead 
to a reduction in liquidity of ABS markets and a corresponding increase 
in cost of capital even for those loans that are otherwise securitized 
through registered offerings.\652\ In general, for these reasons, we 
believe that reducing the likelihood of obligor re-identification will 
reduce the impact of these potential costs of asset-level disclosure 
for the ABS market.
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    \652\ See letter from SIFMA/FSR I-dealers and sponsors (noting 
that increased costs would ultimately be passed on to consumers, 
including an increase in financing costs and a decrease in credit 
availability).
---------------------------------------------------------------------------

    As discussed above, in considering how to modify the proposed 
disclosures to reduce the risk of re-identification, we considered the 
specific recommendations of commenters and current disclosure 
practices. Although we received various suggestions for reducing re-
identification risk, commenters did not provide any data or analysis 
that quantified the likelihood of re-identification based on the 
proposed disclosures or their suggested approaches to addressing re-
identification risk. Some commenters indicated that using less precise 
geographic identifiers would reduce the risk that an obligor could be 
re-identified.\653\ Using less precise data points for sales price and 
origination date would also reduce the risk of re-identification.
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    \653\ See, e.g., letters from ABA III (recommending 2-digit zip 
code), CFA II (suggesting aggregation of geographic location), and 
Treasurer Group.
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    To help confirm the effect of requiring less precise information, 
we performed an analysis of various modifications to the required data 
points. In particular, we have estimated the likelihood of isolating a 
unique mortgage in a sample pool of mortgage loans by considering 
different levels and combinations of precision for the geographic 
location of the property, sales price, and origination date. Our 
analysis examined mortgages collected from mortgage loan servicer 
providers and reported in the MBSData, LLC, dataset, which includes 
asset-level data for most of the mortgages securitized in the private-
label RMBS market during the period from 2000 to 2012.\654\ 
Categorizing loans according to their uniqueness is the first step 
someone could take to re-identify an obligor. Each of the 19.3 million 
mortgages reported during this period were sorted according to 
uniqueness of three loan characteristics--geographic location, sales 
price, and origination date--which could potentially link the mortgage 
to another publicly available dataset that contains obligors' 
identities.\655\ We assume that loans that have unique values for these 
three variables, when compared to all other loans in the MBSData 
dataset, have an elevated potential for obligor re-identification. We 
note, however, that our analysis is not an actual measure of re-
identification risk. Importantly, in order to actually re-identify an 
obligor, a unique mortgage must also be matched with publicly available 
data sources, such as from local government real estate transaction 
ledgers and tax records that contain information on property addresses, 
sales prices, and origination dates.\656\ We have not attempted to 
quantify the likelihood that a unique mortgage, once isolated, can be 
matched with publicly available data sources. Instead, we have focused 
our analysis on this first step of the re-identification process, which 
is to isolate a unique mortgage.
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    \654\ Loan-level data is available on Fannie Mae and Freddie Mac 
Web sites; however, we did not incorporate this data into our 
analysis because we believe that historically the characteristics of 
loans purchased and securitized by GSEs have been somewhat different 
from the characteristics of loans securitized through private-label 
RMBS. We do not expect that incorporating the GSE data would 
significantly reduce the likelihood of finding records with unique 
characteristics among properties bought with mortgages securitized 
through private-label RMBS.
    \655\ Because the required asset-level disclosures do not 
include sales price, in our analysis, we have imputed it from the 
reported loan amount and LTV ratio and rounded to the nearest $100. 
Although the origination date is not required to be disclosed, it 
can be approximated in many cases using other required data points, 
such as Original loan maturity date, Original amortization term and 
Remaining term to maturity. See new Items 1(c)(4), 1(c)(5) and 
1(g)(2).
    \656\ We have not analyzed re-identification techniques using 
commercially available datasets (e.g., datasets from consumer 
reporting agencies) because even though using such data may be more 
effective in re-identification, providers of such datasets usually 
charge a fee and impose restrictions on their usage, such as, access 
controls and user identity verification.
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    To provide a basis for comparison, we first considered the 
likelihood of identifying a unique loan using a 5-digit zip code for 
the property location, the exact sales price and the exact origination 
date. Approximately 76% of the 19.3 million loans analyzed are unique 
when these three characteristics are compared across all mortgages in 
the database. That is, these loans could be distinguished from all 
other loans with respect to geography, imputed sales price, and 
origination date, and they were originated in states for which there

[[Page 57239]]

is no prohibition on public disclosure of the property sales 
price.\657\
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    \657\ Some states (or counties within states) consider the 
property sales value to be private and confidential information and 
therefore do not release these numbers publicly. These states 
include: Alaska, Idaho, Indiana, Kansas, Louisiana, Maine, 
Mississippi, Missouri, Montana, New Mexico, North Dakota, Texas, 
Utah and Wyoming. The analysis does not account for non-disclosure 
counties that lie within a state that allows for disclosure.
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    We next considered the likelihood of identifying a unique loan 
using the required disclosures in the final rules. As discussed above, 
we are modifying the required geographic identifier from MSA, as 
proposed, to a 2-digit zip code and are requiring securitizers to 
report only the original amortization term, and remaining term to 
maturity, from which year and month of origination can be approximated, 
but not the precise origination or sales date.\658\ Based on the 
historical data and the same method described above of determining 
uniqueness, we estimate that by requiring 2-digit zip code, imputed 
sales price, and the month and year of origination, less than 20% of 
mortgages in the sample pool could be unique in their characteristics. 
This is also significantly lower than the almost 30% likelihood of 
isolating a unique loan determined based on the required disclosure 
items in the 2010 ABS Proposal.\659\
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    \658\ As discussed below, this change should not materially 
impact an investor's ability to price RMBS tranches, but will 
significantly lower the probability that a mortgage is unique in its 
characteristics.
    \659\ As noted above, the proposal would have required a 
geographic identifier of MSA, exact sales price and the month and 
year of origination.
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    These estimates, however, do not fully reflect the difficulty of 
actually re-identifying an underlying obligor.\660\ As noted above, the 
loan would have to be matched to a record in the relevant public 
database of real estate transactions. As noted, some counties within 
states do not release property sale values. Even in those jurisdictions 
that do make property sale information publicly available, matching the 
loans to a particular property record might be challenging to do 
because the jurisdiction providing the information might not offer 
access in a way that would make the information easily accessible or in 
convenient format. For example, knowing the 5-digit zip code of the 
unique property would not necessarily be helpful in a jurisdiction that 
requires a street name in order to search and view records. Hence, in 
some cases it may be too burdensome to find the matching loan even if 
that information is publicly available, particularly if such search is 
part of a large scale matching effort (i.e., for commercial purposes). 
We also note that public property databases contain, in addition to 
property transactions with mortgages securitized through private-label 
RMBS, property transactions without using borrowed funds, property 
transactions with mortgages that are never securitized, or property 
transactions with mortgages that are securitized through GSEs. The 
addition of these other transactions only compounds the burden of 
matching a particular loan with a particular property record.
---------------------------------------------------------------------------

    \660\ This technique is based on historical data and may not 
necessarily reflect future re-identification likelihoods. Also, in 
the future, securitizers that are conscious of privacy implications 
may avoid securitizing loans that have high risk of being identified 
(i.e., loans that are unique in their characteristics).
---------------------------------------------------------------------------

    Although the approach that we are adopting does not eliminate the 
possibility of obligor re-identification, we believe it strikes the 
appropriate balance between privacy and transparency. Some obligors may 
still be particularly sensitive to the possibility of re-identification 
and may seek originators that offer additional methods of preserving 
their anonymity. We do not, however, anticipate that this will have an 
adverse effect on the functioning of the private-label RMBS market or 
the cost of capital to the originators of mortgages and their obligors 
because of the relatively low likelihood of re-identification 
associated with the revised data points. Moreover, as noted above, 
asset-level information has been provided by issuers and third-party 
data providers for private-label RMBS (although not standardized), as 
well as by the GSEs and Ginnie Mae,\661\ and this availability has not 
led to market disruption or adverse effects on cost of capital for 
obligors. We believe that there will be significant benefits to RMBS 
investors by having access to obligor-specific financial information in 
their evaluation of the potential default risk of the securitized 
assets, thus improving their ability to price registered RMBS tranches. 
This information also will allow investors to better understand, 
analyze and track the performance of RMBS, and, in turn, will allow for 
more accurate ongoing pricing and increase market efficiency.\662\
---------------------------------------------------------------------------

    \661\ See Section III.A.1 Background and Economic Baseline for 
the Asset-Level Disclosure Requirement.
    \662\ This would also apply to other asset classes where 
obligor-specific financial information may be disclosed, such as 
Auto ABS.
---------------------------------------------------------------------------

    We acknowledge that further modification of certain data points 
could further reduce the risk of obligor re-identification. For 
example, several commenters emphasized the importance of geographic 
location in potentially re-identifying an underlying obligor.\663\ 
Based on our analysis, eliminating a geographic identifier reduces the 
likelihood of isolating a unique mortgage in the sample pool to less 
than 2%. We considered whether further modification to certain data 
points will reduce transparency of critical data points for ABS 
investors. As we discuss below, we believe that a geographic location 
identifier is critical to pricing RMBS and is therefore necessary for 
investors to perform due diligence.
---------------------------------------------------------------------------

    \663\ See, e.g., letters from ABA III, SIFMA/FSR 2014 I-dealers 
and sponsors, SFIG II, and Treasurer Group.
---------------------------------------------------------------------------

    To confirm our view, and the views of commenters,\664\ that certain 
data points are critical for ABS investment decisions, we analyzed the 
potential pricing impact of various data points on RMBS transactions. 
Our analysis indicates that, for RMBS, certain characteristics and loan 
term features, such as geographic location, are key determinants of 
expected performance of underlying mortgage loans as measured by the 
historical rate of serious delinquency (``SDQ'').\665\ We used a model 
to predict the presence or absence of SDQ within a historical dataset 
of private-label securitized loans.\666\ We found that, by a wide 
margin, the following four data points make the largest contribution to 
explaining SDQ: \667\ the year of

[[Page 57240]]

origination, the LTV ratio, the geographic location of the property as 
measured by 2-digit zip code, and the obligor's credit score (FICO 
score was reported in the dataset). Our analysis shows that the year of 
origination provides the greatest contribution to the measure of how 
well these factors explain the likelihood of serious delinquency.\668\ 
LTV, geographic location of the property and FICO score provide the 
next greatest contribution to explaining the likelihood of serious 
delinquency and have a similar magnitude in overall contribution.\669\ 
Eliminating any of these three variables from the final disclosure 
requirements significantly and negatively affects the predictive 
ability of the model. On the other hand, in the instances we studied, 
providing a geographic location that represents a smaller area or the 
exact origination date only marginally improves the model's predictive 
ability,\670\ but it could significantly increase the possibility of 
obligor re-identification.
---------------------------------------------------------------------------

    \664\ See, e.g., letters from ABA III (recommending that the 
Commission consider using 2-digit zip code), ASF I (supporting exact 
credit score), and Mass. Atty. Gen. (noting that the DTI ratio and 
LTV are important metrics in an investor's assessment of risk of 
loss).
    \665\ SDQ is defined as a loan having ever been 90 days late, 
foreclosed, or real estate owned.
    \666\ We used a binomial logistic predictive model that is also 
referred to as a logit regression. Binomial logistic regression 
deals with situations in which the observed outcome for a dependent 
variable can have only two possible types (for purposes of this 
analysis--presence or absence of a serious delinquency). Logistic 
regression is used to predict the odds of being a case based on the 
value of the independent variables (i.e., the predictors). We 
estimate the regression model with commonly used predictive factors 
identified by the industry and the academic literature, such as 
combined LTV ratio, credit score, and DTI ratio and analyze the 
effects of various loan characteristics observable at origination on 
the ability of a researcher to forecast serious delinquency. For 
more details and references, see footnote 82, the White-Bauguess 
Study, Section V. Logit Regression Analysis (for the description of 
the model) and Appendix B (for variable definitions and references 
to studies supporting the variables choice). The analysis is based 
on a sample of 2,456,548 mortgages from 2000-2009 included in the 
MBSData dataset that have complete information for all variables of 
interest, in particular, DTI information.
    \667\ The model uses a goodness-of-fit measure (pseudo-R\2\) to 
describe how well an SDQ can be modeled with given predictive 
variables. Higher R\2\ represents higher predictive ability of a 
model in forecasting SDQ of mortgages. We consequently eliminate 
each individual factor from predictive regression and record its 
impact on the reduction in the goodness-of-fit measure. Higher 
reduction represents higher contribution of a factor to predictive 
ability of the full model. The R\2\ that we find here is in line 
with R\2\ found in academic studies that perform similar analyses. 
See id.
    \668\ We believe this primarily is due to the fact that the year 
of loan origination served as a proxy for unobservable factors like 
the quality of underwriting standards during the years immediately 
preceding the financial crisis when serious delinquency rate was 
higher, and a large portion of the loans in the sample were 
originated during that time. The importance of the origination year 
is smaller for sub-samples that do not include loans originated in 
2006-2007.
    \669\ Origination year contributed 5% to the goodness-of-fit 
measure. LTV, 2-digit zip code, and the obligor's credit score 
contributed about 1.5% each. All other 12 data points we considered 
made a comparatively smaller contribution to the predictive ability 
of the model (1.5% combined), but are still important in predicting 
SDQ. These 12 data points include: Interest rate on the loan, DTI, 
indicators whether a loan had full documentation, had prepayment 
penalty provisions, was interest-only, had a balloon payment, had 
negative amortization, was a first lien, was long term, had a teaser 
rate, had private mortgage insurance, and whether the property was 
owner-occupied.
    \670\ The analysis indicated that the goodness-of-fit of the 
complete model (i.e., the model that includes all predictive 
variables considered in this study) would increase from 15.5% to 
15.7% if an MSA is used instead of a 2-digit zip code, and to 16.0% 
if a 3-digit zip code is used instead of a 2-digit zip code.
---------------------------------------------------------------------------

    Another approach we considered, although not specifically suggested 
by commenters, was an approach that rounds the loan amount, other loan 
balance-related data points, and monthly performance data points to 
further hinder potential obligor re-identification.\671\ The rounding 
of loan amount would result in an imputed sales price that may be 
sufficiently different from the true sales price so as to lessen the 
possibility of a match to other publicly accessible real estate 
datasets. Rounding the loan balance to the nearest $1,000 results in 
the reduction of the likelihood of isolating a unique mortgage in the 
MBSData dataset to 11%. It would, however, come at a loss of precision 
in the cash flow variables that we believe is necessary for 
investors.\672\ As noted above, such precision is key to investors' 
ability to analyze and track the performance of various parties 
involved in RMBS transactions.
---------------------------------------------------------------------------

    \671\ To be effective in reducing the probability of isolating a 
loan that is unique with respect to location, imputed sales price, 
and origination date, rounding loan amount (and other loan balance 
related variables like most recent appraised value, sales price, 
paid-in-full amount, etc.) to the nearest $1,000 ($10,000) must be 
accompanied by rounding monthly payment performance related 
variables approximately to the nearest $10 ($100).
    \672\ See letter from Prudential III (noting that loan-level 
data (e.g., current asset balance, next interest rate, current 
delinquency status, remaining term to maturity) will allow investors 
to better estimate the timing of the principal and interest cash 
flows of the collateral pool, which will in turn allow investors to 
better estimate the cash flow of the securitization and be more 
confident in their risk/reward consideration of the security).
---------------------------------------------------------------------------

    We considered several alternative approaches to disseminating 
asset-level data as potential means to address privacy concerns, 
including the Web site approach.\673\ Most commenters were generally 
opposed to the Web site approach as the appropriate means to address 
privacy concerns.\674\ For example, commenters raised concerns about 
the difficulty in determining who would be a potential investor and 
thus should have access to asset-level data; \675\ the liability for 
failing to disclose all material information to investors in the event 
a potential investor was denied access to asset-level data; \676\ the 
need for guidance on what controls are necessary to address privacy; 
\677\ and access to the data by other market participants.\678\ Given 
these concerns and our belief that it is critically important that 
investors receive access to asset-level information, we are not 
adopting the Web site approach. We believe the final asset-level 
requirements, which have been modified from the proposal to address 
privacy concerns, provide investors with information they need to 
perform due diligence and make informed investment decisions, and 
therefore, we are requiring the asset-level information to be filed on 
EDGAR where it will be readily available to and accessible by 
investors. For similar reasons, we do not think it would be appropriate 
to restrict access to such information on EDGAR.
---------------------------------------------------------------------------

    \673\ See the 2014 Re-Opening Release and the 2014 Staff 
Memorandum.
    \674\ See letters from ABA III, AFSA II, Capital One II, 
Deutsche Bank, MBA IV (with respect to RMBS), SIFMA/FSR I-dealers 
and sponsors, and Treasurer Group.
    \675\ See, e.g., letters from ABA III (noting concern that 
without guidance as to who is a potential investor, issuers may 
apply their own bias filters to public offerings, such as limiting 
public offerings to only institutional investors), CCMR, MBA IV, and 
SFIG II.
    \676\ For example, issuers have expressed concern about possible 
claims for failure to disclose material information by a potential 
investor who is denied access to the Web site or refuses to agree to 
the terms of access but nonetheless purchases the security. See, 
e.g., letters from ABA III, CCMR, ELFA II, SIFMA/FSR II-dealers and 
sponsors, and SFIG II.
    \677\ Some commenters noted that in order to determine whether a 
user should be granted access it would need to screen parties, 
conduct reviews of these parties' data protection controls, and 
obtain appropriate disclosure agreements, among other controls. See 
letters from MBA IV (noting, for example, that issuers would be 
faced with the burden of determining how to control the spread of 
the information once a credentialed entity accesses the Web site), 
SIFMA/FSR I-dealers and sponsors (noting that issuers would 
generally not be equipped to verify any prospective user's identity 
or credentials or be able to enforce compliance with the terms of 
access), SFIG II (noting that investors do not want the liability 
risk that may be imposed with the access restrictions), and Wells 
Fargo III.
    \678\ See, e.g., letters from ABA III, Moody's II, and R&R.
---------------------------------------------------------------------------

    Commenters suggested a central repository or ``aggregated data 
warehouse'' to house the asset-level data because such an approach 
would simplify enforcement of access policies, ensure consistent data 
formats and lower incentives to exclude certain users.\679\ Similarly, 
another commenter suggested that issuers disclose all asset-level data 
to a consumer reporting agency administered repository, along with a 
unique identification number for each asset, which would allow 
investors to access all the asset-level data for these assets.\680\ 
Another commenter also

[[Page 57241]]

suggested that credit bureaus, instead of issuers, should provide 
credit-related information.\681\ While these suggestions have the 
potential to address privacy concerns, as noted by one commenter, they 
are not currently in use, would require further development, and would 
depend upon the willing participation of certain third parties in order 
to function as a viable means of disseminating asset-level data.\682\
---------------------------------------------------------------------------

    \679\ See letters from AFR (suggesting either a single data 
warehouse managed by a federal agency (e.g., the Commission, the 
Federal Reserve (similar to the Bank of England model), or the 
Office of Financial Research) or a non-profit data warehouse owned 
and managed by private sector entities under Commission oversight 
(similar to the European Data Warehouse) and VABSS II (recommending, 
as one option to address privacy concerns, to establish a central 
``registration system'' managed by the Commission or a third party 
that would permit access to sensitive asset-level data only to 
persons who had established their identities as investors, rating 
agencies, data providers, investment banks or other permitted 
categories of users).
    \680\ See letter from SIFMA/FSR II-dealers and sponsors (noting 
that this approach would apply to all ABS asset classes and also 
noting certain developmental challenges, such as identifying a 
consumer reporting agency willing to act as a repository, and 
application of FCRA). See also SFIG II (stating that issuers should 
have the option to use third party agents (which may be a consumer 
reporting agency or a central Web site data aggregator) to make the 
data available and control access, but also noting that such an 
approach still raises privacy law concerns and concerns about who 
pays for the third-party service).
    \681\ See letter from ABA III.
    \682\ See letter from SIFMA/FSR II-dealers and sponsors.
---------------------------------------------------------------------------

4. Requirements Under Section 7(c) of the Securities Act
    As we note elsewhere, subsequent to the 2010 ABS Proposing Release, 
Congress adopted the Dodd-Frank Act. Section 942(b) of the Dodd-Frank 
Act added Section 7(c) to the Securities Act which requires the 
Commission to adopt regulations requiring an issuer of ABS to disclose, 
for each tranche or class of security, information regarding the assets 
backing that security. It specifies, in part, that in adopting 
regulations, the Commission shall require issuers of asset-backed 
securities, at a minimum, to disclose asset-level or loan-level data, 
if such data are necessary for investors to independently perform due 
diligence including--data having unique identifiers relating to loan 
brokers or originators; the nature and extent of the compensation of 
the broker or originator of the assets backing the security; and the 
amount of risk retention by the originator and the securitizer of such 
assets.\683\
---------------------------------------------------------------------------

    \683\ See Section 7(c)(2) of the Securities Act, as added by 
Section 942(b) of the Dodd-Frank Act.
---------------------------------------------------------------------------

    In the 2011 ABS Re-Proposing Release, we requested comment as to 
whether our 2010 ABS Proposals implemented Section 7(c) effectively and 
whether any changes or additions to the proposals would better 
implement Section 7(c). We discuss below the comments we received in 
response to the requests for comment regarding the requirements of 
Section 7(c).
(a) Section 7(c)(2)(B)--Data Necessary for Investor Due Diligence
    Section 7(c)(2)(B) states, in part, that we require issuers of 
asset-backed securities, at a minimum, to disclose asset-level or loan-
level data, if such data are necessary to independently perform due 
diligence. We requested comment in the 2011 ABS Re-Proposing Release 
whether the 2010 ABS Proposal implements Section 7(c) effectively. In 
response, two investors supported requiring asset-level disclosures for 
all asset types, except for credit cards.\684\ The investor membership 
of one trade association suggested that the disclosure of relevant 
asset-level data is necessary for well-functioning markets \685\ and 
another commenter suggested that the 2010 ABS proposals would 
successfully implement Section 7(c) of the Securities Act.\686\ Two 
other commenters, however, questioned whether borrower data proposed in 
the 2010 ABS proposals was ``necessary'' for investors to perform their 
own due-diligence.\687\ These commenters, however, did not specifically 
identify the asset-level disclosures that are necessary for investors 
to independently perform due diligence.
---------------------------------------------------------------------------

    \684\ See letters from MetLife II and Prudential II.
    \685\ See letter from SIFMA II-investors (stating that well-
functioning markets require the disclosure of as much relevant 
asset-level data as is reasonably available).
    \686\ See letter from Chris Barnard dated Aug. 22, 2011 
submitted in response to the 2011 ABS Re-Proposing Release (``C. 
Barnard'').
    \687\ See letters from ABA III and MBA IV.
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    We are adopting asset-level requirements for RMBS, CMBS, Auto ABS, 
debt security ABS, and resecuritizations. We prioritized these asset 
classes for various reasons that we discuss above.\688\ Our decision to 
adopt these requirements is based on our belief that investors should 
have access to robust information concerning the pool assets that 
provides them the ability to independently perform due diligence. We 
continue to consider the appropriate disclosures for other asset 
classes. We believe the data points we are adopting fulfill, for those 
asset types, the Section 7(c) requirement that we adopt asset-level 
disclosures that are necessary for investors to independently perform 
due diligence. To the extent issuers believe additional data is needed, 
we encourage them to provide such additional disclosures in an Asset 
Related Document.\689\
---------------------------------------------------------------------------

    \688\ See Section III.A.1 Background and Economic Baseline for 
the Asset-Level Disclosure Requirement.
    \689\ See Section III.B.4 Asset Related Documents for further 
discussion on how to provide such additional disclosures.
---------------------------------------------------------------------------

(b) Section 7(c)(2)(B)(i)--Unique Identifiers Relating to Loan Brokers 
and Originators
    Section 7(c)(2)(B)(i) requires the Commission to require disclosure 
of asset-level or loan-level data, including, but not limited to, data 
having unique identifiers relating to loan brokers or originators if 
such data are necessary for investors to independently perform due 
diligence. In the 2010 ABS Proposing Release, we proposed to require 
issuers to provide the originator's name for all asset types and, if 
the asset is a residential mortgage, the MERS number \690\ for the 
originator, if available. We also proposed requiring RMBS issuers to 
provide the National Mortgage License System registration number 
required by the Secure and Fair Enforcement for Mortgage Licensing Act 
of 2008, otherwise known as the NMLS number, for the loan originators 
and company that originated the loan.\691\
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    \690\ MERS has developed a unique numbering system and reporting 
packages to capture and report data at different times during the 
life of the underlying residential or commercial loan.
    \691\ The NMLS numbers for the originator and the company refer 
to the individual and company taking the loan application, which 
would include loan brokers and the company that the broker works 
for. We noted in the 2011 ABS Re-Proposing Release that we were 
unaware of any other unique identifying systems used for the purpose 
of identifying brokers or originators of other asset types, across 
all asset types or within an asset type.
---------------------------------------------------------------------------

    In the 2011 ABS Re-proposing Release, we stated our belief that the 
proposal to require NMLS numbers would implement the requirements of 
Section 7(c) with respect to mortgages by requiring a numerical 
identifier for a loan broker.\692\ We requested comment on whether 
unique identifiers for loan brokers and/or originators were necessary 
to permit investors to independently perform due diligence for asset 
classes other than RMBS or CMBS and, if so, whether there is a unique 
system of identifiers for brokers and originators for other asset 
classes.\693\ We did not receive any comments suggesting this 
requirement would not satisfy the requirements of Section 7(c), 
although one commenter opposed requiring an NMLS identifier (for RMBS) 
because disclosure should focus on the collateral and its performance 
and an NMLS identifier does not provide investors with information they 
can use to value the assets.\694\
---------------------------------------------------------------------------

    \692\ See the 2011 ABS Re-Proposing Release at 47965-66.
    \693\ See the 2011 ABS Re-Proposing Release at 47966.
    \694\ See letter from MBA III.
---------------------------------------------------------------------------

    For RMBS, we are adopting the requirement that issuers provide for 
ABS backed by residential mortgages the NMLS number of the loan 
originator company. As noted above, we are not adopting the requirement 
that issuers provide a unique broker identifier, (i.e., the NMLS number 
of the specific loan originator) because we are concerned this 
disclosure may increase re-identification risk.\695\ Even though we

[[Page 57242]]

are not requiring disclosure of the NMLS loan originator number, we 
believe disclosure of the NMLS number of the loan originator company 
satisfies Section 7(c)(2)(B)(i) regarding the asset-level disclosure of 
unique identifiers for loan brokers or originators. We believe this 
disclosure should, over time, allow investors to compare loans 
originated by particular loan originator companies and determine 
whether there is any correlation to the performance of the loan. This 
should facilitate independent investor due diligence with respect to 
the loan pools underlying RMBS.
---------------------------------------------------------------------------

    \695\ See Section III.A.3 Asset-Level Data and Individual 
Privacy Concerns.
---------------------------------------------------------------------------

    We are unaware of unique identifiers for loan originators and, if 
applicable, brokers within the commercial mortgage, auto loan and 
lease, and debt security markets. We note the ongoing development of 
certain identifiers, but we are uncertain, at this time, especially due 
to the lack of response to our request for comment, whether a unique 
identifier for loan originators for these asset classes is necessary 
for investor due diligence. Therefore, at this time, we are not 
adopting unique identifiers for loan originators or brokers within the 
CMBS, Auto ABS or debt security markets.
(c) Section 7(c)(2)(B)(ii)--Broker Compensations and Section 
7(c)(2)(B)(iii)--Risk Retention by Originator and the Securitizer of 
the Assets
    In the 2010 ABS Proposing Release, we did not propose requiring 
asset-level disclosures of broker compensation or risk retention held 
by loan originators or securitizers. Section 942(b) of the Dodd-Frank 
Act, however, amended Section 7(c) of the Securities Act to require 
disclosure on an asset-level or loan-level basis with respect to the 
nature and extent of the compensation of the broker or originator of 
the assets backing the security and the amount of risk retention by the 
originator and the sponsor of such assets if these disclosures are 
necessary for investor due diligence. In the 2011 ABS Re-Proposing 
Release, we requested comment on whether these disclosures were 
necessary for investor due diligence.
    We received few comments on these portions of Section 7(c) in 
response to our requests for comments. One commenter stated that 
disclosure of broker compensation was appropriate to require because it 
``is necessary for evaluating how the compensation structure associated 
with an asset--including possible conflicts of interest--might affect 
its quality.'' \696\ The same commenter believed that asset-level or 
loan-level disclosure of risk retention held by an originator or 
sponsor ``would undoubtedly be of value to investors as they perform 
due diligence and assess the quality of the offering.'' \697\ This 
commenter stated that we must require asset-level risk retention 
disclosure because of the ``many forms of risk retention that have been 
proposed in accordance with Section 941(b) of the Dodd-Frank Act, 
including vertical, horizontal, and other configurations'' and because 
``[e]ach of those forms of risk retention presents a different risk 
profile, depending on the specific underlying assets that are subject 
to the risk retention.'' \698\
---------------------------------------------------------------------------

    \696\ See letter from Better Markets.
    \697\ Id.
    \698\ Id.
---------------------------------------------------------------------------

    A CMBS issuer and a trade association did not believe that broker 
compensation disclosure in the prospectus would be useful to investors 
in performing due diligence on the assets in the pool.\699\ The CMBS 
issuer stated that the general due diligence focus for CMBS was whether 
the income-producing potential of the underlying commercial property 
was sufficient to service the debt that it secures and broker 
compensation does not assist that analysis.\700\ Another trade 
association stated that it did not support disclosure of asset-level 
risk retention disclosures because its ``members do not believe this 
would add any value in the CMBS industry.'' \701\
---------------------------------------------------------------------------

    \699\ See letters from MBA III and Wells Fargo & Co. dated Oct. 
4, 2011 submitted in response to the 2011 ABS Re-Proposing Release 
(``Wells Fargo II'').
    \700\ See letter from Wells Fargo II.
    \701\ See letter from CRE Finance Council dated Oct. 4, 2011 
submitted in response to the 2011 ABS Re-Proposing Release (``CREFC 
II'').
---------------------------------------------------------------------------

    We did not receive any comments from investors suggesting that 
disclosure of broker compensation is necessary for their due diligence. 
While the disclosure of broker compensation on an asset-level basis may 
provide some value to investors in assessing possible conflicts of 
interest, we are not persuaded at this time that such information is 
necessary for investors to independently conduct due diligence.
    With respect to asset-level risk retention, we are not persuaded at 
this time that additional requirements relating to risk retention, on 
an asset-level basis, are needed for investors to independently conduct 
due diligence. A sponsor, however, will be required to provide 
information, on an aggregate basis, about its retained interest in a 
securitization transaction. As explained below, we are adopting 
amendments to Items 1104, 1108, and 1110 of Regulation AB that will 
require disclosure regarding the sponsor's, a servicer's, or a 20% 
originator's interest retained in the transaction, including the amount 
and nature of that interest.\702\ The disclosure would be required for 
both shelf and other offerings. We note the recent re-proposal of the 
credit risk retention rules, issued jointly by the Commission and other 
agencies, implementing Section 941 of the Dodd-Frank Act.\703\ When 
adopted, we will review the final credit risk retention rules to 
determine whether additional asset-level or other disclosure 
requirements, if any, are appropriate. The asset-level requirements we 
are adopting should provide investors with transparency about the 
quality of the assets in a securitization.
---------------------------------------------------------------------------

    \702\ See Items 1104, 1108 and 1110 of Regulation AB [17 CFR 
229.1104, 17 CFR 229.1108 and 17 CFR 229.1110].
    \703\ See the 2013 Risk Retention Re-Proposing Release.
---------------------------------------------------------------------------

B. Asset-Level Filing Requirements

1. The Timing of the Asset-Level Disclosure Requirements
    This section, Section III.B.1, is divided into two parts covering 
when asset-level information must be provided. Section III.B.1.a 
discusses when asset-level disclosures are required at the time of the 
offering. Section III.B.1.b discusses the frequency with which the 
asset-level disclosures are required on an ongoing basis. Section 
III.B.2 discusses the scope of asset-level data required at the time of 
the offering and on an ongoing basis.
(a) Timing of Offering Disclosures
(1) Proposed Rule
    In the 2010 ABS Proposing Release, we proposed to require asset-
level information of asset pool characteristics at the following times 
during the offering process:
     At the time the preliminary prospectus is filed.
     At the time the final prospectus is filed.
     With an Item 6.05 Form 8-K if the requirements of Item 
6.05 were triggered.\704\
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    \704\ Under the existing Item 6.05 requirement, if any material 
pool characteristic of the actual asset pool at the time of issuance 
of the securities differs by five percent or more (other than as a 
result of the pool assets converting to cash in accordance with 
their terms) from the description of the asset pool in the 
prospectus filed for the offering pursuant to Securities Act Rule 
424, the issuer must provide certain disclosures regarding the 
actual asset pool, such as that required by Items 1111 and 1112 of 
Regulation AB. Under a proposed revision to Item 6.05 of Form 8-K, 
we proposed that a new Schedule L be filed if assets are added to 
the pool during the reporting period, either through prefunding 
periods, revolving periods or substitution, and the triggers of Item 
6.05 are met. See footnote 235 of the 2010 ABS Proposing Release.

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[[Page 57243]]

(2) Comments on Proposed Rule
    Only one commenter responded to our proposal that the asset-level 
disclosures be required at the time of the offering. This commenter 
stated the proposal seemed to cover the period of offering 
sufficiently.\705\
---------------------------------------------------------------------------

    \705\ See letter from MBA I (stating that if the Commission 
requires a Schedule L for CMBS, then they do not recommend the 
inclusion of Schedule L data at other times as the proposal seems to 
cover the period of offering sufficiently).
---------------------------------------------------------------------------

(3) Final Rule and Economic Analysis of the Final Rule
    Under the final rule, as proposed, those issuers that are required 
to provide asset-level data must provide all of the required asset-
level disclosures in a preliminary prospectus and the final prospectus. 
Requiring that asset-level disclosures be filed by the same time a 
preliminary prospectus is filed will provide investors more time to 
analyze the asset-level data in advance of an investment decision. We 
acknowledge that every time asset-level disclosures are filed issuers 
likely will incur filings costs and costs to verify the data. We 
believe the costs incurred to provide this information are justified in 
order to provide investors access to relevant data about the assets 
underlying the particular ABS offering in advance of their investment 
decision. In addition, we believe providing investors time to analyze 
the asset-level data may result in better pricing and therefore may 
improve allocative efficiency and facilitate capital formation. 
Compliance costs are minimized, to some extent, because if there has 
been no change to the asset-level information provided with the 
preliminary prospectus, then under current requirements, this 
information can be incorporated by reference into the final prospectus. 
This eliminates the costs associated with re-filing the information.
    Under the proposal, an issuer would have been required to provide 
updated asset-level disclosures about the pool composition, including 
characteristics of new assets added to the pool, if an Item 6.05 Form 
8-K was triggered.\706\ Under the final rules, asset-level information 
about the actual pool composition is required with each Form 10-D. 
Therefore, we do not believe that issuers should also incur the cost to 
provide asset-level information if an Item 6.05 is triggered.
---------------------------------------------------------------------------

    \706\ See footnote 235 of the 2010 ABS Proposing Release.
---------------------------------------------------------------------------

(b) Timing of Periodic Disclosures
(1) Proposed Rule
    We also proposed in the 2010 ABS Proposing Release to require 
ongoing asset-level disclosures. Under the proposal, asset-level 
disclosures would be required at the time of each Form 10-D, which 
under current requirements is within 15 days after each required 
distribution date on the ABS.
(2) Comments on Proposed Rule
    With respect to when and how frequently the ongoing asset-level 
disclosures should be provided, comments varied. One commenter 
recommended that the required disclosures be provided on the 
distribution date rather than 15 days thereafter.\707\ Some commenters 
noted that industry standards for CMBS make ongoing disclosures 
available earlier than when the proposal would require them.\708\
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    \707\ See letter from MetLife I.
    \708\ See letters from BoA I, MBA I, MBA IV, and Wells Fargo I 
(referring to the CREFC IRP making disclosures available 15 days 
earlier than what the proposal would require).
---------------------------------------------------------------------------

    With respect to how frequently the ongoing asset-level disclosures 
should be provided, comments varied. For instance, a few commenters 
suggested we require disclosure on the day of an ``observable event,'' 
or promptly thereafter.\709\ Alternatively, one commenter suggested 
requiring less asset-level data each month or allowing issuers to 
provide the data annually or quarterly.\710\ Other commenters stated 
that the asset-level disclosures should not be required on a daily 
basis or on a timeframe that occurs less than monthly.\711\ Relatedly, 
one commenter stated that the final rule should include an instruction 
clarifying that the ongoing asset-level information reported for any 
particular reporting period may be reporting information from a prior 
reporting period due to delays that can occur between the time when 
asset-level information is received and such information is ready to be 
reported.\712\
---------------------------------------------------------------------------

    \709\ See letters from TYI and CoStar (both defining 
``observable events'' as any of the following: (1) Payment (and the 
amount thereof) by the obligor on such loan or receivable; (2) 
failure by the obligor to make payment in full on such loan or 
receivable on the due date for such payment; (3) amendment or other 
modification with respect to such loan or receivable; or (4) the 
billing and collecting party becomes aware that such obligor has 
become subject to a bankruptcy or insolvency proceeding).
    \710\ See letter from AFSA I (suggesting that monthly reports 
are cumbersome and the data does not change that often).
    \711\ See letters from ABA I (suggesting that it would be 
burdensome or impossible to provide intra-month updates because of 
system limitations that would prevent more frequent data collection 
and that data is only comparable if consistently collected at the 
same point in time) and Wells Fargo I (suggesting that, for RMBS and 
CMBS, requiring ongoing disclosures on a daily basis or less than 
monthly is inappropriate because the marginal benefit to investors 
would not justify the costs).
    \712\ See letter from Wells Fargo I (stating that CMBS 
transactions often involve multiple loans with different financial 
reporting dates, and the information has to be reviewed by the 
appropriate parties, including the servicer, and normalized before 
it is provided to the filer, which can result in substantial delays 
between the time information is received and is reported on Form 10-
D).
---------------------------------------------------------------------------

(3) Final Rule and Economic Analysis of the Final Rule
    The final rule requires, as proposed, that issuers provide the 
asset-level disclosures at the time of each Form 10-D. As discussed, 
however, in Section III.B.2 the scope of information required with each 
Form 10-D has changed to also include the same set of data points that 
were required in the prospectus. We are not persuaded by commenters' 
suggestions that the ongoing asset-level disclosures be provided 
quarterly, annually or monthly, because reporting at these times may be 
outside the time when such disclosures are normally collected. The 
requirement to file a Form 10-D is tied to the distribution date on the 
ABS, as specified in the governing documents for the securities. In 
effect, tying the asset-level disclosures to each Form 10-D filing 
aligns the frequency of the disclosures to the payment cycle (when data 
about the collections and distributions is captured) which should 
minimize the burdens and costs to issuers of collecting such 
information. For investors, receiving asset-level data tied to the 
payment cycle should allow them to conduct their own valuation and risk 
analysis of each asset in the pool at periods close in time to when the 
data is captured and other distribution information is already being 
reported. This should allow investors to understand, on an ongoing 
basis for the life of the investment, how the performance of any 
particular asset is affecting pool performance.
    We also believe that only requiring asset-level disclosures on a 
quarterly or monthly basis may not provide investors with timely access 
to data about the performance of pool assets because it ties the 
reporting of asset-level disclosures to a timeframe that may be outside 
the payment cycle when the data is normally captured, which may 
increase costs or inhibit investors' ability to make timely and 
informed ongoing investment decisions. For instance, if asset-level 
reporting was required monthly, but the payment cycle occurred every 
six months, then requiring a filing on a monthly basis

[[Page 57244]]

may unnecessarily increase costs without a corresponding benefit. If 
reporting was required on a quarterly basis, but the payment cycle was 
monthly, then in instances where the performance of pool assets 
deteriorates or the pool assets change, investors would not receive 
timely updates about such events. This may impact their ability to spot 
developing trends, thus limiting their ability to make informed ongoing 
investment decisions with respect to the ABS.
    We are also not persuaded that we should require reporting any time 
an ``observable event'' occurs with respect to a single asset because 
we do not believe that the benefits to investors of such a requirement 
would justify the costs to issuers of capturing and reporting data in a 
timeframe that falls outside when data is typically captured and 
reported. Reporting on an observable event basis could result in the 
issuer constantly updating the data. As noted above, we believe 
providing investors access to timely and relevant asset-level 
disclosures and minimizing costs to issuers is best achieved by 
requiring asset-level disclosures be provided with each Form 10-D, 
which means the disclosures will be provided in a timeframe that is in 
line with the payment cycle and when the data is typically captured.
    The final rule also requires that the asset-level disclosures be 
provided for each asset that is in the pool at any point in time during 
the reporting period. Therefore, if a substitution occurred during the 
reporting period, then asset-level disclosures are required for both 
the loan added and the loan removed during the reporting period in 
which the change occurred. Providing investors with disclosure about 
assets that are added and removed will allow investors to understand 
the actual composition of the asset pool over the life of a security. 
This will benefit investors by allowing them to assess on an ongoing 
basis the current risk of the collateral pool and to compare the 
characteristics of the assets involved in a substitution. We recognize 
that this benefit to investors will result in increased reporting costs 
to sponsors and ABS issuers.
    A commenter suggested the final rule include an instruction 
clarifying that the information reported for any particular reporting 
period may be information from a prior reporting period due to delays 
that can occur between the time when asset-level information is 
received and such information is ready to be reported.\713\ We are not 
persuaded that this is a significant problem for issuers; therefore the 
final rule does not include such an instruction. The transaction 
agreements specify a distribution date to investors that is generally 
sometime after the end of a reporting period so that the amounts of a 
distribution may be calculated so that reports may be prepared. 
Consistent with current requirements, the Form 10-D is required to be 
filed 15 days after each required distribution date on the ABS and 
accordingly, because the asset-level disclosures are included in the 
Form 10-D disclosure requirements, they are due at the same time. Based 
on current market practice, the amount of time between the end of a 
reporting period and filing of a Form 10-D may be four weeks or more. 
Therefore, we believe aligning the timing of filing the asset-level 
disclosure with current Form 10-D reporting requirements will not be 
costly and will provide a sufficient period of time for the appropriate 
parties to review the information before filing.
---------------------------------------------------------------------------

    \713\ See letter from Wells Fargo I.
---------------------------------------------------------------------------

2. The Scope of New Schedule AL
    Section III.B.1 discussed when asset-level disclosures are required 
at the time of offering and on an ongoing basis. This section discusses 
the scope of those required asset-level disclosures required at the 
time of the offering and on an ongoing basis.
(a) Proposed Rule
(1) Offering Disclosures
    As noted above, in the 2010 ABS Proposing Release, we proposed to 
add the prospectus disclosure requirements in new Item 1111(h) and new 
Schedule L to Regulation AB. We also proposed data points related to 
each asset. Proposed Schedule L focused, in general, on providing 
investors asset-level data about the credit quality of the obligor, the 
collateral related to each asset and the cash flows related to a 
particular asset, such as the terms, expected payment amounts, indices 
and whether and how payment terms change over time. Schedule L 
contained some data points capturing some loan performance data.\714\ 
As noted above, proposed Schedule L would have been provided at the 
time of the preliminary prospectus. We also proposed that an updated 
Schedule L be provided with the final prospectus.\715\ Finally, we 
proposed that, if issuers are required to report changes to the pool 
under Item 6.05 of Form 8-K, then an updated Schedule L would be 
required.\716\ We also requested comment on whether Schedule L data 
should be required at any other time.\717\
---------------------------------------------------------------------------

    \714\ See, e.g., proposed Items 1(b)(5) and 1(b)(6) of Schedule 
L.
    \715\ See proposed Item 1125 of Regulation AB and the 2010 ABS 
Proposing Release at 23356.
    \716\ In footnote 235 of the 2010 ABS Proposing Release we 
stated that if a new asset is added to the pool during the reporting 
period, an issuer would be required to provide the asset-level 
information for each additional asset pursuant to proposed revisions 
to both Item 1111 of Regulation AB and Item 6.05 of Form 8-K. See 
the 2010 ABS Proposing Release at 23356.
    \717\ See the 2010 ABS Proposing Release at 23356.
---------------------------------------------------------------------------

    Under our proposed revisions to Item 6.05 of Form 8-K, we proposed 
that a new Schedule L be filed if any material pool characteristic of 
the actual asset pool at the time of issuance of the asset-backed 
securities differs by 1% or more from the description of the asset pool 
in the prospectus.\718\ Based on comments received, it seemed that it 
may not be clear that an Item 6.05 Form 8-K would be required when 
prefunding or revolving assets increased or changed the pool by 1% or 
more, although that was the intent of the proposal. Therefore, in the 
2011 ABS Re-Proposing Release, we requested additional comment about 
whether we should clarify that a new Schedule L would be required with 
an Item 6.05 Form 8-K when assets are added to the pool after the 
issuance of the securities either through prefunding periods, revolving 
periods or substitution and the triggers in Item 6.05 are met.\719\ The 
Schedule L provided with an Item 6.05 Form 8-K would provide investors 
with the current pool composition including data related to the cash 
flows related to a particular asset, data that allows for better 
prepayment analysis or credit analysis and data about the property. We 
also requested comment on whether the updated Schedule L should include 
all assets in the pool and whether the Schedule L should be an exhibit 
to a Form 8-K or to a Form 10-D.\720\
---------------------------------------------------------------------------

    \718\ See the 2010 ABS Proposing Release at 23392. As proposed, 
if any material pool characteristic of the actual asset pool at the 
time of issuance of the asset-backed securities differs by 1% or 
more than the description of the asset pool in the prospectus filed 
for the offering pursuant to Securities Act Rule 424, an issuer 
would be required to file an Item 6.05 Form 8-K and provide the 
disclosures required under Item 1111 and Item 1112 of Regulation AB. 
Under proposed Item 1111(h) of Regulation AB issuers would be 
required to provide a Schedule L. In addition, the item, as proposed 
to be revised, also would require a description of the changes that 
were made to the asset pool, including the number of assets 
substituted or added to the asset pool.
    \719\ See the 2011 ABS Re-Proposing Release at 47970.
    \720\ Id.
---------------------------------------------------------------------------

(2) Periodic Disclosures
    In the 2010 ABS Proposing Release, we also proposed ongoing 
disclosure requirements in Item 1121(d) and Schedule L-D. Proposed 
Schedule L-D

[[Page 57245]]

would require, in general, disclosures corresponding to payments 
received during the payment cycle, as well as amounts past due and the 
servicer's efforts during the payment cycle to collect past due 
amounts. Proposed Item 1121(d) and Schedule L-D disclosure would be 
provided at the time of each Form 10-D. We also requested comment in 
the 2010 ABS Proposing Release about whether Schedule L-D data should 
be provided at other times.\721\
---------------------------------------------------------------------------

    \721\ See the 2010 ABS Proposing Release at 23368.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    We received limited response to the request for comment on whether 
Schedule L and Schedule L-D data should be provided at any other time. 
Commenters generally indicated that the disclosures enumerated in 
Schedule L and Schedule L-D may be appropriate at other times than 
proposed. For instance, one investor stated that the same disclosures 
for all ABS sectors (other than CMBS) should be required for offering 
documents and ongoing reports.\722\ The investor recognized that 
certain data will be static, while other data will change from month to 
month. Another investor stated that for transactions involving a 
prefunding period or revolving period, a new Schedule L should be filed 
monthly when new collateral is added.\723\
---------------------------------------------------------------------------

    \722\ See letter from MetLife I (suggesting that the same 
disclosure be required for offering documents and ongoing reports, 
but that for CMBS the loan originator and the loan servicer are not 
affiliated and therefore, the same requirement may be impractical 
for CMBS).
    \723\ See letter from Prudential I (opposing additions to the 
collateral pool after the filing of the final prospectus except for 
substitutions for defaulted assets after closing).
---------------------------------------------------------------------------

    In response to the questions asked in the 2011 ABS Re-Proposing 
Release about clarifying that a new Schedule L would be required with 
an Item 6.05 Form 8-K, an investor reiterated its earlier position that 
issuers should file a Schedule L at issuance and each month new assets 
are added to the collateral pool.\724\ The investor added that this 
would allow investors to evaluate the changing nature of the risk 
layering introduced by the new assets and it would allow investors to 
confirm that the quality of the newly added collateral meets the 
expected origination practices of the issuer.\725\
---------------------------------------------------------------------------

    \724\ See letter from Prudential II.
    \725\ See letter from Prudential II (also suggesting that the 
newly originated collateral should also appear on Schedule L-D, ``so 
investors can efficiently assess how the new assets influence the 
risk profile of the overall collateral pool'').
---------------------------------------------------------------------------

    One commenter noted that current rules require that updated 
information about the characteristics of the collateral in the pool be 
provided with the Form 10-D, rather than in a Form 8-K.\726\ The 
commenter, however, also believed requiring an updated Schedule L for 
assets added after the measurement date for revolving asset master 
trusts is inappropriate because the asset composition of these trusts 
changes on a daily basis during its revolving period and, therefore, an 
issuer would be filing both a Schedule L and Schedule L-D each 
month.\727\ Another commenter suggested that a new Schedule L should 
not be required when assets are added to the pool after issuance, 
either through prefunding periods, revolving periods or substitution 
unless the triggers under Item 6.05 of Form 8-K are met. If the 5% 
threshold under Item 6.05 was met, then the commenter asserted filing 
the Schedule L with the Form 10-D would be more efficient.\728\
---------------------------------------------------------------------------

    \726\ See letter from VABSS II (noting that existing Item 
1121(b) of Regulation AB requires disclosure for changes in pool 
composition during revolving periods and prefunding periods, and 
Item 1121(b) states that the information is to be provided in 
distribution reports on Form 10-D, rather than in a Form 8-K).
    \727\ See letter from VABSS III.
    \728\ See letter from Sallie Mae II.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    After considering the comments received, we are adopting a rule, 
based on a commenter's suggestion that the same asset-level disclosures 
be provided, if applicable, at the time of the offering and on an 
ongoing basis. Therefore, we have condensed information previously 
proposed to be provided in either Schedule L or Schedule L-D into a 
single schedule, titled Schedule AL. Schedule AL in new Item 1125 of 
Regulation AB enumerates all of the asset-level disclosures to be 
provided, if applicable, about the assets in the pool at securitization 
and on an ongoing basis. The asset-level disclosures apply to each 
asset in the pool during the reporting period covered by Schedule 
AL.\729\
---------------------------------------------------------------------------

    \729\ See Item 1111(h)(7) of Regulation AB [17 CFR 229.1111].
---------------------------------------------------------------------------

    We believe aggregating Schedule L and Schedule L-D into one unified 
schedule simplifies the new rules to the benefit of both issuers and 
investors. For investors, we believe a unified schedule will make it 
easier to understand the actual pool composition and the performance of 
the asset pool both at issuance and on an ongoing basis. We recognize 
that, in certain circumstances, the pool composition may continue to 
change even after the final prospectus is filed. As a result, the 
asset-level information provided with the final prospectus may not 
reflect the pool composition at closing.\730\ On an ongoing basis, the 
composition of the asset pool may change due to prefunding or revolving 
periods, or substitution. Under the proposal, if the assets in the pool 
changed after the filing of the final prospectus, then investors would 
have only received updated disclosures about the characteristics of the 
current asset pool, if an Item 6.05 of Form 8-K was triggered. Some 
assets could be added or removed from the pool without investors 
receiving updated disclosures about the changes to the composition and 
characteristics of the asset pool. As a result, the assets identified 
in the most recent Schedule L-D would not exactly match the assets 
identified in the last Schedule L that was filed.
---------------------------------------------------------------------------

    \730\ The requirement to file Schedule AL data with the final 
prospectus does not impact the analysis regarding the timing and 
adequacy of information conveyed to the investor at the time the 
investment decision is made. Under Securities Act Rule 159, 
information conveyed after the time of the contract of sale (e.g., a 
final prospectus) is not taken into account in evaluating the 
adequacy of information conveyed to the investor at the time the 
investment decision was made. Therefore, registrants should be 
mindful of their obligations under Securities Act Rule 159.
---------------------------------------------------------------------------

    Requiring that the asset-level information provided with the Form 
10-D include information about the characteristics of each asset will 
make it easier to understand the actual pool composition at any point 
in time and, in particular, when the asset composition has changed 
through additions, substitutions or removal of assets.\731\ This 
requirement will also make it easier to compare the characteristics of 
the current asset pool with the pool characteristics for a prior period 
or date. As a result, we believe investors will be able to better 
assess any potential risk layering introduced by changes to the 
composition of the asset pool and confirm that the quality of the newly 
added collateral meets expected origination practices.
---------------------------------------------------------------------------

    \731\ For instance, if a loan was added to an RMBS pool during a 
reporting period, the next Schedule AL that is filed will include 
all relevant disclosures about the asset, including all disclosures 
that would have been included if the loan was part of the pool at 
the time of securitization and all required ongoing asset-level 
disclosures about the asset. The final rules include a data point 
that captures whether an asset was added to the pool during the 
reporting period.
---------------------------------------------------------------------------

    Another benefit is that investors at the time of the offering will 
receive a more complete picture of any seasoned assets in the ABS pool, 
including the current performance of these assets. As we noted in the 
2010 ABS Proposing Release, proposed Schedule L-D focused on whether an 
obligor is making payments as scheduled, the efforts by the servicer to 
collect amounts past due,

[[Page 57246]]

and the losses that may pass on to investors.\732\ We believe these 
disclosures, if made at the time of the offering, will also assist an 
investor in its investment analysis, especially with respect to asset 
pools involving seasoned assets.
---------------------------------------------------------------------------

    \732\ See the 2010 ABS Proposing Release at 23367.
---------------------------------------------------------------------------

    We recognize that the one schedule format may benefit issuers, but 
it may also result in some increased compliance costs. We believe that 
it may be easier to revise, amend and file one schedule than two 
separate schedules. Also, as discussed above, because we are not 
adopting the proposed requirement that an updated Schedule L be 
provided if an Item 6.05 is triggered, issuers will not need to bear 
the burden or cost of assessing whether an updated Schedule L is 
required if the requirements of Item 6.05 were triggered.\733\
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    \733\ The current disclosures required under existing Item 6.05 
of Form 8-K are still required if the triggers of Item 6.05 are met. 
Item 6.05 is not limited to the reporting of differences in material 
pool characteristics that result only from changes in the pool 
composition and, in fact, it excludes only changes that occur as a 
result of the pool assets converting into cash in accordance with 
their terms. For example, absent a change in pool composition, if 
payment activity after the cut-off date would result in a change to 
the delinquency or payment statistics that were presented in the 
prospectus by more than 5% after the cut-off date, but prior to 
closing, then disclosure would be required under Item 6.05.
---------------------------------------------------------------------------

    We also recognize that aggregating the data points proposed in 
Schedules L and L-D into one schedule may increase the number of data 
points that an issuer will need to respond to at the time of the 
offering and on an ongoing basis. We do not believe that this change 
increases the data issuers must collect about the assets beyond what 
was proposed as the unified schedule primarily consists of information 
proposed to be provided under Schedule L and Schedule L-D. Under the 
rule we are adopting, the issuer will be required, at the time of the 
offering, to provide all the information relating to the underwriting 
of the asset (e.g., terms of the asset, obligor characteristics 
determined at origination) and any applicable performance related 
information for the most recent reporting period. On an ongoing basis, 
the issuer will be required to provide the relevant ongoing performance 
information for the most recent reporting period and the underwriting 
information previously provided about the asset. Issuers may incur some 
increased filing costs compared to what they would have incurred under 
the proposal because they will be verifying and filing more data at 
each filing. Although we cannot quantify the increase in filing costs 
that issuers may incur, our qualitative assessment is that the increase 
will not be significant over what was proposed.\734\
---------------------------------------------------------------------------

    \734\ By aggregating the schedules we are able to omit any 
duplicate data points found on both schedules. For instance, the 
following data points were in proposed Schedule L-D and were omitted 
from Schedule AL since they were similar or identical to other data 
points: Items 1(a) Asset number type; 1(b) Asset number; 1(c) Asset 
group number; 1(f)(7) Current asset balance; 1(f)(12) Current 
delinquency status; 1(f)(13) Number of days payment is past due; 
1(f)(14) Current payment status; 1(f)(15) Pay history; 1(f)(18) 
Remaining term to maturity; 1(g)(6) Servicing advance methodology; 
2(b)(2) Next interest rate change date; 2(b)(5) Option ARM 
indicator; 2(e)(1) Modification effective payment date; 2(e)(3) 
Total capitalized amount; 2(e)(29) Forgiven principal amount 
(cumulative); and 2(e)(30) Forgiven interest amount (cumulative). 
The following data points were in proposed Schedule L and were 
omitted from Schedule AL since they were similar or identical to 
other data points: Items 1(a)(15) Primary servicer; 2(a)(21)(iv) 
Updated DTI (front-end) and 2(a)(21)(iv) Updated DTI (back-end).
---------------------------------------------------------------------------

    We considered, as an alternative, requiring information to be 
provided only about assets added to the pool during a reporting period. 
We believe asset-level information is most useful when it reflects all 
the assets actually in the pool. Therefore, we believe that current 
investors and potential secondary market investors should have access 
through the current Form 10-D to the asset-level information reflecting 
the assets in the pool at that time. Otherwise those parties may have 
to piece together various tables of information to construct the 
current pool. Piecing together various tables may lead to confusion and 
errors and, as a result, market participants may base their analysis on 
data that does not provide an accurate picture of the asset pool. 
Further, investors rather than issuers would bear the cost of piecing 
together the disclosures and having each investor doing so would create 
duplicative costs.
    One investor commenter who supported the same asset-level 
disclosure in offering documents and in ongoing reports for most asset 
classes did not support this format for CMBS.\735\ For CMBS, this 
commenter stated the loan originator and the loan servicer are not 
affiliated and, therefore, unifying items in Schedule L and Schedule L-
D may be impractical for the CMBS sector. We considered this concern, 
but we believe the information is available to issuers, albeit perhaps 
at some cost. Thus, Schedule AL enumerates for issuances of CMBS all of 
the asset-level disclosures to be provided, if applicable, about the 
assets in the pool at securitization and on an ongoing basis.
---------------------------------------------------------------------------

    \735\ See letter from MetLife I.
---------------------------------------------------------------------------

    In the end, we believe this approach is reasonable despite the 
increased compliance costs, because this approach provides investors 
with access, both at the time of the offering and on an ongoing basis, 
to more data about the characteristics and performance of the pool 
assets. As a result, investors can evaluate the characteristics of the 
pool with the benefit of a more complete picture of the pool assets' 
characteristics and performance.
3. XML and the Asset Data File
(a) Proposed Rule
    In the 2010 ABS Proposing Release, we proposed requiring that 
asset-level information be provided in XML. We believed that requiring 
the asset-level data file in XML, a machine-readable language, would 
allow users to download the data directly into spreadsheets and 
databases, analyze it using commercial off-the-shelf software, or use 
it within their own models in other software formats.
(b) Comments on Proposed Rule
    In response to the 2010 ABS Proposing Release, several commenters 
supported the use of XML to report loan-level data \736\ and some 
commenters noted that the residential mortgage industry already uses 
XML to transmit data about loans.\737\ For CMBS, some commenters 
suggested not requiring XML at this time.\738\ A few commenters 
suggested that we not adopt the XML requirement for RMBS, but instead 
require the information in comma separated values (``CSV'').\739\

[[Page 57247]]

Other commenters also suggested the use of another standard, such as 
XBRL.\740\
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    \736\ See, e.g., letters from ActiveState Software Inc. dated 
July 29, 2010 submitted in response to the 2010 ABS Proposing 
Release, Beached Consultancy, CMBS.Com I, CREFC I (recognizing the 
importance of XML format, but requesting we not adopt the 
requirement for CMBS until such time that CREFC IRP adopts a version 
of the CREFC IRP in XML), Interactive, MetLife I, Risk Management 
Association dated Aug. 2, 2010 submitted in response to the 2010 ABS 
Proposing Release (``RMA''), and Alberto Zonca dated July 26, 2010 
submitted in response to the 2010 ABS Proposing Release (``A. 
Zonca'').
    \737\ See letters from eSign, MBA I, MERS, and MISMO (each 
supporting the use of XML, but suggesting the use of MISMO XML 
standards).
    \738\ See letters from CREFC I (indicating that requiring XML 
would be a significant burden on those institutions who largely work 
under an alternative platform to convert to XML and the conversion 
could create data quality issues), MBA I, and Wells Fargo I (each 
suggesting that the Commission wait until the CMBS industry develops 
the XML format).
    \739\ See letters from ASF I (suggesting requiring RMBS files be 
in text format with each value in the file separated by a comma 
because market participants should focus staff and information 
technology resources on efforts to standardize the data) and Wells 
Fargo I (suggesting the format of the data be in CSV format).
    \740\ See letters from RMA (supporting the use of XML schemas 
specified either with the XSD language or the more specialized 
XBRL), UBMatrix, Inc. dated July 31, 2010 submitted in response to 
the 2010 ABS Proposing Release (recommending requiring XBRL), and 
XBRL.US dated Aug. 2, 2010 submitted in response to the 2010 ABS 
Proposing Release (suggesting the use of XBRL because it is 
consistent with their recommended waterfall output format).
---------------------------------------------------------------------------

    As we note above, subsequent to the 2010 ABS Proposing Release, 
Congress adopted the Dodd-Frank Act. Section 942(b) of the Dodd-Frank 
Act added Section 7(c) to the Securities Act, which requires the 
Commission to set standards for the format of the data provided by 
issuers of an asset-backed security, which shall, to the extent 
feasible, facilitate the comparison of such data across securities in 
similar types of asset classes. We requested comment in the 2011 ABS 
Re-Proposing Release as to whether the proposed XML format was an 
adequate standard for the format of data that facilitated the 
comparison. We did not receive any comments suggesting that requiring 
that asset-level data be provided in XML did not, as it relates to data 
standardization, implement Section 7(c) effectively.
    Instead, comments on the 2011 Re-Proposing Release reiterated 
concerns raised in prior comment letters. For instance, some commenters 
reiterated their belief that XML should not be required for CMBS at 
this time \741\ and one of these commenters said requiring XML should 
be tied to investor demand.\742\ These commenters were concerned with 
the cost to implement the standard,\743\ the cost of providing the data 
in duplicate formats,\744\ data quality risks,\745\ and the time needed 
to implement the standard.\746\ On the other hand, one commenter 
believed that the current format of CMBS reports (CSV, Excel and even 
PDF) ``greatly limits the transparency of CMBS.'' \747\
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    \741\ See letters from CREFC II, MBA III, and Wells Fargo II.
    \742\ See letter from MBA III.
    \743\ See letter from CREFC II. This commenter did not provide a 
specific cost to implement XML.
    \744\ See letter from MBA III (stating that CMBS investors 
generally do not currently utilize XML formatting for reporting and 
even if XML is required, issuers will likely continue to provide 
investors the disclosures in the format they currently provide them 
and use XML format ``solely for filings with the Commission.'').
    \745\ See letters from CREFC II and Wells Fargo I.
    \746\ See letter from Wells Fargo I.
    \747\ See letter from CMBS.com and Commercial Mortgage Industry 
Standards Maintenance Organization dated Oct. 4, 2011 submitted in 
response to the 2011 ABS Re-Proposing Release.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    After considering the comments received, we are adopting the 
proposed XML requirement. We believe requiring asset-level information 
in a standardized machine-readable format should lower the cost for 
investors of collecting data about ABS offerings and should allow data 
to be analyzed by investors and other end-users more quickly than if 
the data was provided in a non-machine readable format. For instance, 
if the asset-level data is made available to investors in a format that 
is not machine-readable, it would require the manual key-entry of the 
data into a format that allows statistical analysis and aggregation. 
Thus, investors seeking to gain a broad understanding of ABS offerings 
would either need to spend considerable time manually collecting the 
data and manually entering the data into a format that allows for 
analysis, thus increasing the time needed to analyze the data, or incur 
the cost of subscribing to a financial service provider that 
specializes in this data aggregation and comparison process. Further, 
manual entering of data can lead to errors, thereby reducing data 
accuracy and usefulness. Requiring companies to report asset-level data 
in a standardized machine-readable format, such as XML, should lower 
both the time and expense for each investor to access this data. Since 
asset-level disclosures will be tagged and can be immediately 
downloaded into a larger, more comprehensive database that may include 
data about other ABS offerings, investors will not need to manually 
enter the data or subscribe to a third-party data aggregator. With more 
information readily available in a usable format, investors may be able 
to better distinguish the merits of various investment choices, thereby 
allowing investors to better match their risk and return preferences 
with ABS issuances having the same risk and return profile. Thus, we 
expect that this reduction in the costs of accessing, collecting and 
analyzing information about the value of ABS will lead to better 
allocation of capital. We believe that the requirements we are adopting 
to require standardized asset-level disclosures in XML fulfill, for the 
asset types subject to these requirements, the requirement under the 
Dodd-Frank Act that we set a standard for the format of data that 
facilitates comparison across securities in similar types of assets.
    We understand that some commenters expressed concerns regarding the 
burden and cost to implement the standard. We recognize that requiring 
asset-level disclosures in XML will result in substantial initial set-
up costs to filers.\748\ In a further attempt to mitigate costs to 
issuers, as we discuss below in Section IX.B, we are requiring that 
issuers comply with the asset-level disclosures no later than November 
23, 2016, which we believe reduces the burden of implementation by 
providing time for market participants to reprogram their systems. With 
respect to the costs of implementation, we believe that the costs are 
justified because we believe investors need the asset-level disclosures 
in a standardized machine-readable format that makes the data 
transparent and comparable. We continue to believe that having the 
asset-level data in a standardized machine-readable format will enable 
investors to use commercial off-the-shelf software for analysis of 
underlying asset-level data, which will allow them to aggregate, 
compare and analyze the information.
---------------------------------------------------------------------------

    \748\ We estimate the direct costs of converting data from 
internal formats to rule-compliant XML format the following way: We 
assume that a sponsor would work with all asset types and would need 
to convert the total of 680 distinct data columns, with 80% of them 
having direct mapping from internal data types (i.e., no additional 
conversion or modification would be necessary) and 20% being coded 
(i.e., column value be a combination or modification of existing 
data values) and requiring 3 times the effort for direct columns. 
One simple column would require 6 hours of work, with a total of 
5,712 hours. The deployment (documentation, internal ``roll out'' 
with the first filing, etc.) would add another 10% to the costs, 
leading to the total 6,283 hours, or 3.5 full-time equivalents 
(Senior Database Administrator, Senior Business Analyst and one and 
a half Junior Business Analysts). Using salary data from SIFMA's 
Management & Professional Earnings in the Securities Industry 2013, 
modified by Commission staff to account for a 1,800-hour work-year 
and multiplied by 5.35 to account for bonuses, firm size, employee 
benefits and overhead, we estimate the initial costs would be about 
$1,445,000 per sponsor. The hardware cost increment would be de 
minimis and the maintenance in subsequent periods would be only 5% 
of build cost. For some sponsors that specialize on a limited number 
of asset types the costs could be significantly lower because they 
would need to transform fewer data points from their internal format 
to the rule-compliant XML format. After necessary adjustments have 
been made, we expect that the ongoing costs for providing the data 
in XML will be minimal.
---------------------------------------------------------------------------

    We also considered, as several commenters suggested, alternative 
formats to XML, such as PDF, CSV and XBRL. We do not believe PDF format 
is a suitable alternative because it is not a convenient medium for 
tabular structured data and it is not designed to convey machine-
readable data. As explained above, the ability of investors to easily 
utilize the asset-level data required of issuers is crucial to its 
usefulness. We believe that the CSV format is not suitable either, 
since any given dataset reported will require more than a single set of 
uniformly structured

[[Page 57248]]

rows and CSV format will not support the disclosure of such datasets 
easily. Finally, while XBRL allows issuers to capture the rich 
complexity of financial information presented in accordance with U.S. 
Generally Accepted Accounting Principles, we do not believe that it is 
appropriate for the asset-level disclosure requirements we are 
adopting.\749\ The Asset Data File will present relatively simpler 
characteristics of the underlying loan, obligor, underwriting criteria, 
and collateral, among other items, that is better suited for XML. 
Further, the data extensions available in XBRL are not appropriate for 
this dataset where comparability of data is critical and the nature of 
the repetitive data lends itself to an XML format. In addition, the XML 
schema can be easily updated. \750\
---------------------------------------------------------------------------

    \749\ XBRL was derived from the XML standard. See Interactive 
Data to Improve Financial Reporting Adopting, Release No. 34-59324 
(Jan. 30, 2009) [74 FR 6776].
    \750\ A schema is a set of custom tags and attributes that 
defines the tagging structure for an XML document. Extension data is 
not permitted in the asset-level data file because we believe it 
would defeat the purpose of standardizing data elements. Extension 
data allows issuers to add their own data elements to our defined 
data elements.
---------------------------------------------------------------------------

4. Asset Related Documents
(a) Proposed Rule
    We understand that a situation may arise where an issuer would need 
to disclose other asset-level data not already defined in Schedule AL. 
To address this situation, we proposed to include a limited number of 
``blank'' data tags in our XML schema to provide issuers with the 
ability to present additional asset-level data not required under the 
proposal.\751\ We also proposed an ``Asset Related Document'' that 
would allow registrants to disclose the definitions or formulas of any 
additional asset-level data or provide further explanatory disclosure 
regarding the Asset Data File.\752\
---------------------------------------------------------------------------

    \751\ See the 2010 ABS Proposing Release at 23375.
    \752\ Id.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    We received some comments, which were mixed, on the blank tag 
proposal, but we did not receive any comments regarding the use of an 
Asset Related Document. With regard to the blank tag proposal, one 
commenter suggested that as long as the information in the blank data 
tag is clearly described, neither the number of blank data tags nor the 
information would add complexity to the requirements.\753\ One 
commenter, however, did not see the benefit of the proposed blank tags 
because new data points can be added as business and reporting needs 
evolve.\754\ Another commenter did not believe a blank tag was 
appropriate or consistent with ``good XML syntax.'' \755\
---------------------------------------------------------------------------

    \753\ See letter from Prudential I.
    \754\ See letter from MISMO.
    \755\ See letter from MBA I.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    We continue to believe, given the possible variety of assets and 
structures for securitization and that business and reporting needs may 
evolve faster than changes can be made to the asset-level requirements, 
issuers should have the flexibility to provide asset-level data in 
addition to what is required by Schedule AL. For instance, we note that 
some commenters suggested we adopt data points that we had not 
proposed.\756\ While we are adopting some of the data points commenters 
suggested, we are not adopting all the additional data points 
recommended for various reasons that we describe above. We encourage 
issuers to provide any additional asset-level data that may be 
appropriate. We believe the flexibility to provide additional data in a 
machine-readable format will provide benefits to investors and issuers 
at no significant cost.
---------------------------------------------------------------------------

    \756\ See, e.g., letters from ASF I (suggesting additional RMBS 
data points), CU, and Wells Fargo I (suggesting additional RMBS data 
points as well as additional RMBS data points regarding government-
sponsored assets).
---------------------------------------------------------------------------

    Under the final requirements, issuers can provide additional asset-
level disclosures in an Asset Related Document and such Asset Related 
Document(s) must then disclose the tags, definitions, and formulas for 
each additional asset-level disclosure.\757\ As we stated in the 2004 
ABS Adopting Release and 2010 ABS Proposing Release, issuers and 
underwriters should be mindful of any privacy, consumer protection or 
other regulatory requirements when providing additional loan-level 
information, especially given that the information would be publicly 
filed on EDGAR.\758\ Finally, issuers may also provide other 
explanatory disclosure regarding the asset-level data in an Asset 
Related Document.\759\ As with any information that is part of the 
prospectus or ongoing reports, all Asset Related Documents must be 
filed concurrently with the Schedule AL it supplements. We are not 
adopting the blank tag proposal as we are persuaded by comments that 
the blank tags are not appropriate, may provide limited benefits and 
may not be consistent with ``good XML syntax.''
---------------------------------------------------------------------------

    \757\ See Item 1111(h)(5) of Regulation AB.
    \758\ See Section III.C.1.c. of the 2004 ABS Adopting Release 
and Section III.A.(b)(i) of the 2010 ABS Proposing Release.
    \759\ See Item 1111(h)(4) of Regulation AB.
---------------------------------------------------------------------------

5. New Form ABS-EE
(a) Proposed Rule
    We proposed that the new Asset Data File be filed as an exhibit to 
certain filings. Therefore, we proposed changes to Item 601 of 
Regulation S-K, Rule 11 and 101 of Regulation S-T, and Form 8-K to 
accommodate the filing of Asset Data Files. We proposed to define the 
XML file required by Schedules L and L-D as an Asset Data File in Rule 
11 to Regulation S-T and proposed corresponding changes to Rule 101 of 
Regulation S-T mandating electronic submission. For asset-level 
disclosures required at the time of the offering, we proposed, 
regardless of whether the issuer was registering the offering on Form 
SF-1 or SF-3, that the Asset Data File be filed as an exhibit to the 
appropriate Form 8-K (in the case of an offering) under proposed Item 
6.06 of Form 8-K. Proposed Item 6.06 would have required that issuers 
file the Asset Data File as an exhibit to a Form 8-K on the same date a 
preliminary or final prospectus is filed or an Item 6.05 of Form 8-K is 
filed. The proposed requirement would have also required that any Asset 
Related Document be filed at the same time the Asset Data File is filed 
on EDGAR.
    For ongoing reporting of asset-level disclosure, we proposed to 
require the Asset Data File and any Asset Related Document be filed 
with the appropriate Form 10-D. As noted above, we also proposed an 
additional exhibit, an Asset Related Document, for registrants to 
disclose the definitions or formulas of any additional asset-level data 
or to provide further explanatory disclosure regarding the Asset Data 
File.
(b) Comments on Proposed Rule
    We did not receive any comments with respect to the requirement of 
filing the Asset Data Files or Asset Related Documents with the Form 8-
K (in the case of an offering) or with the Form 10-D (in the case of a 
periodic distribution report).
(c) Final Rule and Economic Analysis of the Final Rule
    We are adopting new Form ABS-EE to facilitate the filing of the new 
Asset Data Files \760\ and Asset Related Documents.\761\ The Asset Data 
Files and the Asset Related Documents are

[[Page 57249]]

required to be filed as exhibits to new Form ABS-EE.\762\
---------------------------------------------------------------------------

    \760\ See new Item 601(b)(102) of Regulation S-K [17 CFR 
229.601(b)(102)].
    \761\ See new Item 601(b)(103) of Regulation S-K [17 CFR 
229.601(b)(103)].
    \762\ See Item 1111(h)(3) of Regulation AB [17 CFR 
229.1111(h)(3)].
---------------------------------------------------------------------------

    We had proposed that the Asset Data Files and Asset Related 
Documents be filed with the Form 8-K because, in the case of a shelf 
offering, a Form 8-K is typically used to file other documents related 
to a registration statement. We had proposed filing the documents with 
Form 10-D to keep periodic disclosures on the same form. We believe, 
however, that requiring the information on a single Form ABS-EE will 
facilitate the filing of the Asset Data Files and Asset Related 
Documents because EDGAR programming for XML files can be specifically 
tailored for these types of documents, therefore simplifying filing 
obligations for issuers. Form ABS-EE will benefit investors by making 
it easier for users to run queries on EDGAR to locate these documents 
for download.
    The fact that the disclosures are filed as exhibits does not impact 
the fact that the data contained in the Asset Data Files and the Asset 
Related Documents are disclosures that are part of a prospectus or a 
periodic report, as applicable.\763\ As noted earlier, they are 
required to be incorporated by reference into the prospectus or the 
Form 10-D, as applicable. Accordingly, there is no change to the timing 
and frequency requirements for filing information to meet our offering 
and periodic disclosure rules and the corresponding Form ABS-EE, with 
the proper attachments, must be on file and be incorporated by 
reference into those filings by the time those filings are made or are 
required to be made.
---------------------------------------------------------------------------

    \763\ Forms SF-1, SF-3, and 10-D each include an instruction 
requiring that any disclosures provided pursuant to Item 1111(h) of 
Regulation AB [17 CFR 229.1111(h)] filed as exhibits to Form ABS-EE 
in accordance with Items 601(b)(102) or 601(b)(103) [17 CFR 
229.601(b)(102) and (b)(103)].
---------------------------------------------------------------------------

6. Temporary Hardship Exemption
(a) Proposed Rule
    We proposed to revise Rule 201 of Regulation S-T to include a self-
executing temporary hardship exemption for filing the Asset Data 
File.\764\ We also proposed to exclude Asset Data Files from the 
continuing hardship exemption under Rule 202 of Regulation S-T. Rule 
202 generally allows an issuer to apply for a continuing hardship if it 
cannot file all or part of a filing without undue burden or expense. 
Under the proposed temporary hardship exemption, if the registrant 
experiences unanticipated technical difficulties preventing the timely 
preparation and submission of an Asset Data File, a registrant would 
still be considered timely if: The Asset Data File(s) containing the 
asset-level data is posted on a Web site on the same day it was due to 
be filed on EDGAR; an Asset Data File is filed on EDGAR that contains 
the Web site address, a legend is provided in the Asset Data File filed 
on EDGAR claiming the hardship exemption; and the Asset Data File(s) 
are filed on EDGAR within six business days.
---------------------------------------------------------------------------

    \764\ [17 CFR 232.201]. Rule 201 of Regulation S-T generally 
provides for a temporary hardship exemption from the electronic 
submission of information, without staff or Commission action, when 
a filer experiences unanticipated technical difficulties that 
prevent timely preparation and submission of an electronic filing. 
The temporary hardship exemption permits the filer to initially 
submit the information in paper format but requires the filer to 
submit a confirming electronic copy of the information within six 
business days of filing the information in paper format.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    We did not receive any comments regarding our proposed self-
executing temporary hardship exemption. We also did not receive any 
comments on the proposal to exclude Asset Data Files from the 
continuing hardship exemption under Rule 202 of Regulation S-T.
(c) Final Rule and Economic Analysis of the Final Rule
    We are adopting, as proposed, a temporary hardship exemption. Under 
the requirement, if an issuer experiences unanticipated technical 
difficulties preventing the timely preparation and submission of an 
Asset Data File required to be filed on EDGAR, it may still be 
considered timely. For the Asset Data File, an issuer will still be 
considered timely if: The Asset Data File is posted on a Web site 
accessible to the public on the same day it was due to be filed on 
EDGAR; a Form ABS-EE is filed that identifies the Web site address 
where the file can be located; a legend is provided claiming the 
hardship exemption; and the Asset Data File is filed on EDGAR within 
six business days.\765\ We believe that the hardship exemption will 
benefit both issuers and investors, because it will allow issuers to 
maintain compliance with our rules while providing investors with 
access to the information required to be disclosed without further 
delay.
---------------------------------------------------------------------------

    \765\ See Rule 201(d) and (e) of Regulation S-T [17 CFR 
232.201].
---------------------------------------------------------------------------

    We are also excluding the Asset Data File, as proposed, from the 
continuing hardship exemption under Rule 202 of Regulation S-T. We 
continue to believe that a continuing hardship exemption is not 
appropriate with respect to the Asset Data File because the Asset Data 
File is an integral part of the prospectus and periodic reports. We 
also believe that for ABS issuers the information in machine-readable 
format is generally already collected and stored on a servicer's 
systems. Therefore, we do not believe it would be appropriate for 
issuers to receive a continuing hardship exemption for the Asset Data 
File. We believe all investors will benefit from receiving the 
disclosures specified in Schedule AL in a format that will allow them 
to effectively utilize the information.

C. Foreign ABS

    We requested comment on whether there are other privacy issues that 
arise for issuers of ABS backed by foreign assets.\766\ The responses 
we received indicated concerns regarding foreign privacy laws,\767\ as 
well as concerns related to variations in the characteristics of 
consumer receivables originated in different jurisdictions,\768\ the 
inconsistencies between our proposal and other countries' disclosure 
and reporting standards,\769\ and certain terms or structures used in 
the proposed rule that lack a direct European equivalent.\770\ As an 
alternative to our proposal, some commenters requested that the 
disclosure standards for transactions involving assets located outside 
the United States be based on local requirements.\771\ In response to 
the

[[Page 57250]]

2014 Re-Opening Release, a few commenters raised cost and burden 
concerns about foreign ABS issuers' compliance with overlapping 
regulatory regimes.\772\ A few commenters suggested flexible 
requirements for foreign ABS issuers to account for differences in the 
applicability and availability of information or a substitute 
compliance regime to account for differences between jurisdictions, 
including differences between the privacy laws of foreign 
jurisdictions.\773\
---------------------------------------------------------------------------

    \766\ See Section III.A(b)(i) of the 2010 ABS Proposing Release. 
We asked: (1) Are there other privacy issues that arise for issuers 
of ABS backed by foreign assets? (2) How do the privacy laws of 
foreign jurisdictions differ from U.S. privacy laws? (3) If the 
privacy laws of foreign jurisdictions are more restrictive regarding 
the disclosure of information how should we accommodate issuers of 
ABS backed by foreign assets? (4) Is there substitute information 
that could be provided to investors?
    \767\ See letters from ABA I, Association for Financial Markets 
in Europe/European Securitisation Forum dated Aug. 2, 2010 submitted 
in response to the 2010 ABS Proposing Release (``AFME/ESF''), and 
Association for Financial Markets in Europe dated Oct. 4, 2011 
submitted in response to the 2011 ABS Re-Proposing Release 
(``AFME'').
    \768\ See letter from Australian Securitisation Forum dated Aug. 
2, 2010 submitted in response to the 2010 ABS Proposing Release 
(``AusSF'').
    \769\ See letter from AFME/ESF.
    \770\ Id.
    \771\ See letters from AusSF (requesting that Australian issuers 
need only satisfy the Australian Securities and Investments 
Commission requirements and that differences between U.S. and 
Australian standards be disclosed in the offering documents), AFME/
ESF (suggesting that the Commission permit the satisfaction of 
certain requirements by European issuers if they provide relevant 
information in compliance with any local or other relevant 
requirements and allow the adjustment of the requirements to reflect 
the information available outside of a U.S. context) and AFME 
(suggesting a similar regime, but stating that if compliance with 
local requirements was not appropriate, then a ``provide-or-
explain'' regime would be a helpful alternative).
    \772\ See letters from ABA III, GFMA/AusSF, SFIG II, SIFMA/FSR 
I-dealers and sponsors, and Treasurer Group.
    \773\ See, e.g., letters from ABA III, GFMA/AusSF, and Treasurer 
Group (stating that substitute compliance is allowing the issuer to 
provide the disclosure required under a foreign jurisdiction).
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    We have reviewed the requirements we are adopting against the 
requirements adopted by the European Central Bank \774\ and the Bank of 
England.\775\ We note several similarities and differences between our 
requirements and theirs, and we believe that perfect agreement between 
the Commission's requirements and the requirements of all foreign 
jurisdictions may not be achievable. We believe U.S. investors may 
expect data in a certain format and/or a certain level of disclosure 
that is not required under the requirements of other jurisdictions, 
some of which require the information for supervisory purposes and not 
specifically for the benefit of investors.\776\ In addition, the 
underlying assets, the form of issuance, parties to the structures, 
terms and definitions and the structures themselves vary across 
jurisdictions. We also note that the privacy laws vary across 
jurisdictions, resulting in disclosure requirements of one jurisdiction 
that may conflict with the privacy laws in another jurisdiction.
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    \774\ See Data Templates, European Central Bank (2013), http://www.ecb.eu/mopo/assets/loanlevel/transmission/html/index.en.html.
    \775\ See Bank of England Loan Level Data: Reporting Template 
for Residential Mortgage Pools, Bank of England (Nov. 2010), http://www.bankofengland.co.uk/markets/Documents/money/documentation/RMloanleveldata-template.pdf.
    \776\ See, e.g., details about the European Central Bank's loan-
level requirements for ABS accepted as collateral in Eurosystem 
credit operations available at http://www.ecb.europa.eu/paym/coll/loanlevel/html/index.en.html. See also the market notices from the 
Bank of England discussing their eligibility requirements for RMBS 
and covered bonds backed by residential mortgages; CMBS, small-
medium enterprise loan backed securities and ABS backed by 
commercial paper; and ABS backed by consumer loans, auto loans, and 
leases that are delivered as collateral against transactions in the 
Bank's operations at http://www.bankofengland.co.uk/markets/Documents/marketnotice121002abs.pdf, http://www.bankofengland.co.uk/markets/Documents/marketnotice111220.pdf, http://www.bankofengland.co.uk/markets/Documents/marketnotice121217.pdf.
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    We are not persuaded, however, that the Commission should implement 
a regime that would recognize the asset-level data requirements 
developed by foreign authorities, for example the European Central Bank 
and the Bank of England, that are tailored to assets originated outside 
of the U.S. or a ``provide-or-explain'' type regime that would permit 
selective disclosure based upon foreign laws. We continue to believe, 
as for U.S. originated assets, the usefulness of asset-level data is 
generally limited unless the data is standardized. We believe adopting 
another disclosure regime for foreign asset ABS would reduce 
standardization and, thereby, the comparability of ABS backed by assets 
originated outside of the U.S. and ABS backed by assets originated 
within the U.S. Further, a provide-or-explain regime lowers the 
comparability of ABS pools comprised of assets originated outside the 
U.S. against each other as the scope of disclosures provided by each 
issuer for each ABS may differ depending on the privacy laws of the 
home jurisdiction of the issuer. We acknowledge that compliance 
challenges and increased costs for foreign market participants may 
arise; however, we believe U.S. investors should receive the same data 
about ABS backed by assets originated outside the U.S. as ABS backed by 
assets originated within the U.S. This approach is consistent with our 
approach for corporate issuers, under which foreign private issuers 
generally provide comparable information to U.S. issuers.

IV. Other Prospectus Disclosure

A. Transaction Parties

1. Identification of the Originator
(a) Proposed Rule
    In the 2010 ABS Proposing Release, we noted that Item 1110(a) of 
Regulation AB, prior to the adoption of today's amendments, required 
identification of originators apart from the sponsor or its affiliates 
only if the originator has originated, or expects to originate, 10% or 
more of the pool assets. We noted that in situations where many of the 
pool assets have been purchased from originators other than the sponsor 
and each of these originators originated less than 10% of the pool 
assets that the requirement requires very little, if any, information 
about the originators. Therefore, we proposed to amend the item to 
require that an originator originating less than 10% of the pool assets 
would be required to be identified if the cumulative amount of 
originated assets by parties other than the sponsor or its affiliates 
comprises more than 10% of the total pool assets.
(b) Comments on Proposed Rule
    Comments on the proposal were focused on the scope of the 
requirement. Commenters argued that the rule should require disclosure 
identifying the originator of each asset without exception.\777\ 
Another commenter recommended that the requirement be modified to 
include a low threshold (e.g., 2% of the original pool assets) under 
which identification of the non-affiliated originators would not be 
required.\778\ In contrast, one commenter believed that the proposal 
was excessive with the costs outweighing the benefits and recommended 
keeping the current requirement and supplementing it with disclosure of 
``additional originators to the extent necessary so that information 
about the originators of at least 85% of the pool assets has been 
included in the prospectus.'' \779\ Another commenter stated that 
disclosure of only third parties who originated more than 10% of the 
pool and all originators who provided 5% or more of the pool by dollar 
value would be more valuable to investors.\780\
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    \777\ See, e.g., letters from Prudential I (suggesting that 
Schedule L should specify the originator of each asset, which will 
allow investors to identify and differentiate originators that are 
providing riskier collateral to structured product transactions) and 
Realpoint (recommending that for CMBS transactions every originator 
be identified).
    \778\ See letter from BoA I.
    \779\ See letter from VABSS I (without providing a cost 
estimate).
    \780\ See letter from CFA I (without describing why this 
disclosure would be more valuable to investors).
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(c) Final Rule
    After considering the comments received, we are adopting the 
amendment to Item 1110(a) of Regulation AB, as proposed, with a slight 
modification to clarify the change that we are making to the existing 
requirement. Under the final rule that we are adopting, if the 
cumulative amount of originated assets by parties, other than the 
sponsor or its affiliates, comprises more than 10% of the total pool 
assets, then those originator(s) originating less than 10% of the pool 
assets will also be required to be identified in the prospectus. We 
continue to believe that where the sponsor securitizes assets of a 
group of originators that are not affiliated with the sponsor, more 
disclosure regarding the originators of the assets is needed. We 
believe investors will benefit from these disclosures because they will 
be

[[Page 57251]]

better able to assess pools comprising assets from these originators. 
We acknowledge that the revised rule will likely result in more 
originators having to be identified in the prospectus than is currently 
required; however, we do not think that it will result in significant 
costs to issuers since the information is readily available and the 
disclosure is limited only to identification of the originator. In 
addition, while we note that some commenters requested that we impose 
an additional minimum threshold before issuers would be required to 
identify unaffiliated originators,\781\ we do not believe that such a 
distinction would be appropriate for the same reasons.
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    \781\ See letters from BoA I, CFA I, and VABSS I.
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2. Financial Information Regarding a Party Obligated To Repurchase 
Assets
(a) Proposed Rule
    In the 2010 ABS Proposing Release, we noted that in the events 
arising out of the financial crisis, the financial condition of the 
party obligated to repurchase assets pursuant to the transaction 
agreement governing an asset securitization became increasingly 
important as to whether repayments on asset-backed securities would be 
made.\782\ We proposed to require disclosure of the financial condition 
of certain parties required to repurchase assets when there is a 
breach, pursuant to the transaction agreements, of a representation and 
warranty related to pool assets. Under the proposal, information 
regarding the financial condition of a 20% originator would be required 
if there is a material risk that the financial condition could have a 
material impact on the origination of the originator's assets in the 
pool or on its ability to comply with provisions relating to the 
repurchase obligations for those assets. Information about the 
sponsor's financial condition similarly would be required to the extent 
that there is a material risk that the financial condition could have a 
material impact on its ability to comply with the provisions relating 
to the repurchase obligations for those assets or otherwise materially 
impact the pool.
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    \782\ See the 2010 ABS Proposing Release at 23382. In the 2010 
ABS Proposing Release, we also proposed to amend Item 1104 and Item 
1110 of Regulation AB to require disclosure of the amount, if 
material, of publicly securitized assets originated or sold by the 
sponsor or an identified originator that were the subject of a 
demand to repurchase or replace any of the assets for breach of the 
representations and warranties concerning the pool assets in the 
last three years pursuant to the transaction agreements. This 
proposal and the comments on this proposal were considered in 
connection with the rules implementing Section 943 of the Dodd-Frank 
Act. See the Section 943 Adopting Release. Therefore, the proposal 
and related comments are not addressed in this release.
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(b) Comments on Proposed Rule
    The response to the proposal was mixed with some commenters 
supporting the proposal,\783\ some commenters opposing the 
proposal,\784\ and other commenters who did not express whether they 
supported or opposed the proposal, but suggested certain 
revisions.\785\ One concern, raised by some commenters who opposed the 
proposal, was that investors may perceive the disclosure and the 
existence of representations and warranties as suggesting that the 
obligated parties are providing credit or liquidity support to the 
transaction.\786\ Some commenters stated that the disclosure 
requirement may act as a barrier to entry for participation in the 
securitization markets, may potentially be misleading because it would 
likely be provided long before repurchase demands would be made, and in 
most instances disclosure would be required because an obligated 
party's financial condition would likely always impact a party's 
ability to perform its repurchase-related obligations.\787\
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    \783\ See letters from ASF I (supporting the proposal, but 
suggesting that we revise the standard for when such disclosure is 
required to mirror the requirement regarding financial information 
of certain servicers included in Item 1108(b)(4) of Regulation AB, 
with a focus on whether the sponsor's or originator's financial 
condition would have an effect on origination of the pool assets or 
on its ability to comply with any repurchase obligations in a manner 
that could have a material impact on pool performance or performance 
of the asset-backed securities) and CFA I (stating that benefits to 
investors in the form of better knowledge about the source of pool 
assets outweighs the costs of compliance).
    \784\ See letters from BoA I, CMBP (disagreeing with the 
proposed disclosure requirement as it relates to a 20% originator) 
CREFC I, IPFS Corporation dated Aug. 2, 2010 submitted in response 
to the 2010 ABS Proposing Release (``IPFS I'') (responding with 
respect to private offerings of insurance premium finance loans), 
and MBA I.
    \785\ See letters from AusSF (stating that if we require 
financial statements that we should allow the submission of IFRS-
compliant financial statements to satisfy the requirement) and KPMG 
LLP dated Aug. 2, 2010 submitted in response to the 2010 ABS 
Proposing Release (``KPMG'') (noting that the impact of the proposal 
will vary depending, in part, on whether the financial information 
must be audited and urging the Commission to weigh the cost of 
requiring audited financials against such benefit). See also letters 
from Center for Audit Quality dated Aug. 2, 2010 submitted in 
response to the 2010 ABS Proposing Release and Ernst & Young dated 
Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release 
(``E&Y'') (requesting other revisions). These commenters contended 
that the proposed amendments to Item 1104 and Item 1110(b) would 
require a subjective evaluation of the materiality of the risk and 
recommended, instead, to expand the scope of the definition of 
significant obligor in Item 1112 (i.e., to incorporate the obligated 
party that is required to repurchase assets for breach of a warranty 
or representation) or to expand the scope of Item 1114, the 
requirement relating to disclosure of significant credit 
enhancements, to include repurchase and replacement obligations--
thereby providing an objective standard for determining when and how 
the requisite financial disclosure should be provided. Under this 
standard, the required financial information would be (1) the 
selected financial data specified by Item 301 of Regulation S-K when 
the obligation exceeds 10% of the asset pool, and (2) audited 
financial statements that comply with Regulation S-X when the 
obligation exceeds 20% of the asset pool.
    \786\ See letters from BoA I, CREFC I, and MBA I.
    \787\ See letters from CREFC I and MBA I. See also letter from 
CMBP (recommending instead to require sponsors to certify that: all 
the originators that have sold assets to the pool backing the ABS 
meet the sponsor's standards of creditworthiness, the sponsor's 
standards are customary and commercially reasonable, and based on 
the sponsor's assessment that each originator has the financial 
means to discharge their obligations under the representations and 
warranties regarding the pool assets).
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(c) Final Rule
    After considering the comments received, we are adopting the 
amendments to Item 1104 and Item 1110, with some modification. We have 
revised the amendments so that the standard for when disclosure of 
financial information is required mirrors the existing standard for 
disclosures required about certain servicers.\788\ Under the revised 
rules, the standard focuses on whether the sponsor or 20% originator's 
financial condition would have an effect on its ability to comply with 
any repurchase obligations in a manner that could have a material 
impact on pool performance or performance of the asset-backed 
securities.
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    \788\ See Item 1108(b)(4) of Regulation AB (requiring 
information regarding the servicer's financial condition to the 
extent that there is a material risk that the effect on one or more 
aspects of servicing resulting from such financial condition could 
have a material impact on pool performance or performance of the 
asset-backed securities).
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    We are adopting these amendments because we believe an investor's 
ABS investment decision includes consideration of obligations from 
certain parties to repurchase assets if there is a breach of the 
representations and warranties relating to those assets and the 
capacity of those parties to repurchase those assets. As evident from 
the crisis, the mere existence of a repurchase provision provides 
investors with little comfort as to the ability of the party obligated 
to repurchase assets for a breach of a representation or warranty.\789\ 
The expanded disclosure

[[Page 57252]]

that we are requiring will provide investors insight into the capacity 
of the obligated parties to repurchase assets. We acknowledge that the 
financial condition of these parties may change between the time of the 
transaction, when the disclosure is provided, and when a repurchase is 
required. We believe that investors will nonetheless benefit from the 
required information because it will allow investors to assess, at the 
time of their investment decision, whether the representations and 
warranties provided regarding the pool assets are made by entities 
financially capable of fulfilling their obligations.
---------------------------------------------------------------------------

    \789\ See Transparency in Accounting: Proposed Changes to 
Accounting for Off-Balance Sheet Entities Before the Subcomm. on 
Sec., Ins., & Inv. of the S. Comm. on Banking, Housing & Urban 
Affairs, 110th Cong. 3 (2008) (statement of Joseph Mason, Professor 
at Louisiana State University) (stating that `` `representations and 
warranties' have become a mechanism for subsidizing pool 
performance, so that no asset- or mortgage-backed security investor 
experiences losses--until the seller, itself, fails and is no longer 
able to support the pool'').
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    We also note the concerns that some of these parties are private 
companies who may choose to exit the securitization market rather than 
provide financial disclosures. While we acknowledge this possibility, 
we believe that this information is material for investors in order to 
make an informed investment decision. Furthermore, we believe this 
concern is minimized, to some extent, because the requirement does not 
necessarily require financial statements, but only information about 
their financial condition similar to the type of disclosure required 
under current rules regarding financial information of certain 
servicers, some of which may be private companies. Where disclosure is 
required, the type and extent of information regarding certain 
originators' and sponsors' financial condition would depend upon the 
particular facts. We note that sponsors will typically conduct due 
diligence regarding the pool assets when purchasing assets to include 
in the ABS pool, including assessing the financial condition of 
originators that are obligated to repurchase or replace any asset for 
breach of a representation and warranty pursuant to the transaction 
agreements. We believe that when the trigger for disclosure of the 
financial information of sponsors and 20% originators is met, as 
outlined in the rule, investors should have the same information. We 
are mindful, however, of the costs that originators and sponsors would 
incur if we required audited financial information, especially for 
those originators and sponsors that have not previously been subject to 
an audit; therefore, we are not requiring that financial information 
included be audited.
3. Economic Interest in the Transaction
(a) Proposed Rule
    In the 2010 ABS Proposing Release, we noted that existing Item 
1103(a)(3)(i) of Regulation AB required disclosure of the classes of 
securities offered by the prospectus and any class of securities issued 
in the same transaction or residual or equity interests in the 
transaction that are not being offered by the prospectus.\790\ We also 
noted our belief that information regarding the sponsor's, a 
servicer's, or a 20% originator's continuing interest in the pool 
assets is important to an ABS investor and, therefore, we proposed to 
revise Items 1104, 1108, and 1110 to require disclosure regarding the 
sponsor's, a servicer's, or a 20% originator's interest retained in the 
transaction, including the amount and nature of that interest.\791\ The 
disclosure would be required for both shelf and other offerings.\792\
---------------------------------------------------------------------------

    \790\ 17 CFR 229.1103(a)(3)(i).
    \791\ For example, if the originator has retained a portion of 
each tranche of the securitization, then disclosure regarding each 
amount retained for each tranche would be required.
    \792\ We also proposed that if the offering was being registered 
on Form SF-1, the issuer would be required to provide clear 
disclosure that the sponsor is not required by law to retain any 
interest in the securities and may sell any interest initially 
retained at any time.
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(b) Comments on Proposed Rule
    Several commenters supported the proposed rule but recommended 
certain revisions.\793\ Some of these commenters suggested that the 
required disclosures include the effect of hedging.\794\ For instance, 
one commenter stated that the rule should state that the disclosure 
should be net of hedging,\795\ and the other commenter recommended 
requiring the sponsor to disclose ``any hedge (security specific or 
portfolio) that was entered into by the sponsor or, to the extent it 
has actual knowledge of such a hedge, an affiliate in an effort to 
offset any risk retention position held by the sponsor or an 
affiliate.'' \796\
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    \793\ See letters from ABA I (supporting this requirement in 
lieu of the proposed risk retention shelf eligibility requirement 
because this disclosure will ensure that investors are fully aware 
of the alignment of interests in each offering), ASF I (expressed 
views of investors only) (believing that if the sponsor of the 
securitization retains exposure to the risks of the assets, the 
sponsor will likely have greater incentives to include higher 
quality assets), Mass. Atty. Gen., and Prudential I.
    \794\ See letters from Mass. Atty. Gen. and Prudential I.
    \795\ See letter from Mass. Atty. Gen.
    \796\ See letter from Prudential I.
---------------------------------------------------------------------------

    Another commenter requested that we limit the retention disclosure 
requirements ``to those required in any risk retention construct that 
may be included in the final rules.'' \797\ The commenter acknowledged 
that it ``is difficult for investors to ascertain how many securities 
cleared the market and how many were taken down by the issuer or 
sponsor,'' but that disclosure of any retention held above a required 
amount would be impractical and misleading because accurate information 
about retention interests may not be known until closing, which is 
after investors make their investment decision, and the retention 
interests often change during the period between the time of sale and 
closing.
---------------------------------------------------------------------------

    \797\ See letter from CREFC I.
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(c) Final Rule
    After considering the comments received, we are adopting the 
proposed revisions to Items 1104, 1108, and 1110 with some 
modifications.\798\ As noted below, the requirements that we are 
adopting for shelf eligibility do not contain a requirement for risk 
retention in light of the risk retention proposals currently being 
considered by regulators under the Dodd-Frank Act.\799\ Because 
commenters noted that disclosure about a sponsor's, a servicer's, or a 
20% originator's continuing interest in the pool assets is an important 
factor that investors consider when analyzing the alignment of 
interests among various parties in the securitization chain, we are 
adopting this rule.\800\ We are also persuaded by commenters that this 
disclosure should describe the effect of hedging because a hedge could 
effectively reduce the actual exposure that the party may face from its 
continuing interest in the pool assets.\801\ We do not believe that 
providing disclosure of the interests retained by the sponsor, 
servicer, or 20% originator net of hedging alone, as suggested by one 
commenter, provides investors with

[[Page 57253]]

sufficient insight into the hedging activities used by these entities 
to minimize exposure to their interests. Therefore, we are adopting the 
rule that each of these parties disclose their continuing interest in 
the pool assets, including the amount and nature of that interest, and 
disclose any hedge (security specific or portfolio) materially related 
to the credit risk of the securities that was entered into by these 
parties or, if known, by any affiliate of these parties to offset any 
risk position held.\802\ We believe this approach provides investors 
with appropriate information about these entities' continuing interest 
in the pool assets and how these parties may be managing those 
exposures.
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    \798\ For purposes of describing any interest that the sponsor, 
servicer, or 20% originator, retained in the transaction, such 
disclosure must also include any interest held by an affiliate of 
such entity, except as described below for certain hedges entered 
into by affiliates, disclosure is required to the extent known. We 
have made conforming changes to the final rule to clarify the 
treatment of affiliates. As discussed later in Section VIII.A.3 
Changes in Sponsor's Interest in the Securities, we are also 
adopting a requirement that any material change in the sponsor's 
interest in the securities must be disclosed on Form 10-D.
    \799\ See the 2011 Risk Retention Proposing Release and the 2013 
Risk Retention Re-Proposing Release.
    \800\ See also footnote 1320 (describing one commenter's views 
on the importance of requiring disclosure of any material change in 
the sponsor's interest in the transaction).
    \801\ We also note that Section 15G of the Exchange Act, as 
added by Section 941 of the Dodd-Frank Act, requires that the risk 
retention rules, to be finalized by regulators, must prohibit a 
securitizer from directly or indirectly hedging the credit risk 
required to be retained under the rules.
    \802\ Because we believe that a security-specific hedge is more 
likely to be material to investors, we anticipate that issuers will 
need to provide more detailed disclosure about such hedge in order 
for investors to understand the impact such hedge may have on the 
ABS.
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    We also acknowledge the concerns that the exact amount retained by 
these parties may not be known until closing and that these retention 
interests may and do often change during the period between the time of 
sale and closing.\803\ To address these concerns, the parties will only 
need to describe in the preliminary prospectus the amount and nature of 
the interest that they intend to retain. The parties must, however, 
also disclose in the preliminary prospectus the amount and nature of 
risk retention that they have retained in order to comply with law (for 
example, to comply with the final risk retention rules once they are 
adopted).\804\ In order to clarify the requirement, we have included an 
instruction specifying that the amount and nature of the interest or 
asset retained in compliance with law must be separately stated in the 
preliminary prospectus.\805\ For purposes of the final prospectus, the 
parties must also disclose the actual amount and nature of the interest 
to be retained.
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    \803\ See letter from CREFC I.
    \804\ See the 2013 Risk Retention Re-Proposing Release.
    \805\ See letter from CREFC I (noting that the nature and amount 
of retained interests held to fulfill risk retention requirements 
could be disclosed in the prospectus).
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4. Economic Analysis Related to the Rules Regarding Transaction Parties
    The rules discussed in this section seek to provide ABS investors 
with greater information about the transaction parties to a 
securitization, thereby allowing them to make more informed investment 
decisions. First, investors will now be able to identify a potentially 
larger number of the originators of pool assets, which will improve 
their ability to compare the loan performance across originators and 
assess the relative stringency of these originators' underwriting 
standards as well as their historical performance. Second, at the time 
of an ABS offering, investors will now be able to better assess the 
ability of parties obligated to repurchase assets to actually fulfill 
those obligations. This will allow investors to more accurately assess 
the representations and warranties in the transaction agreements, since 
the enforceability of these depends on the ability of the obligated 
party to repurchase breached assets. Third, investors will now have 
information about the sponsor's, servicer's, or a 20% originator's 
interest retained in the transaction net of hedging. Investors have 
indicated that this information will be beneficial to them because the 
information will allow them to consider the incentives of the various 
parties involved in the securitization chain.
    The costs of the revised rule will be borne primarily by issuers, 
who will be required to provide additional disclosure about the 
transaction parties to a securitization. The magnitude of the costs 
will depend on the extent to which issuers already gather the required 
information. For instance, on the one hand, issuers likely already 
obtain the identities of originators; therefore, providing that 
information should not impose significant additional costs. On the 
other hand, issuers may need to gather some additional information from 
third parties regarding the financial condition of an originator who 
originated 20% or more of the pool assets and is obligated to 
repurchase assets under the transaction agreements. As a result, 
issuers may incur costs to gather the financial data and then prepare 
and provide the required disclosure. However, we believe that the 
revised rule strikes the appropriate balance between the benefit of 
providing investors with useful information about the originators and 
the burden of requiring the identification of all originators, 
regardless of the amount they contributed to the pool.
    Some commenters were concerned that disclosing the financial 
condition of a party obligated to repurchase assets may impose an 
indirect cost on investors, if investors misinterpret this disclosure 
and the existence of representations and warranties as the obligated 
parties providing credit or liquidity support to the transaction. In 
light of our other rules on disclosure of credit and liquidity support, 
we believe investors will see a clear distinction between the 
representations and warranties and any credit or liquidity support 
provided. Similarly, some commenters were concerned that the disclosure 
may be misleading to investors because the financial condition of the 
party may have changed between the time of the transaction when the 
disclosure was provided and the repurchase demand. We believe that 
investors will still benefit from the required information since it 
will allow investors to assess at the time of making their investment 
decision whether the entities that provided representations and 
warranties regarding the pool assets are, at least as an initial 
matter, financially capable of fulfilling their obligations.

B. Prospectus Summary

1. Proposed Rule
    In the 2010 ABS Proposing Release, we noted that a prospectus 
summary should briefly highlight the material terms of the transaction, 
including an overview of the material characteristics of the asset 
pool. We also noted our belief that the prospectus summaries provided 
in ABS prospectuses may not adequately highlight the material 
characteristics, including material risks, particular to the ABS being 
offered. Instead, these prospectus summaries often summarize types of 
information that are common to all securitizations of a particular 
asset class.\806\ Accordingly, we proposed a new instruction to clarify 
the prospectus summary disclosure requirements.\807\ Specifically, the 
proposed instruction noted that the prospectus summary disclosure may 
include, among other things, statistical information of: The types of 
underwriting or origination programs, exceptions to underwriting or 
origination criteria, and, if applicable, modifications made to the 
pool assets after origination.
---------------------------------------------------------------------------

    \806\ See the 2010 ABS Proposing Release at 23383.
    \807\ 17 CFR 229.1103(a)(2).
---------------------------------------------------------------------------

2. Comments on Proposed Rule
    Comments on the proposal were mixed.\808\ One commenter, who was 
supportive of the proposal, stated that the instruction would help 
``highlight potential risks relating to the underwriting of the 
underlying pool assets.'' \809\ Another commenter, who opposed the 
proposed instruction, requested an exception for CMBS transactions 
stating that each commercial mortgage is unique and, as

[[Page 57254]]

a result, the proposed disclosures would not enhance an investor's 
understanding of the risks and characteristics of a particular CMBS 
loan pool.\810\ One commenter stated that the instruction runs counter 
to the Commission's plain English rules because it requires the 
repeating of disclosure in different sections of the document without 
enhancing the quality of the information.\811\ This commenter also 
contended that the proposed instruction seems to encourage reliance on 
a summary of information that should be considered in the fuller 
context of the narrative in the body of the prospectus. The commenter 
suggested that we reconsider the proposal or, in the alternative, 
require only a cross-reference in the summary to the location of this 
information in the body of the prospectus.\812\
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    \808\ See letters from BoA I, CFA I, Prudential I, and Realpoint 
(all supporting the proposal). But see letters from ASF I (expressed 
views of dealers and sponsors only) and CREFC I (opposing the 
proposed rule).
    \809\ See letter from CFA I.
    \810\ See letter from CREFC I.
    \811\ See letter from ASF I (expressed views of dealers and 
sponsors only) (``find[ing] it unusual that the Commission is 
proposing such a specific disclosure requirement as an instruction 
to an Item requirement that is otherwise by design very general'').
    \812\ See letter from ASF I (expressed views of dealers and 
sponsors only).
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3. Final Rule and Economic Analysis of the Final Rule
    After considering comments received, we are adopting the proposed 
instruction with revisions. From our experience, the prospectus 
summaries often summarize types of information that are common to all 
securitizations of a particular asset class rather than the material 
characteristics of the particular ABS, such as statistics regarding 
whether the loans in the asset pool were originated under various 
underwriting or origination programs, whether loans were underwritten 
as exceptions to the underwriting or originations programs, or whether 
the loans in the pool have been modified.\813\ We believe that 
investors would benefit from a prospectus summary that summarizes the 
disclosures in the prospectus regarding this type of information 
because presenting this information in a summarized format may aid 
investors' understanding of material characteristics. In that regard, 
we also believe that the final instruction is less prescriptive than 
one commenter suggested since it does not require specific disclosure 
but rather indicates the types of information that may be summarized. 
We acknowledge that the prospectus summary should be brief and should 
not contain, and is not required to contain, all of the detailed 
information in the prospectus and, therefore, issuers should not simply 
repeat the disclosure found elsewhere in the prospectus in the 
prospectus summary. We also acknowledge that more fulsome narrative 
disclosures discussing these summary statistics may provide greater 
context about these disclosures; therefore, we added as part of the 
final instruction a requirement to include a cross-reference in the 
prospectus summary to the location of corresponding disclosure in the 
body of the prospectus.
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    \813\ For example, the prospectus summary should include 
summarized information about the disclosure required as part of the 
issuer review performed under Securities Act Rule 193. In 
particular, Item 1111 of Regulation AB requires an ABS issuer to 
disclose the nature of its review of the assets and the findings and 
conclusions of the issuer's review of the assets, which includes its 
conclusion that the review was designed and effected to provide 
reasonable assurance that the disclosure in the prospectus regarding 
the assets is accurate in all material respects.
---------------------------------------------------------------------------

    The costs associated with this disclosure should be minimal as the 
issuer should already have this information, or be able to easily 
generate the information, in light of the more detailed disclosure 
required by other item requirements in Regulation AB. Furthermore, this 
is not a new requirement, but rather a clarification of our position on 
what should be provided in the prospectus summary. Finally, if this 
disclosure is not appropriate for a particular asset class, then 
existing Item 1103(a) addresses this concern by indicating that the 
disclosure is only required where applicable.\814\
---------------------------------------------------------------------------

    \814\ See Item 1103(a) of Regulation AB [17 CFR 229.1103(a)] 
(stating in providing the information required by Item 503(a) of 
Regulation S-K, provide the following information in the prospectus 
summary, as applicable).
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C. Modification of Underlying Assets

1. Proposed Rule and Comments on Proposed Rule
    In the 2010 ABS Proposing Release, we proposed to replace Item 
1108(c)(6) of Regulation AB with a more detailed and specific 
disclosure requirement in Item 1111.\815\ Item 1108(c)(6) requires 
disclosure to the extent material of any ability of the servicer to 
waive or modify any terms, fees, penalties, or payments on the assets 
and the effect of exercising such ability, if material, on the 
potential cash flows from the assets. The proposed requirement in Item 
1111 would require a description of the provisions in the transaction 
agreements governing modification of the assets and disclosure 
regarding how modifications may affect cash flows from the assets or to 
the securities. We received only one comment on the proposal, which 
supported the proposed amendments.\816\
---------------------------------------------------------------------------

    \815\ 17 CFR 229.1111. In the 2010 ABS Proposing Release, we 
proposed to amend Item 1111 to require disclosure regarding 
deviations to disclosed underwriting standards. The proposal would 
have also required disclosure of the steps taken by the originator 
to verify information received during the underwriting process. 
These proposals and the comments on the proposals were later 
considered and acted upon in connection with the rules implementing 
Section 945 of the Dodd-Frank Act. See Issuer Review of Assets in 
Offerings of Asset-Backed Securities, Release No. 33-9176 (Jan. 20, 
2011).
    \816\ See letter from MBA I.
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2. Final Rule and Economic Analysis of the Final Rule
    We are adopting the final rule, as proposed. We continue to believe 
that the ability of the servicer to modify any terms, fees, and 
penalties and the effect of this ability on potential cash flows 
remains an important factor to investors. We believe that more granular 
data about this ability will enable investors to better assess the 
possibility of a potential change in the cash flows, which should, in 
turn, promote more efficient allocation of capital. To the extent 
issuers will be providing more detail than they previously provided, 
issuers' costs to provide the required disclosure will likely increase.

D. Disclosure of Fraud Representations

    We also proposed to revise Item 1111(e) to require disclosure of 
whether a representation was included among the representations and 
warranties that no fraud has taken place in connection with the 
origination of the assets on the part of the originator or any party 
involved in the origination of the assets. In proposing this 
requirement, we believed that it was important that any fraud 
representation be highlighted to investors.
    Several commenters were opposed to the proposed requirement.\817\ 
One commenter noted that both its investor and issuer members agreed 
that the absence of fraud in the origination is an element of several 
representations and warranties concerning the pool assets, such as the 
representation and warranty stating that the pool assets were 
originated in compliance with the requirements of law and applicable 
underwriting standards, and that the pool assets are legal, valid, and 
binding payment obligations of the related obligors.\818\ This 
commenter further noted that singling out a fraud representation in the 
disclosure was unnecessary and duplicative in light of our other 
proposal that would require issuers to provide disclosure on 
representations and warranties. Another commenter stated that the 
proposed requirement did not pass a reasonable

[[Page 57255]]

cost-benefit test and, without clarifying why, stated that the 
disclosure would not benefit investors.\819\ This commenter suggested 
that we not adopt the proposed requirement and instead require a 
restatement or identification of the specific fraud representation, if 
any, included in the transaction ``rather than including a binary 
response to whether or not there is a fraud representation.'' \820\
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    \817\ See letters from ASF I, ELFA I, and MBA I.
    \818\ See letter from ASF I.
    \819\ See letter from ELFA I (noting that a general ``fraud 
representation'' is difficult to make due to the potential chain of 
parties involved in a single lease/loan including the lessee, 
manufacturer, dealer, broker, lessor/lender and servicer).
    \820\ See letter from ELFA I.
---------------------------------------------------------------------------

    After considering the comments we received, we are not adopting the 
proposed revisions to Item 1111(e). As one commenter noted, the absence 
of fraud may be an element of several representations and warranties 
concerning the pool assets and therefore is already adequately 
disclosed under the current requirements of Item 1111(e).

E. Static Pool Disclosure

1. Disclosure Required
(a) Proposed Rule
    In the 2010 ABS Proposing Release, we noted that since the adoption 
of Regulation AB we have observed that static pool information provided 
by asset-backed issuers may vary greatly within the same asset class. 
Variations exist not only with the type or category of information 
disclosed but also with the manner in which it is disclosed. As a 
result, static pool information between different sponsors has not 
necessarily been comparable, which reduces its value to investors.
    To address this problem, we proposed revisions to Item 1105 of 
Regulation AB \821\ to increase the clarity, transparency, and 
comparability of static pool information. Some of the proposed rules 
would apply to all issuers, and other proposed rules would apply only 
to amortizing asset pools and not to revolving asset master trusts. For 
all issuers, we proposed the following five requirements.\822\ First, 
we proposed to require appropriate introductory and explanatory 
information to introduce the characteristics. Second, we proposed to 
require that issuers describe the methodology used in determining or 
calculating the characteristics and describe any terms or abbreviations 
used. Third, we proposed to require a description of how the assets in 
the static pool differ from the pool assets underlying the securities 
being offered. Fourth, we proposed to require additional disclosure if 
an issuer does not include static pool information or includes 
disclosure that is intended to serve as alternative static pool 
information. Finally, we proposed to require graphical presentation of 
the static pool information, if doing so would aid in understanding.
---------------------------------------------------------------------------

    \821\ 17 CFR 229.1105.
    \822\ See the 2010 ABS Proposing Release at 23385.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Commenters were generally supportive of these proposed rules \823\ 
and mostly requested that the Commission clarify certain aspects.\824\ 
Some commenters were supportive of the proposal to provide narrative 
disclosure.\825\ One commenter stated that the inclusion of explanatory 
information introducing the characteristics of the static pool would 
increase the clarity of the required static pool disclosure.\826\ Other 
commenters requested greater clarification about the narrative 
disclosure requirements. For instance, one commenter believed that it 
was unclear whether ``narrative disclosure'' would permit presentation 
in tabular format.\827\ Another commenter expressed concern with the 
RMBS example provided in the 2010 ABS Proposing Release and noted that 
one of the aspects we listed--the number of loans that were exceptions 
to standardized underwriting--is qualitatively different and more 
granular and detailed than the other aspects listed (i.e., number of 
assets and types of mortgages).\828\
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    \823\ See letters from AMI, ASF I, BoA I, CFA I, MSCI, 
Prudential I, and Realpoint.
    \824\ See letters from ASF I and VABSS I.
    \825\ See letters from AMI and ASF I.
    \826\ See letter from ASF I.
    \827\ See letter from VABSS I.
    \828\ See letter from ASF I. See also the 2010 ABS Proposing 
Release at 23385. In the 2010 ABS Proposing Release, we illustrated 
the narrative disclosure that would be required using RMBS as an 
example. We noted that for a pool of RMBS the disclosure would 
include the number of assets, the types of mortgages, and the number 
of loans that were exceptions to the standardized underwriting 
criteria.
---------------------------------------------------------------------------

    One commenter, supportive of the proposal to require a description 
of the methodology used in determining or calculating the 
characteristics, urged the Commission to require that the methodologies 
used by issuers be standardized to facilitate comparison of securities 
within the same asset class.\829\ This commenter also emphasized that 
key defined terms, such as ``delinquency'' and ``default'' must be 
standardized.
---------------------------------------------------------------------------

    \829\ See letter from AMI.
---------------------------------------------------------------------------

    Several commenters provided differing views on whether the proposal 
to require a description of how the assets in the static pool differ 
from the pool assets underlying the securities being offered was 
necessary or helpful to investors. One commenter indicated that this 
disclosure is helpful in understanding ``pool construction risk.'' 
\830\ Another commenter, however, argued that it did not understand how 
this requirement adds anything to the proposed narrative 
disclosure.\831\
---------------------------------------------------------------------------

    \830\ See letter from Prudential I (recommending that ``[t]he 
prospectus should highlight the extent to which the current 
collateral pool was originated with the same or differing 
underwriting criteria, loan terms, and/or risk tolerances than the 
static pool data'').
    \831\ See letter from VABSS I (stating its hope that the 
Commission is not suggesting that, for each offering, registrants 
should include a description of how the securitized pool differs 
from each of the 3 to 25 static pools, as the commenter believes 
that such disclosure would simply compare the disclosed metrics for 
each pool and therefore would provide no incremental value to 
investors).
---------------------------------------------------------------------------

    With respect to requiring an issuer to explain why it did not 
provide static pool information or provided alternative information, 
one commenter interpreted this proposal as capable of being satisfied 
through summary disclosure stating that either the data are not 
available or that static pool disclosure is immaterial.\832\
---------------------------------------------------------------------------

    \832\ See letter from BoA I (urging reconsideration of any 
standard that would require disclosure of a ``detailed analysis of 
materiality'' and stating that ``[a]n analysis of an issuer's 
methodology for making materiality determinations is not a proper 
subject of prospectus disclosure'').
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    One commenter opposed requiring the graphical presentation of 
static pool information in addition to the proposed narrative 
description.\833\ This commenter asserted its belief that graphical 
presentation is not market practice, has ``highly questionable 
utility'' and is possibly misleading. This commenter supported, 
however, graphical presentation of delinquency, loss, and prepayment 
information for amortizing pools.
---------------------------------------------------------------------------

    \833\ See letter from BoA I.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    After considering the comments provided, we are adopting the 
requirements as proposed.\834\ First, we are amending Item 1105 to 
require narrative disclosure that provides introductory and explanatory 
information to introduce the static pool information presented. We 
continue to believe that a brief snapshot of the static pool 
information presented will benefit investors by providing them with 
context in which to evaluate the information, especially for those 
investors who lack sophisticated

[[Page 57256]]

analytical tools.\835\ We do not intend for the requirement to cause 
issuers to repeat the underlying static pool disclosure in the 
narrative; rather we intend for the requirement to serve as a clear and 
brief introduction of the static pool disclosure in order to provide 
context to investors. We do believe, however, that the type of 
narrative disclosure that we are requiring is best presented in 
paragraph format, and not in tabular format as one commenter 
recommended, in order for the narrative description to clearly convey 
to investors the differences in the assets being securitized in the 
deal and the assets comprising the static pools.\836\
---------------------------------------------------------------------------

    \834\ See Item 1105 of Regulation AB [17 CFR 229.1105].
    \835\ See the 2010 ABS Proposing Release at 23385.
    \836\ See letter from VABSS I. Issuers can supplement the 
narrative disclosure that is required to be provided in paragraph 
format with graphical presentation if doing so would aid in 
understanding.
---------------------------------------------------------------------------

    To aid issuers in understanding what the narrative disclosure would 
typically include, and as commenters noted, we provided an example in 
the 2010 ABS Proposing Release, as we have done in other releases, to 
illustrate the disclosure principle.\837\ In our example, for a pool of 
RMBS, the disclosure would typically include, among other things, the 
number of loans that were exceptions to the standardized underwriting 
criteria. As noted above, one commenter expressed concern and noted 
that the number of loans that were exceptions to the standardized 
underwriting criteria was qualitatively different and granular than the 
other two characteristics in the example and raised questions for 
issuers as how to apply the disclosure standard in a principled way to 
distinguish among various credit characteristics of the pool.\838\ We 
believe that for RMBS, the number of exceptions to the standardized 
underwriting criteria is an important credit characteristic for issuers 
to highlight in the narrative disclosure. Inclusion of a significant 
number of mortgages that deviate from the underwriting standards could 
pose a risk to the performance of the RMBS. We believe disclosure of 
the number of loans that were exceptions to standardized underwriting 
criteria is likely to be important to highlight for other asset classes 
as well. Issuers should highlight those characteristics that would be 
most important for investors to be aware of before analyzing the actual 
static pool disclosure, which for some asset classes can be extensive.
---------------------------------------------------------------------------

    \837\ See the 2010 ABS Proposing Release at 23385.
    \838\ See letter from ASF I. We discuss amendments to Item 1111 
requiring specific data about the amount and characteristics of 
assets that deviate from the disclosed origination standards in 
Section III.A.2.a) Disclosure Requirements for All Asset Classes and 
Economic Analysis of These Requirements.
---------------------------------------------------------------------------

    Second, we are adopting, as proposed, an amendment to require 
issuers to describe the methodology used in determining or calculating 
the characteristics and also to describe any terms or abbreviations 
used.\839\ We believe that this requirement will provide clarity and 
transparency to investors and assist them in determining whether the 
calculations or terms are comparable across issuers. This will benefit 
investors because it will facilitate their ability to make better 
informed investment decisions. One commenter urged the Commission to 
direct that the methodologies and key terms used by issuers be 
converged and standardized over time so that investors can compare 
securities within the same asset class.\840\ Although we are not 
adopting standardized methodologies and terms for static pool 
disclosure, the proposal we are adopting requires asset-level 
disclosures for ABS backed by certain asset types.\841\ As a result of 
the new asset-level requirements, the data used to produce the static 
pool information for these asset classes will be standardized.
---------------------------------------------------------------------------

    \839\ See Item 1105 of Regulation AB [17 CFR 229.1105].
    \840\ See letter from AMI.
    \841\ See also Section III.A Asset-Level Disclosure Requirement.
---------------------------------------------------------------------------

    Third, we are requiring a description of how the assets in the 
static pool differ from the pool assets underlying the securities being 
offered.\842\ We continue to believe that this requirement benefits 
investors by providing them with context in which to evaluate the 
information without sophisticated data analysis tools and, as one 
commenter noted, to evaluate pool construction risk. If the pool in the 
offering is materially different from prior pools, then the issuer 
should describe the difference so that investors can factor in that 
difference when examining the static pool information. We agree with 
one commenter's statement that ``[t]he prospectus should highlight the 
extent to which the current collateral pool was originated with the 
same or differing underwriting criteria, loan terms and/or risk 
tolerances than the static pool data.'' \843\ We also believe that in 
cases where the assets of the pool being securitized were underwritten 
through different origination channels (e.g., loans originated directly 
through an originator's retail channel or through unaffiliated mortgage 
brokers) compared to prior securitized pools, disclosure of the 
proportion of assets originated through each channel should be 
provided. To address commenters' concerns, we are clarifying that we 
are requiring ``a clear and concise description'' of the material 
differences, if any, from the pool being securitized, but not a 
detailed comparison.\844\
---------------------------------------------------------------------------

    \842\ See Item 1105 of Regulation AB [17 CFR 229.1105].
    \843\ See letter from Prudential I.
    \844\ See letter from VABSS I.
---------------------------------------------------------------------------

    Fourth, as proposed, the final rule states that the static pool 
information should be presented graphically if doing so would aid in 
understanding.\845\ As with the other requirements discussed above, we 
believe graphical presentations help investors to more easily evaluate 
material information, without the use of sophisticated analytical 
tools. One commenter stated that the graphical presentation has 
``highly questionable utility'' and also may be misleading under many 
circumstances.\846\ We are requiring the issuer to provide a graphical 
illustration only if it would be helpful; therefore, if an issuer 
believes that providing graphical presentation of the static pool 
information would not be useful for understanding the data or 
misleading, then the issuer would not be required to provide it. 
However, we generally believe that graphical presentation of 
information can be beneficial to investors by helping them to quickly 
spot trends, which may not be evident by looking at the numbers alone.
---------------------------------------------------------------------------

    \845\ See Item 1105 of Regulation AB [17 CFR 229.1105].
    \846\ See letter from BoA I.
---------------------------------------------------------------------------

    Finally, in addition to providing investors with a clear and brief 
introduction of the static pool data, we are also requiring issuers to 
provide disclosure in cases where an issuer does not include static 
pool information or includes disclosure that is intended to serve as 
alternative static pool information.\847\ It is not always apparent why 
one issuer does not provide static pool information or provides 
alternative disclosure in lieu of such information, when other issuers 
within the same asset class provide the information. Therefore, we are 
requiring that issuers explain why they have not included static pool 
disclosure or why they have provided alternative information. One 
commenter interpreted this requirement as capable of being satisfied 
through summary disclosure, such as stating that the data is not 
available or not material.\848\ While we are not requiring that the 
issuer provide an extensive explanation, the issuer should provide some 
explanation beyond a conclusory statement that the information is not

[[Page 57257]]

available or not material. If the information is not included because 
it is not material, an issuer should explain why the data is 
immaterial, such as if the assets differ so significantly from the 
assets in the pool being offered.
---------------------------------------------------------------------------

    \847\ See Item 1105 of Regulation AB [17 CFR 229.1105].
    \848\ See letter from BoA I.
---------------------------------------------------------------------------

    We believe that taken together the static pool disclosure 
requirements adopted will benefit investors by providing them with more 
clearly explained and more consistently presented information about 
static pools, thereby facilitating their understanding of how the 
performance of the static pools may or may not be indicative of how the 
current pool may perform. This will help investors make better informed 
investment decisions and lead to more efficient allocation of capital. 
The requirements will be costly to issuers to the extent that they 
require reformatting information such as in graphical format. We expect 
that these costs will be minimal because issuers can use off-the-shelf 
software to create the graphs. Issuers will also incur costs for 
analyzing prior pools as compared to the current offering, but these 
costs should not be significant since they will have all the necessary 
information.
2. Amortizing Asset Pools
(a) Proposed Rule
    We proposed to add an instruction to Item 1105(a)(3)(ii) of 
Regulation AB to require the static pool information related to 
delinquencies, losses, and prepayments be presented in accordance with 
the existing guidelines outlined in Item 1100(b) \849\ for amortizing 
asset pools. Additionally, we proposed to amend Item 1105(a)(3)(iv) to 
require graphical presentation of delinquency, losses, and prepayments 
for amortizing asset pools.
---------------------------------------------------------------------------

    \849\ 17 CFR 229.1100(b). Item 1100(b) requires that information 
be presented in a certain manner. For example, it requires that 
information regarding delinquency be presented in 30-day increments 
through the point that assets are written off or charged off as 
uncollectable.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Comments received on the proposed changes for amortizing asset 
pools were mixed. With respect to requiring that delinquencies, losses, 
and prepayments be presented in accordance with Item 1100(b), several 
commenters supported the proposal,\850\ and several other commenters 
opposed.\851\ Those commenters opposing the requirement were most 
concerned about the one-size-fits-all approach to Item 1100(b)(1). They 
stated, for example, that reporting delinquencies, losses, and 
prepayments in 30- or 31-day increments through charge-off would be for 
a longer period of time than required under general principles of 
materiality.\852\ In regard to the graphical presentation requirement, 
one commenter noted that graphical presentations provide immediate 
recognition of changes in asset performance.\853\ Commenters that 
opposed the requirement argued that not all graphical presentations are 
useful or meaningful, especially for asset classes with extensive 
data.\854\
---------------------------------------------------------------------------

    \850\ See letters from BoA I and Realpoint.
    \851\ See letters from ASF I and VABSS I.
    \852\ Id. These commenters requested that the Commission tailor 
Item 1100(b) according to asset class. For instance, ASF requested 
that the Commission modify Item 1100(b)(1) for RMBS and CMBS as 
follows: Present delinquency information in 30- or 31-day increments 
through the point that the loans are 179 or 180 days delinquent, 
followed by an additional 180-day increment (i.e., through the point 
that the loans are 359 or 360 days delinquent), and a final 
increment of 359 or 360 days or more. For ABS supported, directly or 
indirectly, by motor vehicles, equipment and other similar physical 
assets with finite lives over which their value depreciates, ASF and 
VABSS requested that Item 1100(b)(1) be modified so that delinquency 
information is presented in 30- or 31-day increments through the 
point that the loans are 119 or 120 days delinquent, followed by a 
final increment of 119 or 120 days or more.
    \853\ See letter from CFA I. See also letters from AMI and BoA I 
(supporting the graphical requirement for amortizing asset pools).
    \854\ See letters from ASF I and VABSS I.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    We are adopting the proposed rules for amortizing asset pools with 
modification in response to comments. We remain concerned that the 
inconsistent presentation of delinquencies, losses, and prepayments 
across issuers within the same asset class has resulted in a lack of 
clarity and comparability.\855\ To address this concern, we are adding 
an instruction to Item 1105(a)(3)(ii) of Regulation AB to require for 
amortizing asset pools that the static pool information related to 
delinquencies, losses, and prepayments be presented in accordance with 
Item 1100(b) with respect to presenting such information in 30- or 31-
day increments. In response to commenters' concerns with requiring such 
presentation through charge-off, the final instruction requires that 
delinquencies, losses, and prepayments be presented in 30- or 31-day 
increments through no less than 120 days.\856\ We believe that this 
revised time period balances commenters' concerns with the cost and 
burden of having to track and report this information in a more 
granular manner for a longer period of time while still providing 
investors with a more comprehensive picture of the delinquencies, 
losses, and prepayments in a uniform manner across asset classes. We 
also note that this revised time period is consistent with the new 
asset-level data requirement for presentation of delinquencies and 
losses in RMBS.\857\ While investors will not receive as granular a 
presentation as proposed (through charge-off), investors investing in 
asset classes required to provide asset-level disclosures will be 
receiving more detailed information about the payment status of each 
individual asset, such as the paid through date.\858\ We recognize that 
to the extent that issuers will now be required to present 
delinquencies and losses for a longer period of time than previously 
provided in the distribution reports, such issuers will incur some 
costs. We believe, however, the benefits gained from standardized and 
comparable delinquency and loss disclosure justify the costs issuers 
may incur to provide the information.
---------------------------------------------------------------------------

    \855\ See the 2010 ABS Proposing Release at 23385.
    \856\ See letters from ASF I and VABSS I.
    \857\ See new Item 1(g)(33) of Schedule AL.
    \858\ See new Item 1(g)(28) of Schedule AL. See Section 
III.A.2.b Asset Specific Disclosure Requirements and Economic 
Analysis of These Requirements. Due to the transition period for 
implementing the loan-level requirements, there will be a period of 
time during which investors will not have access to this more 
granular data about assets in prior securitized pools. See Section 
IX.B Transition Period for Asset-Level Disclosure Requirements.
---------------------------------------------------------------------------

    In addition to requiring that delinquencies, losses, and 
prepayments be presented in accordance with Item 1100(b) through no 
less than 120 days, we are amending Item 1105(a)(3)(iv) to require the 
graphical presentation of this information for amortizing asset pools. 
We acknowledge commenters' concern that the substantial quantitative 
data associated with some prior securitized pools could make graphical 
presentation of the data ``unintelligible'' and that investors may 
prefer actual data over graphs because they cannot ascertain the data 
from the graphs and they can take the tabular data and create their own 
graphs.\859\ We believe, however, that static pool data alone, 
depending on the volume and type of data, can be difficult to analyze 
without the use of sophisticated analytical tools. Requiring graphical 
presentation of this information will benefit investors by enabling 
them to analyze the information without such tools.\860\ In addition, 
graphical presentation of the information highlights possible data 
segments that warrant further analysis and may therefore facilitate a 
more

[[Page 57258]]

tailored and efficient in-depth analysis. We also note that the 
inherent function of static pool information (i.e., analyzing trends 
within a sponsor's program by comparing originations at similar points 
in the assets' lives) is well-suited for graphical presentation as it 
allows for better detection of patterns that may not necessarily be 
evident from overall portfolio numbers.
---------------------------------------------------------------------------

    \859\ See letter from VABSS I.
    \860\ See letters from AMI, BoA I, and CFA I (noting that 
graphical representation of this information provides investors with 
an immediate recognition of changes in asset performance in 
successive pools and thus an indication of the underwriting 
standards of the issuers).
---------------------------------------------------------------------------

3. Filing Static Pool Data
(a) Proposed Rule
    We proposed to permit issuers to file their static pool information 
required under Item 1105 of Regulation AB on EDGAR in Portable Document 
Format (``PDF'') as an official filing in lieu of, as currently 
required, including the information directly in the prospectus (or 
incorporating by reference) in ASCII or HTML format.\861\
---------------------------------------------------------------------------

    \861\ Rule 312 of Regulation S-T permitted issuers for ABS filed 
on or before June 30, 2012, to post their static pool information on 
an Internet Web site under certain conditions in lieu of filing the 
static pool information on EDGAR. We are not removing Rule 312 of 
Regulation S-T in connection with this rulemaking since issuers that 
previously provided static pool information via a Web site are 
required to retain all versions of the information provided through 
the Web site for a period of not less than five years. Issuers are 
no longer able to use Rule 312 as a means to provide their static 
pool information. We are, however, removing Item 512(l) of 
Regulation S-K, the undertaking previously required for providing 
static pool information on a Web site under Rule 312 of Regulation 
S-T because this undertaking is no longer applicable. We are also 
removing paragraph (d)(6)(iii) of Securities Rule 433 which had 
permitted issuers to include a Web site address for static pool 
information in a free writing prospectus.
---------------------------------------------------------------------------

    As is the case today, however, issuers can incorporate static pool 
information filed on a Form 8-K or as an exhibit to a Form 8-K by 
reference into a prospectus.\862\ We proposed that all static pool 
disclosure, if filed on a Form 8-K, be filed under a new item number so 
that investors could easily locate the information that is incorporated 
by reference into the prospectus. We also proposed to create a new 
exhibit number to Item 601 of Regulation S-K for static pool 
information filed as an exhibit to a Form 8-K or prospectus.
---------------------------------------------------------------------------

    \862\ See the 2004 Adopting Release at 1541.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Commenters were generally opposed to our PDF proposal, favoring 
data formats other than PDF for static pool information. One commenter 
stated that PDF makes detailed analysis ``difficult'' and ``time-
consuming.'' \863\ Another commenter preferred a format that is readily 
importable to Excel or a comparable database program.\864\ One 
commenter stated its belief that EDGAR in its current form will not 
facilitate the usability of static pool information, such as allowing 
investors to download the data in a format that investors can use with 
their own analytical tools and applications.\865\ With respect to our 
proposal to house all static pool information filed on Form 8-K under a 
new item number, commenters were supportive of the proposal.\866\
---------------------------------------------------------------------------

    \863\ See letter from CFA I.
    \864\ See letter from Prudential I.
    \865\ See letter from ASF I. See also letter from American 
Securitization Forum regarding the filing of static pool information 
dated May 4, 2012 submitted in response to the 2010 ABS Proposing 
Release (``ASF V'') (noting that its investor members supported 
upgrading EDGAR to allow for a number of file types, including PDF 
and Excel, but did not specify whether PDF would in fact facilitate 
the usability of the static pool data).
    \866\ See letters from MBA I and Prudential I. Prudential 
suggested requiring the issuer to include a link in the prospectus 
to the relevant information in order to assist investors in locating 
the information. As is the case today, filers may reference a 
previously submitted filing in the prospectus; however, filers are 
generally not permitted to include external references. See EDGAR 
Manual (Volume II), Section 5, for additional information and 
instruction about acceptable external references.
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(c) Final Rule and the Economic Analysis of the Final Rule
    Given commenters' concerns regarding the usability of static pool 
information in PDF, we are not adopting our proposal to permit issuers 
to file their static pool information in PDF as an official filing. 
This decision benefits investors because they will continue to receive 
static pool information in a more usable format compared to PDF. 
Issuers, however, will be precluded from taking advantage of any cost 
savings that could be achieved by filing the static pool information in 
PDF.
    We are adopting the proposed rules to amend Form 8-K and Item 601 
of Regulation S-K. We believe that these amendments will benefit 
investors in searching and locating the static pool information filed 
on EDGAR. Therefore, if the issuer wishes to incorporate static pool 
information by reference to a Form 8-K filing rather than to include it 
in the prospectus, then an issuer must file it under new Item 6.06 of 
Form 8-K. If the issuer files the static pool information as an exhibit 
to a Form 8-K to be incorporated into a prospectus, the issuer must 
file the static pool information as Exhibit 106. Under the final rule, 
issuers will be required to include a statement in the prospectus that 
the static pool information incorporated by reference is deemed to be a 
part of the prospectus and also identify the Form 8-K on which the 
static pool information was filed by including the CIK number, file 
number, exhibit number (if applicable) and the date on which the static 
pool information was filed. Investors will benefit by being able to 
more easily search and locate static pool information incorporated by 
reference into the prospectus, and the only cost issuers are likely to 
incur is to update their information systems to reflect the new Form 8-
K item requirement and exhibit number, which we believe should be 
minimal.
    We also proposed that the information should be filed with the Form 
8-K on the same date that the preliminary prospectus is required to be 
filed.\867\ We are adopting that proposal with one clarification. 
Consistent with current practices under existing requirements, issuers 
may incorporate by reference the same static pool information into the 
prospectus of one or more offerings of the same asset class as long as 
the information meets the requirements of Item 1105 of Regulation 
AB,\868\ which states that the most recent periodic increment for the 
static pool data must be of a date no later than 135 days after the 
first use of the prospectus.\869\ The amended requirement clarifies 
that issuers are required to provide information by the date that the 
prospectus is required to be filed rather than on the same date the 
prospectus is filed (i.e., permitting incorporation of a previously-
filed Form 8-K), and thereby allows issuers to continue to have the 
flexibility to incorporate the static pool information by reference 
into prospectuses of multiple deals.
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    \867\ In the 2010 ABS Proposing Release, we proposed that 
``[t]he static pool disclosure must be filed as an exhibit with this 
report by the time of effectiveness of a registration statement on 
Form SF-1, on the same date of the filing of a form of prospectus, 
as required by Rule 424(h) (17 CFR 230.424(h)) and a final 
prospectus meeting the requirements of section 10(a) of the 
Securities Act (15 U.S.C. 77j(a)) filed in accordance with Rule 
424(b) (17 CFR 230.424(b)).''
    \868\ 17 CFR 229.1105(a)(3)(ii).
    \869\ We established a requirement regarding the age of the most 
recent periodic increment to ensure the currency of the data. See 
the 2004 Adopting Release at 1540.
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F. Other Disclosure Requirements That Rely on Credit Ratings

    Items 1112 and 1114 of Regulation AB require the disclosure of 
certain financial information regarding significant obligors of an 
asset pool and significant credit enhancement providers relating to a 
class of asset-backed securities. An instruction to Item 1112(b) 
provides that no financial information regarding a significant obligor 
is required if the obligations of the significant obligor, as they 
relate to the pool assets, are backed by the full faith and credit of a 
foreign government and the pool assets are securities that

[[Page 57259]]

are rated investment grade by an NRSRO.\870\ Item 1114 of Regulation AB 
contains a similar instruction that relieves an issuer of the 
obligation to provide financial information when the obligations of the 
credit enhancement provider are backed by a foreign government and the 
credit enhancement provider has an investment-grade rating.\871\ We 
proposed to revise Item 1112 and Item 1114 to eliminate the exceptions 
based on investment-grade ratings.
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    \870\ Instruction 2 to Item 1112(b) of Regulation AB [17 CFR 
229.1112(b)].
    \871\ Instruction 3 to Item 1114 [17 CFR 229.1114]. Under both 
Items 1112 and 1114, to the extent that pool assets are not 
investment-grade securities, information required by paragraph (5) 
of Schedule B of the Securities Act may be provided in lieu of the 
required financial information. Paragraph 5 of Schedule B requires 
disclosure of three years of the issuer's receipts and expenditures 
classified by purpose in such detail and form as the Commission 
prescribes.
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    We received only one comment on this proposal, which supported the 
proposal.\872\ We are adopting the amendments to Items 1112 and 1114 as 
proposed. We continue to believe that these changes are consistent with 
the requirements of Section 939A of the Dodd-Frank Act, which requires 
us to reduce regulatory reliance on credit ratings, and our revisions 
to eliminate ratings from the shelf eligibility criteria for asset-
backed issuers. We believe that this will allow investors to directly 
consider the financial condition of significant obligors and credit 
enhancement providers rather than rely solely on the implication of 
these parties' credit ratings. Because the information now required to 
be disclosed is likely available to the issuer, the revisions to Item 
1112 and Item 1114 will not impose substantial costs or burdens on an 
asset-backed issuer.
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    \872\ See letter from BoA I.
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V. Securities Act Registration

A. Background and Economic Discussion

    Securities Act shelf registration provides important timing and 
flexibility benefits to issuers. An issuer with an effective shelf 
registration statement can conduct delayed offerings ``off the shelf'' 
under Securities Act Rule 415 without staff action.\873\ Asset-backed 
securities are often registered on a Form S-3 registration statement 
and later offered ``off the shelf'' if, in addition to meeting other 
specified criteria,\874\ the securities are rated investment grade by 
an NRSRO. We continue to recognize that ABS issuers have expressed the 
desire to use shelf registration to access the capital markets quickly. 
ABS issuers' interest in shelf registration is also evidenced by the 
lack of ABS issuers using Form S-1.\875\
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    \873\ As discussed in the 2010 ABS Proposing Release, 
contemporaneous with the enactment of the Secondary Mortgage Market 
Enhancement Act of 1984 (SMMEA), which added the definition of 
``mortgage related security'' to the Exchange Act, we amended 
Securities Act Rule 415 to permit mortgage related securities to be 
offered on a delayed basis, regardless of which form is utilized for 
registration of the offering (Pub. L. No. 98-440, 98 Stat. 1689). 
SMMEA was enacted by Congress to increase the flow of funds to the 
housing market by removing regulatory impediments to the creation 
and sale of private mortgage-backed securities. An early version of 
the legislation contained a provision that specifically would have 
required the Commission to create a permanent procedure for shelf 
registration of mortgage related securities. The provision was 
removed from the final version of the legislation, however, as a 
result of the Commission's decision to adopt Rule 415, implementing 
a shelf registration procedure for mortgage related securities. See 
H.R. Rep. No. 994, 98th Cong., 2d Sess. 14, reprinted in 1984 U.S. 
Code Cong. & Admin. News 2827. See also Shelf Registration, Release 
No. 33-6499 (Nov. 17, 1983) [48 FR 52889] at footnote 30 (noting 
that mortgage related securities were the subject of pending 
legislation). In 1992, in order to facilitate registered offerings 
of asset-backed securities and eliminate differences in treatment 
under our registration rules between mortgage related asset-backed 
securities (which could be registered on a delayed basis) and other 
asset-backed securities of comparable character and quality (which 
could not), we expanded the ability to use ``shelf offerings'' to 
other asset-backed securities. See Simplification of Registration 
Procedures for Primary Securities Offerings, Release No. 33-6964 
(Oct. 22, 1992) [57 FR 32461]. Under the 1992 amendments, offerings 
of asset-backed securities rated investment grade by an NRSRO 
(typically one of the four highest categories) could be shelf 
eligible and registered on Form S-3. The eligibility requirement's 
definition of ``investment grade'' was largely based on the 
definition in the existing eligibility requirement for non-
convertible corporate debt securities.
    \874\ In addition to investment-grade rated securities, an ABS 
offering is shelf-eligible only if the following conditions are met: 
delinquent assets must not constitute 20% or more, as measured by 
dollar volume, of the asset pool as of the measurement date; and 
with respect to securities that are backed by leases other than 
motor vehicle leases, the portion of the securitized pool balance 
attributable to the residual value of the physical property 
underlying the leases, as determined in accordance with the 
transaction agreements for the securities, does not constitute 20% 
or more, as measured by dollar volume, of the securitized pool 
balance as of the measurement date. To the extent the depositor or 
any issuing entity previously established, directly or indirectly, 
by the depositor or any affiliate of the depositor are or were at 
any time during the twelve calendar months and any portion of a 
month immediately preceding the filing of the registration statement 
on Form S-3 subject to the requirements of Section 12 or 15(d) of 
the Exchange Act (15 U.S.C. 78l or 78o(d)) with respect to a class 
of asset-backed securities involving the same asset class, such 
depositor and each such issuing entity must have filed all material 
required to be filed regarding such asset-backed securities pursuant 
to Section 13, 14 or 15(d) of the Exchange Act (15 U.S.C. 78m, 78n 
or 78o(d)) for such period (or such shorter period that each such 
entity was required to file such materials). Such material (except 
for certain enumerated items) must have been filed in a timely 
manner. We did not propose changes to these other eligibility 
conditions.
    \875\ According to EDGAR, since 2008, no ABS issuer has filed a 
registration statement on Form S-1 that went effective.
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    In the 2010 ABS Proposing Release, we proposed, among other things, 
new registration procedures, registration forms and shelf eligibility 
requirements for asset-backed security issuers. The 2010 ABS Proposals 
sought to address a number of concerns about the ABS offering process 
and ABS disclosures that were subsequently addressed in the Dodd-Frank 
Act, while others were not addressed by the Dodd-Frank Act. Two of the 
proposed shelf eligibility requirements--risk retention \876\ and 
continued Exchange Act reporting \877\--were addressed by provisions of 
the Dodd-Frank Act. In July 2011, we re-proposed some of the 2010 ABS 
Proposals in light of the changes made by the Dodd-Frank Act and 
comments we received.
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    \876\ In the 2010 ABS Proposing Release, we proposed to require 
that sponsors of ABS transactions retain a specified amount of each 
tranche of the securitization, net of hedging. Section 941 of the 
Dodd-Frank Act added new Section 15G of the Exchange Act. Section 
15G generally requires the Federal Reserve Board, the Federal 
Deposit Insurance Corporation, the Office of the Comptroller of the 
Currency, the Commission and in the case of the securitization of 
any ``residential mortgage asset,'' together with the Department of 
Housing and Urban Development and the Federal Housing Finance 
Agency, to jointly prescribe regulations relating to risk retention. 
In March 2011, the agencies proposed rules to implement Section 15G 
of the Exchange Act. In August 2013, the agencies re-proposed the 
rules. See the 2011 Risk Retention Proposing Release and the 2013 
Risk Retention Re-Proposing Release.
    \877\ The Commission proposed in the 2010 ABS Proposals to 
require that an ABS issuer undertake to file Exchange Act reports 
with the Commission on an ongoing basis as a condition to shelf 
eligibility. The 2010 ABS Proposals also proposed to require an 
issuer to confirm, among other things, whether Exchange Act reports 
required pursuant to the undertaking were current as of the end of 
the quarter in order to be eligible to use the effective 
registration statement for takedowns. Section 942(a) of the Dodd-
Frank Act eliminated the automatic suspension of the duty to file 
under Section 15(d) of the Exchange Act for ABS issuers, and granted 
authority to the Commission to issue rules providing for the 
suspension or termination of such duty. In the 2011 ABS Re-Proposing 
Release, we stated that due to the amendment to Section 15(d), the 
proposed shelf eligibility requirement to undertake to file Exchange 
Act reports is no longer necessary, including the quarterly 
evaluation by issuers of compliance with the undertaking. In August 
2011, we adopted rules to provide for suspension of the reporting 
obligations for asset-backed securities issuers when there are no 
asset-backed securities of the class sold in a registered 
transaction held by non-affiliates of the depositor. See footnote 
543.
---------------------------------------------------------------------------

    The 2011 ABS Re-Proposals for ABS shelf registration eligibility 
were also part of several rule revisions we are considering in 
connection with Section 939A of the Dodd-Frank Act. Section 939A of the 
Dodd-Frank Act requires

[[Page 57260]]

that we review any regulation issued by us that requires the use of an 
assessment of the credit-worthiness of a security or money market 
instrument and any references to or requirements in such regulations 
regarding credit ratings. Once we have completed that review, the 
statute provides that we modify any regulations identified in our 
review to remove any reference to or requirement of reliance on credit 
ratings and to substitute in such regulations such standard of credit-
worthiness as we determine to be appropriate. In that connection, we 
take into account the context and purposes of the affected rules.

B. New Registration Procedures and Forms for ABS

1. New Shelf Registration Procedures
    Under existing rules, as with current offerings of other types of 
securities registered on Form S-3 and Form F-3, the shelf registration 
statement for an offering of ABS will often be effective weeks or 
months before a takedown is contemplated. The prospectus in an 
effective registration statement must describe, among other things, the 
type or category of assets to be securitized, the possible structural 
features of the transaction, and identification of the types or 
categories of securities that may be offered.\878\ Pursuant to existing 
Securities Act Rules 409 and 430B,\879\ the prospectus in the 
registration statement may omit the specific terms of a takedown if 
that information is unknown or not reasonably available to the issuer 
when the registration statement is made effective.\880\ For ABS 
offerings off the shelf, because assets for a pool backing the 
securities will not be identified until the time of an offering, 
information regarding the actual assets in the pool and the material 
terms of the transaction are typically only included in a prospectus or 
prospectus supplement that is required to be filed with the Commission 
by the second business day after first use.\881\ This information 
includes information about the structure of the cash flows, the pool, 
underwriting criteria for the assets and exceptions made to the 
underwriting criteria, identification of the originators of the assets 
and other information that is related to the identification of specific 
assets for the pool. We understand that the creation of an asset pool 
to support securitized products is a dynamic and ongoing process in 
which changes can take place up until pricing. As a result, the new 
rules we are adopting maintain the fundamental framework of shelf 
registration for delayed ABS offerings, but provide new important 
protections for investors who choose to commit capital to the ABS 
transactions.
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    \878\ The form of prospectus in an effective registration 
statement should also include disclosure about the risks associated 
with changes in interest rates or prepayment levels as well as the 
various scenarios under which payments on the ABS could be impaired.
    \879\ 17 CFR 230.409 and 17 CFR 230.430B.
    \880\ The prospectus disclosure in the registration statement is 
often presented through a ``base'' or ``core'' prospectus and a 
prospectus supplement. We are eliminating this type of presentation 
for ABS issuers. See Section V.D.1 Presentation of Disclosure in 
Prospectuses.
    \881\ An instruction to Rule 424(b) [17 CFR 230.424(b)] requires 
that a form of prospectus or prospectus supplement relating to a 
delayed offering of mortgage-backed securities or an offering of 
asset-backed securities be filed no later than the second business 
day following the date it is first used after effectiveness in 
connection with a public offering or sales, or transmitted by a 
means reasonably calculated to result in filing with the Commission 
by that date.
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    We also recognize that it is important for investor protection 
that, in addition to receiving adequate information to make an 
investment decision, ABS investors also have adequate time to analyze 
the information and the potential investment. For the most part, each 
ABS offering off of a shelf registration statement involves securities 
backed by different assets, so that, in essence, from an investor point 
of view, each offering requires a new investment analysis. Information 
about the underlying assets is an important piece of information for 
analyzing the ability of those assets to generate sufficient funds to 
make payments on the securities. Furthermore, some have noted the lack 
of time to review transaction-specific information as hindering 
investors' ability to conduct adequate analysis of the securities.\882\ 
We believe that a process for ABS offerings where investors and 
underwriters have additional time to conduct their review of offerings 
will result in improved investor protections and promote a more 
efficient asset-backed market, even if issuers may not always be able 
to complete their offering as swiftly as they could in the past. 
Therefore, we are adopting rules designed to increase the amount of 
time that investors have to review information about a particular shelf 
takedown, which we believe will allow for better analysis of ABS in 
lieu of undue reliance on security ratings.
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    \882\ See, e.g., Section I.B. of CFA Institute Centre for 
Financial Market Integrity and Council of Institutional Investors, 
U.S. Financial Regulatory Reform: The Investor's Perspective, July 
2009 (noting that securitized products are sold before investors 
have access to a comprehensive and accurate prospectus, noting that 
each ABS offering involves a new and unique security, and 
recommending that the Commission adopt rules to improve the 
timeliness of disclosures to investors); Securitization of Assets: 
Problems & Solutions Hearing Before the Subcomm. on Sec., Ins., & 
Inv. of the S. Comm. on Banking, Housing & Urban Affairs, 111th 
Cong. 11 (2009) (statement of William W. Irving) (recommending that 
there be ample time before a deal is priced for investors to review 
and analyze a full prospectus and not just a term sheet); The State 
of Securitization Markets Hearing Before the Subcomm. on Sec., Ins., 
& Inv. of the S. Comm. on Banking, Housing & Urban Affairs, 112th 
Cong. 9 (2011) (statement of Chris J. Katopis, Executive Director of 
the Association of Mortgage Investors) (recommending that there be a 
``cooling off period'' when ABS are offered to provide investors 
with enough time to review and analyze prospectus information prior 
to making investment decisions). See also footnote 885 listing those 
commenters supporting the waiting period proposal.
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a) Rule 424(h) and Rule 430D
(1) Proposed Rule
    In the 2010 ABS Proposing Release, we proposed to require that an 
ABS issuer using a shelf registration statement on proposed Form SF-3 
file a preliminary prospectus containing transaction-specific 
information at least five business days in advance of the first sale of 
securities in the offering. This requirement would allow investors 
additional time to analyze the specific structure, assets and 
contractual rights of each transaction. We proposed this requirement in 
response to investors' concerns that ABS issuers were not providing 
them enough time to review the transaction-specific information, which 
hindered their ability to conduct adequate analysis of the securities. 
We noted in the 2011 ABS Re-Proposal that the five business-day waiting 
period was also intended to reduce undue reliance on security ratings, 
thus part of our efforts to remove the prior investment-grade ratings 
requirement.\883\ We believed that requiring such information to be 
filed at least five business days before the first sale of securities 
in the offering balances the interest of ABS issuers in quick access to 
the capital markets and the need of investors to have more time to 
consider transaction-specific information. In the 2010 ABS Proposing 
Release, we explained that we considered whether a longer minimum time 
period than five business days would be more appropriate.\884\ We had 
proposed five business days because we believed that the companion 
proposals requiring the filing of standardized and tagged asset-level 
information and a computer program could reduce the amount of time 
required by investors to

[[Page 57261]]

consider transaction specific information. The proposal also provided 
that a material change from the information provided in the preliminary 
prospectus, other than offering price, would require a new preliminary 
prospectus to be filed and therefore, a new five business-day waiting 
period.
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    \883\ See the 2010 ABS Proposing Release at 23334, including 
footnote 80, and the 2011 ABS Re-Proposal at 47950, including 
footnote 19.
    \884\ Some have suggested that investors be provided with up to 
two weeks to analyze asset information. See, e.g., Joshua Rosner, 
Securitization: Taming the Wild West, in Roosevelt Institute, Make 
Markets be Markets 73 (2010).
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(2) Comments on Proposed Rule
    Comments received on this proposal were mixed. Several commenters 
supported the proposal that a preliminary prospectus be filed five 
business days in advance of the first sale.\885\ Two commenters 
generally supported the proposed five business-day waiting period and 
also provided additional feedback on other time periods.\886\ One of 
the commenters recommended that investors should have not less than 
three days to evaluate an ABS offering,\887\ while the other stated 
that two business days for repeat issuers may be sufficient.\888\
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    \885\ See letters from AFL-CIO dated Aug. 2, 2010 submitted in 
response to the 2010 ABS Proposing Release, AMI, CalPERS, CFA I, 
CREFC I, Rylee Houseknecht dated Apr. 26, 2010 submitted in response 
to the 2010 ABS Proposing Release, ICI I, Jamie L. Larson dated Apr. 
27, 2010 submitted in response to the 2010 ABS Proposing Release, 
MetLife I, MBA I, Prudential I, and Realpoint.
    MBA also requested that issuers, particularly CMBS issuers, also 
have the ability to update without restarting the five business-day 
period. See letter from MBA I (noting that while a five business-day 
minimum waiting period prior to the first sale will occasionally 
impose an ``unwelcome timing constraint,'' the minimum waiting 
period is unlikely to make shelf registration sufficiently less 
attractive if the rule provides flexibility for issuers to provide 
updates with a shorter waiting period). Comments about the waiting 
period for updates are addressed below.
    \886\ See letters from ICI I (noting that if the Commission 
considers a shorter period, investors should be provided with no 
less than a three-day period) and CFA II (reiterating their support 
for the proposed five business-day waiting period).
    \887\ See letter from ICI I.
    \888\ See letter from CFA I.
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    Other commenters opposed the five business-day waiting period \889\ 
and suggested shorter alternatives such as two business days prior to 
the first sale,\890\ one business day,\891\ or no waiting period.\892\ 
One commenter suggested that the waiting period vary by asset 
class.\893\ Another commenter recommended a one business-day waiting 
period for a category of ``well-known seasoned asset-backed sponsors'' 
that meet certain issuer classification (e.g., seasoned depositors and 
sponsors with established securitization programs that have issued more 
than a threshold aggregate amount and/or over a specified period of 
time), asset class classification (e.g., master trusts where the asset 
pool does not change materially from transaction to transaction and a 
specified dollar amount of transactions have been issued and supported 
by the pool), or transaction structure (e.g., transactions by the same 
depositor or sponsor, where issuances involve waterfall structures that 
do not change materially from transaction to transaction).\894\ Along 
the same lines, another commenter suggested that certain types of ABS 
offerings do not warrant any mandatory waiting periods because of their 
frequency and nature (e.g., where a sponsor, its parent or a subsidiary 
has completed at least one public offering within the preceding two 
years of securities in the same asset class and where the cash flows 
and structure are substantially similar to a prior public 
offering).\895\ Several commenters argued that a five business-day 
waiting period is more consistent with the time delays associated with 
an equity initial public offering (``IPO''), and noted that the 
proposed rule could lead to the ``perverse result'' that a well-known 
seasoned issuer can issue relatively risky forms of capital such as 
equity or unsecured debt without any required waiting period, but 
secured debt, generally regarded as less risky, would have a waiting 
period.\896\
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    \889\ See letters from ABA I, ASF I, AmeriCredit, CNH I, SIFMA 
I, and Wells Fargo I.
    \890\ See letters from ABA I (suggesting two business days for 
all ABS transactions other than those by widely followed, well-known 
ABS issuers), ASF I, AmeriCredit, BoA I, CNH I, Vanguard, VABSS I 
(recommending no mandatory minimum waiting period, but suggesting 
two business days if a minimum is imposed), and Wells Fargo I.
    \891\ See letter from ABA I (one business day is appropriate for 
widely-followed, well-known ABS issuers, sponsors or asset classes 
or structures, similar to the well-known seasoned issuer concept).
    \892\ See letter from VABSS I.
    \893\ See letter from SIFMA I (suggesting a two business-day 
period for bank credit card or charge card receivables; three 
business days for private-label credit card or charge card 
receivables, motor vehicle loans/leases, student loans, or equipment 
loans or leases; and five business days for any other asset class, 
including RMBS and CMBS).
    \894\ See letter from ABA I (noting that some programmatic 
issuers have issued hundreds of billions of dollars of ABS over 
decades, using securitization programs that have consistent 
documentation from deal to deal, and are well-known to their 
investor base which, as a result, needs less time to absorb 
transaction details).
    \895\ See letter from VABSS I.
    \896\ See letters from AmeriCredit and VABSS I.
---------------------------------------------------------------------------

    While we did not specifically request further comment on this topic 
in the 2011 ABS Re-Proposing Release, several commenters offered 
comment on the proposal. For the most part, commenters reiterated their 
suggestions from their comment letters on the 2010 ABS Proposing 
Release. Several commenters agreed that a preliminary prospectus should 
be provided to investors in advance.\897\ Some commenters noted concern 
if the proposed time period were to be shortened.\898\ One commenter 
reiterated its suggestion for different filing requirements based on 
asset class.\899\ Another commenter suggested a one business-day 
waiting period for ``widely followed, programmatic ABS issuers'' and a 
two business-day waiting period for all others.\900\
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    \897\ See letters from ABA II, AFME, and CFA II.
    \898\ See letters from Better Markets and ICI II (also 
suggesting a time period of no less than three business days).
    \899\ See letter from SIFMA III-dealers and sponsors (stating 
that ``at least two business days before the date of the first sale 
in the offering, in the case of ABS backed by bank credit card or 
charge card receivables; at least three business days before the 
date of the first sale in the offering, in the case of ABS backed by 
private-label credit card or charge card receivables, motor vehicle 
loans or leases, student loans, or equipment loans or leases; and at 
least five business days before the date of the first sale in the 
offering, in the case of ABS backed by any other asset class, 
including residential or commercial mortgage loans'').
    \900\ See letter from ABA II.
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    As noted above, the proposal provided that a material change from 
the information provided in a preliminary prospectus, other than 
offering price, would require a new preliminary prospectus and 
therefore, a new five business-day waiting period. Some investor 
commenters supported the proposal to require a new waiting period for 
any material changes.\901\ However, several commenters recommended 
changes to this aspect of the proposal.
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    \901\ See letters from AMI, MetLife I, and Prudential I.
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    Some commenters, believing the five business-day waiting period 
after material changes was too long, suggested shorter periods.\902\ 
Commenters recommending shorter periods generally argued that in most 
cases a material change can be easily identified and reviewed and will 
not

[[Page 57262]]

take investors the same amount of time to consider as compared to the 
first review of the entire preliminary prospectus.\903\ Some investor 
commenters suggested that the waiting period should be shortened 
because investors will have the opportunity to become familiar with the 
transaction documents during the initial marketing period.\904\ One 
commenter stated that a five business-day waiting period unnecessarily 
exposes well-established sponsors to market and execution risk without 
providing a meaningful benefit to investors and recommended both a 
shorter waiting period and a requirement that material changes be 
disclosed in a supplement to the preliminary prospectus to facilitate 
easy identification of such changes.\905\
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    \902\ See letters from ABA I, ASF I (expressed views of issuers 
and investors only) (supporting a one business-day minimum if a 
minimum period is imposed but noting that even a one business-day 
minimum period could be overly rigid and unnecessarily long in some 
cases), AmeriCredit, AMI, BoA I, CNH I, CREFC I (suggesting a 
waiting period up to five business days based upon the nature of the 
change and the length of time that would be needed for the market to 
digest that change in accordance with past experience, and that 
sponsors should be given the latitude to determine the appropriate 
length of review on a case-by-case basis based on their ``unique'' 
understanding of the CMBS market and experience with the investor 
community), MBA I, Prudential I, SIFMA I (expressed views of issuers 
and investors only), VABSS I, and Wells Fargo I (asserting that one 
business day should be sufficient where a material change was made 
during the first day of the initial waiting period, and two business 
days if made later in the initial period).
    \903\ See letters from BoA I and SIFMA I (expressed views of 
issuers and investors only). See also AmeriCredit (suggesting an 
additional waiting period should apply only in cases where the 
material changes significantly affect the asset pool, the cash flows 
or the transaction structure, otherwise no waiting period should be 
required, such as when ``upsizing'' a transaction due to strong 
investor demand), CREFC I (stating that a free writing prospectus 
that highlights a material change will expedite and improve the 
review of changes by the investor community rather than requiring 
review of an entirely new 424(h) filing), and MBA I (noting that 
investors in CMBS do not need five business days to understand all 
material changes, and that CMBS issuers commonly issue ``pre-pricing 
updates,'' often no more than one or two pages, to investors prior 
to pricing to convey any material changes since the preliminary 
prospectus and also suggesting that the period be shortened to one 
day or have the rule focus more on the length of time necessary for 
an investor to understand the change rather than the materiality of 
the change).
    \904\ See letters from AMI and Prudential I.
    \905\ See letter from ABA I.
---------------------------------------------------------------------------

    Some commenters suggested that no additional waiting period after 
material changes may be necessary.\906\ One investor commenter 
recommended a new filing and a new five business-day period only if a 
change to the transaction occurs that a reasonable investor would 
consider material to an investment decision, such as: Changes to more 
than 1% of the collateral pool, including changes at the property, 
tenant or borrower level; any changes to the priority of payment (i.e., 
waterfall); any changes of any service provider or party to the 
transaction; or any changes to the terms in the documents related to 
the transaction, including changes to any representations and 
warranties, covenants or indemnities originally contained in such 
documents.\907\
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    \906\ See letters from ASF I (expressed views of issuers and 
investors only) and BoA I. These commenters reasoned that existing 
Rule 159 provides adequate protections by promoting the delivery of 
updated information in a manner that provides investors with an 
opportunity to evaluate the disclosure prior to contract of sale.
    \907\ See letter from MetLife I.
---------------------------------------------------------------------------

    Commenters also requested that we provide additional clarity 
regarding the material changes to the preliminary prospectus that would 
trigger a new five business-day waiting period.\908\ One of those 
commenters stated that changes in pool composition as a result of 
ordinary events, such as payments of interest or principal, should not 
require additional disclosure or a renewed waiting period unless such 
payments reflect another material change.\909\ Several commenters 
recommended that the requirement should not focus so much on the 
materiality of the change in terms of its economic impact or 
importance, but rather on the likely extent of the effect of such a 
change on the disclosure itself and the need for more time to 
review.\910\
---------------------------------------------------------------------------

    \908\ See letters from ABA I, BoA I, CREFC I, ICI I, and MBA I.
    \909\ See letter from ABA I.
    \910\ See letters from BoA I, CREFC I, and MBA I (noting that 
many material changes (e.g., a change in payment priority) that are 
important can nevertheless be easily described and quickly 
understood, particularly if one has already received a preliminary 
prospectus).
---------------------------------------------------------------------------

    We also received comments on our proposal to permit omission of 
pricing information in the required preliminary prospectus. One 
commenter recommended that we define what is contemplated by the phrase 
``information dependent on pricing'' and whether this would include 
only quantitative pricing terms, or whether it could also include other 
additional information that is typically determined at pricing (e.g., 
selection of a swap counterparty, weighted average life calculations, 
or, in the case of credit card master trusts, transaction size and 
minimum principal receivables balance requirements).\911\ Along the 
same lines, several commenters suggested an accommodation for 
transactions involving derivative contracts.\912\ Another commenter 
suggested that the preliminary prospectus should have a section that 
specifically discusses any aspect of the transaction that is ``to be 
determined'' at the time of the filing.\913\
---------------------------------------------------------------------------

    \911\ See letter from ABA I.
    \912\ See letters from ASF I and BoA I (explaining that in these 
cases the preliminary prospectus could not include information 
relating to a specific swap counterparty or other information 
dependent on the pricing because the optimal pricing of the 
derivative and the counterparty with the most competitive bid cannot 
be determined by the issuer until the time of pricing for the 
offered securities).
    \913\ See letter from Prudential I.
---------------------------------------------------------------------------

    We did not receive comments on our proposed conforming revisions to 
the undertakings that are required by Item 512 of Regulation S-K \914\ 
in connection with a shelf registration statement for ABS. We also did 
not receive comments on our proposed addition to Item 512 to require an 
issuer to undertake to file the information required to be contained in 
a preliminary prospectus.
---------------------------------------------------------------------------

    \914\ 17 CFR 229.512.
---------------------------------------------------------------------------

(3) Final Rule and Economic Analysis of the Final Rule
(a) Rule 424(h) Filing
    Under the final rule, with respect to any takedown of securities in 
a shelf offering of asset-backed securities where information is 
omitted from an effective registration statement in reliance on new 
Rule 430D, as discussed below, a form of prospectus meeting certain 
requirements must be filed with the Commission in accordance with the 
new Rule 424(h) preliminary prospectus at least three business days 
prior to the first sale of securities in the offering.\915\ After 
considering the various comments received on the initial five-business 
day waiting period, we have shortened the waiting period as proposed 
from five business days to three business days. We believe that three 
business days balances the benefit to investors of providing additional 
time to conduct an analysis of the offering--a longstanding concern of 
ABS investors \916\--and the concerns of issuers expressed in the 
comment letters. While the final rule imposes a minimum three-day 
waiting period, issuers may provide additional time to potential 
investors to consider the offering.
---------------------------------------------------------------------------

    \915\ Sale includes ``contract of sale.'' See footnote 391 and 
accompanying text of the Securities Offering Reform Release. We are 
clarifying the final rule to note that the preliminary prospectus 
must be filed two business days after first use but no later than 
three business days before first sale. See also letter from SIFMA I 
(noting that the Commission should make clear that a preliminary 
prospectus must be filed not later than the earlier of (i) the 
applicable number of business days before the date of the first 
sale, or (ii) or the second business day after fist use).
    \916\ See the 2004 ABS Adopting Release at 1527. Although the 
investment analysis does not have to be completely done anew for 
master trust transactions since the asset pools do not necessarily 
change with each takedown, we believe that the three business-day 
waiting period is still important for investors in such transactions 
as investors are not only reviewing the assets but also any changes 
to the structure to ensure that it will produce the expected cash 
flows, which can be intricate and complex for master trusts.
---------------------------------------------------------------------------

    We recognize that the final rule will require issuers to provide 
information to investors earlier in the process than was often provided 
for ABS issued before the crisis. During the required waiting period, 
issuers may be exposed to the risk of changing market conditions 
because they may have to hold the underlying assets on their balance 
sheets (inventory risk), and the risk may have larger impact on small 
sponsors with smaller balance sheets. To assess the magnitude of this 
risk and the costs that it may impose on issuers, we

[[Page 57263]]

analyzed time series changes in the price of the Bank of America 
Merrill Lynch U.S. Fixed Rate Asset Backed Securities Index 
(R0A0).\917\ Average index returns for the pre-crisis, crisis, and 
post-crisis periods are presented in Table 1. To assess the cost of the 
three business-day waiting period that we are adopting against the cost 
of reasonable alternatives, we calculated index returns over one, 
three, five and ten days. Outside of the volatile 2008-2009 crisis 
period, the average change in ABS market conditions as measured by 
index returns is below 1.5 basis points (bps) for all horizons (1, 3, 
5, and 10 days) with the standard deviation below 15bp for three-day 
returns. These results suggest that the economic exposure of issuers to 
market conditions (opportunity cost) is relatively small for all 
waiting period lengths in the range from 1 day to 10 days, but 
increases with the horizon. Further, reducing the waiting period from 5 
days to 3 days lowers the riskiness of returns by more than 15% (the 
standard deviation drops from 17bps to 14bps). To put these numbers in 
perspective, for a $100 million ABS issuance that is similar to the 
above-mentioned R0A0 ABS index, a three business-day waiting period 
during the analyzed period would result in an expected change of less 
than $10,000 and a 10% likelihood of a more than $230,000 increase or 
decrease in the value of the issuance. Additionally, exposure to 
several sources of risk, for example, the three-day interest rate risk 
or credit spread risk, can be hedged with forward contracts, further 
reducing potential exposure to losses due to a three-day delay in 
offering.\918\
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    \917\ The Bank of America Merrill Lynch U.S. Fixed Rate Asset 
Backed Securities Index (the ``Index'') tracks the performance of 
U.S. dollar denominated investment-grade fixed rate asset-backed 
securities issued in the U.S. domestic market. Qualifying securities 
must have an investment-grade rating (based on an average of 
Moody's, S&P, and Fitch ratings). In addition, qualifying securities 
must have the following: (1) A fixed rate coupon (including callable 
fixed-to-floating rate securities); (2) at least one year remaining 
term to final stated maturity; (3) at least one month to the last 
expected cash flow; (4) an original deal size for the collateral 
group of at least $250 million; (5) a current outstanding deal size 
for the collateral group greater than or equal to 10% of the 
original deal size; and (6) a minimum outstanding tranche size of 
$50 million for senior tranches and $10 million for mezzanine and 
subordinated tranches. Floating rate, inverse floating rate, 
interest only, and principal only tranches of qualifying deals are 
excluded from the Index as are all tranches of re-securitized and 
agency deals. Securities to be sold in reliance on Securities Act 
Rule 144A qualify for inclusion in the Index.
    \918\ The inventory risk can also be transferred to underwriters 
that would commit to buy the issue from securitizers.

Table 1--Index Returns Are Calculated Using the Price of Bank of America Merrill Lynch U.S. Fixed Rate Asset Backed Securities Index for the 5/6/2004 to
                                          12/31/2013 Period. Three, Five, and Ten Day Returns Are Overlapping.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            1-day                     3-day                     5-day                    10-day
                                      Number of  -------------------------------------------------------------------------------------------------------
            Time period                 daily                    Standard                  Standard                  Standard                  Standard
                                    observations    Average     deviation     Average     deviation     Average     deviation     Average     deviation
--------------------------------------------------------------------------------------------------------------------------------------------------------
5/6/2004-12/31/2007...............           954       0.0000       0.0011      -0.0001       0.0017      -0.0002       0.0020      -0.0003       0.0025
1/1/2008-12/31/2009...............           524      -0.0001       0.0021      -0.0003       0.0037      -0.0005       0.0050      -0.0009       0.0077
1/1/2010-12/31/2013...............          1046       0.0000       0.0006       0.0000       0.0011       0.0000       0.0014       0.0000       0.0020
2004-2013 excl. 2008-2009.........          2000       0.0000       0.0009       0.0000       0.0014      -0.0001       0.0017      -0.0001       0.0022
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As noted above, comments received on the waiting period were mixed 
on the appropriate length of time for the initial waiting period before 
first sale with mostly investors supporting \919\ an initial waiting 
period of five business days and issuers mostly opposing \920\ such a 
requirement. Commenters opposing five business days provided various 
suggested alternatives to the proposal--ranging from two business days 
prior to first sale to no waiting period at all.\921\ Some of these 
commenters recommended that the length of the waiting period be 
determined based on asset class or whether the issuer is a repeat 
issuer.\922\ Because we believe that, regardless of the asset class or 
whether the issuer is well-known, investors should have more time to 
conduct their analysis before making an investment decision than was 
provided previously, we are not adopting such distinctions based on 
asset class or type of issuer. We also believe that given the 
complexity of ABS transactions that two-business days, and especially 
one-business day, would not provide investors with enough time to 
conduct their due diligence.\923\ As a result, we believe that a 
minimum of three business days strikes the appropriate balance of 
providing investors with more time to analyze the information related 
to the transaction while also minimizing issuers' exposure to changing 
market conditions and giving them flexibility in timing of ABS 
issuance.
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    \919\ See footnote 885.
    \920\ See footnote 889.
    \921\ See footnotes 890, 891, and 892.
    \922\ See footnote 893.
    \923\ Even though most ABS offerings are structured as shelf 
offerings, each takedown off a shelf registration statement is more 
akin to an IPO given that each ABS offering consists of new assets 
and a new structure, which requires investors to conduct their 
investment analysis anew to make an informed investment decision.
---------------------------------------------------------------------------

    Finally, while we have observed that post-crisis ABS issuers have 
provided investors with additional time, we are concerned that market 
practice could change in a heated market with many issuers possibly 
reverting to the practice of providing investors with insufficient time 
and causing investors to place undue reliance on ratings. Because of 
this concern and our belief that investors should conduct their own due 
diligence rather than unduly rely on ratings, we are mandating a 
waiting period of at least three-business days as part of our 
rules.\924\ We are persuaded by commenters that neither a new 
preliminary prospectus nor a restart of the waiting period is necessary 
for material changes because, in most cases, a material change can be 
easily identified and reviewed and therefore may not take an investor 
as long to review compared to the first review of the preliminary 
prospectus.\925\ The final rule will require that the issuer disclose 
any material changes in a supplement to the preliminary prospectus that 
must be filed with the Commission at least 48 hours before the date and 
time of the first sale.\926\ The supplement must

[[Page 57264]]

provide a description of how the information in the initial preliminary 
prospectus has changed so that the changes are apparent to investors.
---------------------------------------------------------------------------

    \924\ See letter from ICI I (noting that although they support 
an initial five-business day waiting period, should the Commission 
decide to reduce the waiting period, that investors should have not 
less than three business days to evaluate an ABS shelf offering).
    \925\ See, e.g., letters from ABA I, AmeriCredit, ASF I (issuers 
and investors), SIFMA I, VABSS I, and Wells Fargo I.
    \926\ The changes must be filed in a supplement in accordance 
with Rule 424(h)(2); provided that if the material change relates to 
the assets within the pool also provide the information required by 
Item 1125. Whether a change is material for purposes of the 
requirement will depend on the facts and circumstances. See TSC 
Industries, Inc. v. Northway, Inc., 426 U.S. 438, 448-49 (1976). See 
also Basic v. Levinson, 485 U.S. 224, 231 (1988).
---------------------------------------------------------------------------

    This revision will help to address cost and other concerns 
expressed by issuers and others about the proposed amount of waiting 
time after a material change and the concerns about filing an entirely 
new preliminary prospectus. It should reduce some commenters' concerns 
regarding exposure to market risk and unnecessary delay. We are 
concerned, however, that extensive material changes, even after an 
initial waiting period for the preliminary prospectus, could be 
difficult for investors to review in this shortened timeframe; 
therefore, we are requiring issuers to clearly delineate in a 
prospectus supplement what material information has changed and how the 
information has changed from the initial preliminary prospectus. We 
expect that the asset-level disclosure requirements that we are 
adopting, which will provide investors with standardized machine-
readable data about the pool assets, will facilitate investors' ability 
to update their investment analysis quickly. As a result, we do not 
believe that investors will need as much time to review the supplement 
as they will need for their initial review of the preliminary 
prospectus.
(b) New Rule 430D
    Prior to the rules we are adopting, the framework for ABS shelf 
offerings, along with shelf offerings for other securities, was 
outlined in Rule 430B of the Securities Act. Rule 430B describes the 
type of information that primary shelf-eligible and automatic shelf 
issuers may omit from a base prospectus in a Rule 415 offering and 
include instead in a prospectus supplement, Exchange Act reports 
incorporated by reference, or a post-effective amendment, and addresses 
both the treatment of prospectuses filed pursuant to Rule 424(b) and 
effective date triggers for securities sold off the shelf registration 
statement.\927\ As discussed above, we are adopting new Rule 430D to 
provide the framework for shelf offerings of asset-backed securities 
pursuant to revised Rule 415(a)(1)(vii) or (xii); therefore, ABS 
issuers eligible to conduct shelf offerings are no longer eligible to 
use Rule 430B. By removing ABS shelf offerings from existing Rule 430B 
and creating new Rule 430D, we are providing a shelf offering framework 
that is appropriately tailored to ABS shelf offerings and that 
incorporates the new preliminary prospectus requirement.\928\
---------------------------------------------------------------------------

    \927\ See Section V.B.1.b of the Securities Offering Reform 
Release.
    \928\ For offerings of ABS on Form SF-1, existing Securities Act 
Rule 430A would apply.
---------------------------------------------------------------------------

    New Rule 430D requires that, with respect to each offering, all the 
information previously omitted from the prospectus filed as part of an 
effective registration statement must be filed at least three business 
days in advance of the first sale of securities in the offering in 
accordance with new Rule 424(h), except for the omission of information 
with respect to the offering price, underwriting syndicate (including 
any material relationships between the registrant and underwriters not 
named therein), underwriting discounts or commissions, discounts or 
commissions to dealers, amount of proceeds or other matters dependent 
upon the offering price to the extent such information is unknown or 
not reasonably available to the issuer pursuant to Rule 409. The 
information required to be filed pursuant to Rule 424(h) includes, 
among other things, information about the specific asset pool that is 
backing the securities in the takedown and the structure of the 
transaction. As summarized above, commenters requested that we clarify 
what we mean by information with respect to the offering price. We note 
that new Rule 430D largely conforms to existing Rule 430B but is 
tailored to ABS shelf offerings; therefore, the type of information 
permitted to be omitted from a preliminary prospectus is the same as 
the information that Rule 430B permitted to be omitted from the base 
prospectus in a shelf offering prior to this rulemaking.
    As we stated in the 2010 ABS Proposing Release, so long as a form 
of prospectus has been filed in accordance with Rule 430D,\929\ asset-
backed issuers can continue to utilize a free writing prospectus or ABS 
informational and computational materials in accordance with existing 
rules.\930\ Because we believe that investors should have access to a 
comprehensive prospectus that contains all of the required information, 
a free writing prospectus or ABS informational and computational 
materials could not be used for the purpose of meeting the requirements 
of new Rule 424(h). As proposed, the Rule 424(h) preliminary prospectus 
filing will be deemed part of the registration statement on the earlier 
of the date such form of prospectus is filed with the Commission or, if 
used earlier, the date of first use.\931\ A final prospectus for ABS 
shelf offerings should continue to be filed pursuant to Rule 424(b). 
Consistent with Rule 430B for shelf offerings of corporate issuers, 
under new Rule 430D, the filing of the final prospectus under Rule 
424(b) will trigger a new effective date for the registration statement 
relating to the securities to which such form of prospectus relates for 
purposes of liability.
---------------------------------------------------------------------------

    \929\ Rule 430D(c) provides that a form of prospectus that omits 
information as provided in the rule will be a permitted prospectus. 
Thus, after a registration statement is filed, offering participants 
can use a form of prospectus that omits information in accordance 
with the rule.
    \930\ ABS informational and computational materials, as defined 
in Item 1101 of Regulation AB [17 CFR 229.1101], may be used in 
accordance with Securities Act Rules 167 and 426 [17 CFR 230.167 and 
17 CFR 230.426]. Materials that constitute a free writing 
prospectus, as defined in Securities Act Rule 405 [17 CFR 230.405] 
may be used in accordance with Securities Act Rules 164 and 433 [17 
CFR 230.164 and 17 CFR 230.433].
    \931\ This is consistent with the existing provisions for other 
preliminary prospectuses. See Rule 430B(e).
---------------------------------------------------------------------------

    To reflect the requirements under new Rule 424(h) and new Rule 
430D, we are also adopting, as proposed, conforming revisions to the 
undertakings that are required by Item 512 of Regulation S-K \932\ in 
connection with a shelf registration statement. For the most part, ABS 
issuers will continue to provide the same undertakings that have been 
required of ABS issuers conducting delayed shelf offerings. In light of 
adopting the new Rule 424(h) preliminary prospectus, we are adopting 
conforming revisions to the undertakings relating to the determination 
of liability under the Securities Act as to any purchaser in the 
offering. In particular, the issuer must undertake that information 
that was omitted from an effective registration statement and then 
later included in a Rule 424(h) preliminary prospectus shall be deemed 
part of and included in the registration statement on the earlier of 
the date the Rule 424(h) preliminary prospectus was filed with the 
Commission, or if used earlier, the date it was first used after 
effectiveness. Also, in light of the new Rule 424(h) preliminary 
prospectus, under our revisions to Item 512 of Regulation S-K, an 
issuer is required to undertake to file the information required to be 
contained in a Rule 424(h) filing with respect to any offering of 
securities.
---------------------------------------------------------------------------

    \932\ 17 CFR 229.512.
---------------------------------------------------------------------------

2. Forms SF-1 and SF-3
(a) Proposed Rule
    In order to delineate between ABS filers and corporate filers and, 
more importantly, to tailor requirements for ABS offerings, we proposed 
to add new

[[Page 57265]]

registration forms that would be used for any sales of a security that 
is an asset-backed security, as defined in Item 1101 of Regulation 
AB.\933\ New forms named Form SF-1 and Form SF-3 would require all the 
items applicable to ABS offerings that are currently required in Form 
S-1 and Form S-3 as modified by the proposals in the 2010 ABS Proposing 
Release and the 2011 ABS Re-Proposal. Under the proposal, ABS offerings 
that qualify for shelf registration would be registered on proposed 
Form SF-3, and all other ABS offerings would be registered on Form SF-
1.\934\
---------------------------------------------------------------------------

    \933\ 17 CFR 229.1101(c).
    \934\ We also proposed to make conforming changes throughout our 
rules to refer to the new forms. See, e.g., proposed revisions to 
Securities Act Rules 167 and 190(b)(1) and the exhibit table in Item 
601 of Regulation S-K.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Several commenters specifically supported adopting new Forms SF-1 
and SF-3 and none opposed.\935\
---------------------------------------------------------------------------

    \935\ See letters from ABA I and MBA I.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    We are adopting new Forms SF-1 and SF-3 for ABS offerings, which 
are largely based on existing Forms S-1 and S-3. ABS offerings that 
qualify for shelf registration will be registered on Form SF-3, and all 
other ABS offerings will be registered on Form SF-1. These new 
registration forms are tailored to ABS offerings and incorporate the 
offering and disclosure changes that we are adopting. The new forms 
will help in providing organizational clarity to our registration forms 
and their requirements.\936\ In addition to providing organizational 
clarity to our forms, the new forms will facilitate easy identification 
of registered ABS offerings. We acknowledge, however, that ABS issuers 
may incur some costs in revising their information systems to reflect 
the new forms, but we believe that such one-time costs will be 
justified by the benefits of tailoring the registration system for ABS 
offerings.\937\
---------------------------------------------------------------------------

    \936\ For example, prior to the adoption of these new 
registration forms for ABS, ABS form requirements were included with 
some other form requirements that were not applicable to ABS 
offerings. New Form SF-1, as proposed, does not include the 
instructions as to summary prospectuses. We also note that we are 
adopting, as proposed, some disclosure requirements that were 
previously located in Form S-3 that are now in Form SF-3, such as 
transaction requirements from Form S-3 relating to delinquent assets 
and residual value for certain securities. See General Instruction 
I.B.1(e)-(f) of Form SF-3. We are also retaining the existing 
registrant requirement in Form S-3 relating to delinquent filings of 
the depositor or an affiliate of the depositor for purposes of new 
Form SF-3.
    \937\ Economic analysis of the new disclosure requirements 
required by the new forms, such as asset-level data, and the new 
shelf eligibility requirements are discussed in the sections 
describing those changes.
---------------------------------------------------------------------------

3. Shelf Eligibility for ABS Offerings
    In the 2010 ABS Proposing Release, we proposed revisions to both 
the registrant and the transaction shelf eligibility requirements for 
ABS issuers.\938\ In particular, ABS issuers would no longer establish 
shelf eligibility through an investment-grade credit rating. The 
proposals were part of a broad ongoing effort to remove references to 
NRSRO credit ratings from our rules in order to reduce the risk of 
undue ratings reliance and eliminate the appearance of an imprimatur 
that such references may create.\939\ In place of credit ratings, we 
had proposed to establish four shelf eligibility criteria that would 
apply to mortgage-related securities and other asset-backed securities 
alike.\940\ Similar to the existing requirement that the securities 
must be investment grade, the 2010 ABS Proposal for registrant and 
transaction requirements were designed to provide that asset-backed 
securities that are eligible for delayed shelf registrations are shelf 
appropriate. As noted above, the 2011 ABS Re-Proposal for registrant 
and transaction requirements for shelf did not contain a requirement 
for risk retention or a requirement to include an undertaking to 
provide Exchange Act reports in light of the changes mandated by the 
Dodd-Frank Act.\941\
---------------------------------------------------------------------------

    \938\ See the 2010 ABS Proposing Release at 23338.
    \939\ See the Security Ratings Release.
    \940\ The four proposed shelf criteria from the 2010 ABS 
Proposing Release included: (1) A certification filed at the time of 
each offering off of a shelf registration statement, or takedown, by 
the chief executive officer of the depositor that the assets in the 
pool have characteristics that provide a reasonable basis to believe 
that they will produce, taking into account internal credit 
enhancements, cash flows to service any payments on the securities 
as described in the prospectus; (2) Retention by the sponsor of a 
specified amount of each tranche of the securitization, net of the 
sponsor's hedging (also known as ``risk retention'' or ``skin-in-
the-game''); (3) A provision in the pooling and servicing agreement 
that requires the party obligated to repurchase the assets for 
breach of representations and warranties to periodically furnish an 
opinion of an independent third party regarding whether the 
obligated party acted consistently with the terms of the pooling and 
servicing agreement with respect to any loans that the trustee put 
back to the obligated party for violation of representations and 
warranties and which were not repurchased; and (4) An undertaking by 
the issuer to file Exchange Act reports so long as non-affiliates of 
the depositor hold any securities that were sold in registered 
transactions backed by the same pool of assets. See the 2010 ABS 
Proposing Release at 23338-48.
    \941\ See footnotes 876 and 877.
---------------------------------------------------------------------------

    We believe the new transaction and registrant shelf eligibility 
requirements being adopted will continue to allow ABS issuers to access 
the market quickly by conducting delayed shelf offerings (rather than 
registering each offering on Form SF-1), while imposing conditions that 
we think are appropriate in light of the compressed timing and lack of 
staff review inherent in the shelf offering process. These new shelf 
eligibility conditions should encourage ABS issuers to design and 
prepare ABS offerings with greater oversight and care and, along with 
providing investors stronger enforcement mechanisms in the transaction 
agreements, should incentivize issuers to provide investors with 
accurate and complete information at the time of the offering. We 
believe that such transactions are appropriate for public offerings off 
a shelf without prior staff review.
(a) Shelf Eligibility--Transaction Requirements
    The new transaction requirements for shelf offerings include:
     A certification filed at the time of each offering from a 
shelf registration statement, or takedown, by the chief executive 
officer of the depositor concerning the disclosure contained in the 
prospectus and the structure of the securitization;
     A provision in the underlying transaction agreements 
requiring review of the assets for compliance with the representations 
and warranties following a specific level of defaults and security 
holder action;
     A provision in the underlying transaction agreements 
requiring repurchase request dispute resolution; and
     A provision in the underlying transaction agreements to 
include in ongoing distribution reports on Form 10-D a request by an 
investor to communicate with other investors.
    In both the 2010 ABS Proposing Release and the 2011 ABS Re-
Proposing Release, we did not propose to change the other current ABS 
shelf offering transaction requirements related to the amount of 
delinquent assets in the asset pool and the residual values of 
leases.\942\ Therefore, those transaction requirements remain unchanged 
and have been moved to new Form SF-3.
---------------------------------------------------------------------------

    \942\ See footnote 874.
---------------------------------------------------------------------------

(1) Certification
(a) Proposed Rule
    As part of the 2010 ABS Proposing Release, we proposed to require a 
certification by the depositor's chief executive officer as a criterion 
for shelf eligibility.\943\ After considering the

[[Page 57266]]

comments received on the proposed certification in the 2010 ABS 
Proposing Release, we re-proposed the requirement in the 2011 ABS Re-
Proposing Release. The re-proposed requirement would require the CEO or 
the executive officer in charge of securitization for the depositor to 
certify that:
---------------------------------------------------------------------------

    \943\ In the 2010 ABS Proposing Release, we proposed that the 
depositor's chief executive officer certify that to his or her 
knowledge, the assets have characteristics that provide a reasonable 
basis to believe they will produce, taking into account internal 
credit enhancements, cash flows at times and in amounts necessary to 
service payments on the securities as described in the prospectus. 
Under the 2010 ABS Proposal, the chief executive officer would also 
certify that he or she has reviewed the prospectus and the necessary 
documents for this certification.
---------------------------------------------------------------------------

     The executive officer has reviewed the prospectus and is 
familiar with the structure of the securitization, including without 
limitation the characteristics of the securitized assets underlying the 
offering, the terms of any internal credit enhancements, and the 
material terms of all contracts and other arrangements entered into to 
effect the securitization;
     Based on the executive officer's knowledge, the prospectus 
does not contain any untrue statement of a material fact or omit to 
state a material fact necessary to make the statements made, in light 
of the circumstances under which such statements were made, not 
misleading;
     Based on the executive officer's knowledge, the prospectus 
and other information included in the registration statement of which 
it is a part, fairly present in all material respects the 
characteristics of the securitized assets underlying the offering 
described therein and the risks of ownership of the asset-backed 
securities described therein, including all credit enhancements and all 
risk factors relating to the securitized assets underlying the offering 
that would affect the cash flows sufficient to service payments on the 
asset-backed securities as described in the prospectus; and
     Based on the executive officer's knowledge, taking into 
account the characteristics of the securitized assets underlying the 
offering, the structure of the securitization, including internal 
credit enhancements, and any other material features of the 
transaction, in each instance, as described in the prospectus, the 
securitization is designed to produce, but is not guaranteed by the 
certification to produce, cash flows at times and in amounts sufficient 
to service expected payments on the asset-backed securities offered and 
sold pursuant to the registration statement.
    In the 2011 ABS Re-Proposal, we stated, as we did when we proposed 
the certification for Exchange Act periodic reports, that a 
certification may cause these officials to review more carefully the 
disclosure, and in this case, the transaction, and to participate more 
extensively in the oversight of the transaction, which is intended to 
result in shelf-eligible ABS being of a higher quality than ABS 
structured without such oversight.\944\
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    \944\ See the 2011 ABS Re-Proposal at 47951-52 and the 2010 ABS 
Proposal at 23345. See also Certification of Disclosure in 
Companies' Quarterly and Annual Reports, Release No. 34-46079 (June 
14, 2002) and Concerning Implementation of the Sarbanes-Oxley Act of 
2002: Hearing Before the S. Comm. on Banking, Housing, and Urban 
Affairs, 108th Cong. (2003) (statement of William H. Donaldson, 
Chairman of the U.S. Securities and Exchange Commission) (noting 
that a consequence of ``the combination of the certification 
requirements and the requirement to establish and maintain 
disclosure controls and procedures has been to focus appropriate 
increased senior executive attention on disclosure responsibilities 
and has had a very significant impact to date in improving financial 
reporting and other disclosure'').
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(b) Comments on Proposed Rule
    Comments on the certification requirement in the 2010 ABS Proposing 
Release were mixed. Some commenters supported our proposed 
certification by noting, among other things, that the certification 
would create accountability at the highest levels of an issuer's 
organization and more careful issuer review of the securitization.\945\ 
Other commenters generally opposed the proposed certification in the 
2010 ABS Proposing Release for various reasons, including that the 
certification would constitute a guarantee or would cause undue 
reliance on the certification.\946\
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    \945\ See letters from CalPERS, CFA I, Mass. Atty. Gen., SIFMA I 
(expressed views of investors only), and Vanguard.
    \946\ See letters from ABA I, ABAASA I, ASF I, BoA I, CNH I, 
CREFC I, FSR, J.P. Morgan I, MetLife I, MBA I, Sallie Mae I, SIFMA I 
(expressed views of dealers and sponsors only), and Wells Fargo I.
---------------------------------------------------------------------------

    In response to comments on the proposed certification, in the 2011 
ABS Re-Proposing Release, we re-proposed the certification taking into 
account commenters' concerns and recommendations. Comments received on 
the re-proposed certification requirement were mixed. Several 
commenters generally supported the re-proposed certification for 
similar reasons as articulated in comments on the 2010 proposed 
certification.\947\ For example, one commenter agreed with our view 
that the certification may result in a more careful review of the 
disclosure and transaction by the issuer, and ultimately in higher-
quality ABS eligible for shelf.\948\ Other commenters generally opposed 
the re-proposed certification shelf requirement.\949\ Although the 
investors of a trade association applauded the intention behind the 
proposed certification requirement and concurred with us that executive 
oversight of a securitization transaction is important, they also 
expressed concern about the certification imposing a barrier to new ABS 
issuance.\950\ Some of these commenters contended that the proposed 
certification would not provide any additional benefits by noting the 
existing regulatory framework for accountability and their trust in the 
market's determination of the issuer's soundness.\951\
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    \947\ See letters from Better Markets, CFA II, and ICI II.
    \948\ See letter from CFA II (also noting support for the 
proposed requirement that an officer sign the certification, as 
opposed to engaging ``an independent evaluator'').
    \949\ See letters from ABA II, Bank of America Corp. dated Oct. 
4, 2011 submitted in response to the 2011 ABS Re-Proposing Release 
(``BoA II''), CREFC II, Kutak Rock, LLP dated Sept. 27, 2011 
submitted in response to the 2011 ABS Re-Proposing Release 
(``Kutak''), MBA III, SIFMA II-investors, SIFMA III-dealers and 
sponsors, and Wells Fargo II.
    \950\ See letter from SIFMA II-investors (noting that, as 
investors, they would like nothing more than to have individual 
officers stand firmly behind the product of their employers; 
however, also noting that the certification requirements, as 
proposed, were broad and executives would fear litigation if, in 
fact, the securities failed to perform as expected).
    \951\ See letters from BoA II, CREFC II, Kutak, and Sallie Mae 
II.
---------------------------------------------------------------------------

    Commenters provided differing views on the scope of the 
certification. Some commenters believed the certification should 
encompass both the structure of the transaction and the prospectus 
disclosure, as proposed.\952\ One commenter, supportive of the re-
proposed certification, emphasized that the quality of an ABS offering 
is fundamentally a function of whether the assets and structure are 
capable of producing sufficient cash flows to service payments.\953\ On 
the other hand, several commenters believed that the certification 
should focus only on the disclosure in the prospectus and not on the 
performance of the assets for various reasons, including the role of 
the executive officers and their limited credit analysis 
expertise.\954\
---------------------------------------------------------------------------

    \952\ See letters from Better Markets (specifically stating that 
the certification must cover expected cash flows from the offering) 
and ICI II.
    \953\ See letter from Better Markets.
    \954\ See letters from ABA II, American Bankers Association/ABA 
Securities Association dated Nov. 10, 2011 submitted in response to 
the 2011 ABS Re-Proposing Release (``ABAASA II''), AFME, American 
Securitization Forum dated Oct. 4, 2011 submitted in response to the 
2011 ABS Re-Proposing Release (``ASF III''), CREFC II, Kutak, SIFMA 
II-investors, SIFMA III-dealers and sponsors, and Wells Fargo II 
(suggesting that the certification should consist only of paragraph 
2).
---------------------------------------------------------------------------

    Many commenters also offered alternative language or specific 
changes

[[Page 57267]]

to the text of the certification to address their concerns. The 
specific changes included: Using defined terms, adding materiality to 
certain parts of the certification, replacing the term ``fairly 
presented,'' and permitting the certifier to take into consideration 
external credit enhancement. We considered these specific changes and 
made revisions to the certification, which are reflected in the final 
version of the certification that we are adopting. Below we discuss 
these recommendations and the revisions made to each paragraph of the 
certification in order to highlight how we have addressed commenters' 
concerns.
(c) Final Rule and Economic Analysis of the Shelf Certification 
Requirement
    After taking into consideration the comments we received and 
alternatives to the re-proposed certification, we are adopting as one 
of the transaction requirements for shelf eligibility that a 
certification about the disclosures contained in the prospectus and the 
structure of the securitization be provided by the chief executive 
officer of the depositor at the time of each takedown. We believe, as 
discussed more fully below, that requiring the chief executive officer 
to sign a certification at the time of each takedown will help to 
ensure that he or she is actively involved in the oversight of the 
transaction when the actual structuring occurs. We have made 
significant changes to the language of the certification to address 
commenters' concerns, which are described below.
    The financial crisis revealed several failures of the ABS market. 
Some issuers of asset-backed securities were creating securitization 
transactions without considering whether the assets or the structuring 
of cash flows could support the scheduled distributions due to 
investors.\955\ In addition, it has been difficult to hold senior 
officers of ABS issuers accountable for the failure to provide accurate 
information.
---------------------------------------------------------------------------

    \955\ See, e.g., Susanne Craig & Kara Scannell, Goldman Settles 
Its Battle with SEC, Wall St. J., July 16, 2010, at A1 and John 
Griffin and Gonzalo Maturana, ``Who Facilitated Misreporting in 
Securitized Loans?,'' working paper, 2013 (for evidence that 
underwriters were aware of some types of asset quality 
misrepresentation by loan originators, but nevertheless facilitated 
issuance of RMBS backed by such assets).
---------------------------------------------------------------------------

    At the time of filing a shelf registration statement, the chief 
executive officer of the depositor, as well as the depositor's other 
principal officers, are required to sign the registration statement and 
are liable under Securities Act Section 11 for material misstatements 
or omissions in the registration statement, subject to a due diligence 
defense. As a result, signers of a registration statement are expected 
to satisfy themselves about the accuracy of disclosure at the time of 
effectiveness. The disclosure at the time of effectiveness of the shelf 
registration statement does not typically include transaction specific 
information because the shelf registration process permits a separation 
between the time of effectiveness and the time securities are offered 
in a takedown. Shelf takedowns sometimes occur long after the 
effectiveness of the registration statement, and the signers of a 
registration statement are not required to sign a prospectus supplement 
for a takedown. Thus, the process that an officer signing the 
registration statement would undertake at the time of shelf 
effectiveness might not necessarily be followed at the time of a 
takedown. At the time of a takedown, some of these officers may not 
have carefully reviewed the prospectus disclosures for the accuracy of 
the disclosures of the pool assets, cash flows, and other transaction 
features. We believe that investors' willingness to participate in ABS 
offerings may have suffered, in part, because of a belief by investors 
that sufficient attention may not have been devoted to the preparation 
of the disclosures in prospectuses, especially in asset classes 
characterized by the largest losses and due diligence failures.
    Prior to today, a certification by the chief executive officer of 
the depositor has not been a requirement at the time of registered 
offerings of ABS. As part of the Sarbanes-Oxley Act (``SOX'') enacted 
in 2002, CEOs of operating companies are required to certify to the 
accuracy of the financial statements of their companies.\956\ Those SOX 
certifications are filed with their periodic reports and then 
incorporated by reference into their shelf registration statements. The 
same does not apply to ABS. The SOX certifications that are provided by 
ABS issuers are limited to the disclosures regarding periodic 
distributions and servicing of the underlying assets since ABS issuers 
do not provide financial statements. Further, the information in 
periodic reports relates to an individual ABS transaction, and 
therefore in most cases, periodic reports of one ABS offering would be 
unrelated to future offerings of ABS off the same shelf. Thus, the 
periodic reports of an ABS issuer are not typically incorporated into 
the shelf registration statement.
---------------------------------------------------------------------------

    \956\ Pub. L. 107-204, Section 302, 116 Stat. 745 (2002).
---------------------------------------------------------------------------

    We believe, therefore, that because of the market failures 
described above and where the depositor is a limited purpose entity 
created by the sponsor for a particular securitization program, it is 
appropriate to condition shelf eligibility on a certification 
requirement that should result in a review of the disclosure at the 
time of a takedown similar to what would occur if the offering were 
being conducted at the time of effectiveness of the initial 
registration statement. As noted above, the shelf requirements and 
practices under the existing regulatory structure were not sufficient 
to address the failures in the market to provide accurate and full 
information to investors. An ABS offering most resembles an IPO,\957\ 
which under our rules would not be eligible for shelf registration. The 
principal executive officer signs the registration statement for an 
IPO, but no similar process is involved at the time of an offering of 
ABS off a shelf registration statement. Corporate issuers that are 
eligible for shelf registration file periodic reports that are 
certified by their principal executive and financial officers and, for 
Section 11 purposes, the filing of the annual report on Form 10-K is 
considered an amendment to a shelf registration statement with a new 
effective date. We believe that requiring the certification with each 
takedown will put ABS issuers on a similar footing in that this 
requirement will provide an incentive for all CEOs to participate more 
extensively in the oversight of the transaction at the time of 
takedown. We acknowledge that the certification shelf transaction 
requirement will impose additional costs on ABS issuers, as discussed 
more fully below.
---------------------------------------------------------------------------

    \957\ See footnote 923.
---------------------------------------------------------------------------

    The depositor's chief executive officer will need to certify to the 
characteristics of the asset pool, the payment and rights allocations, 
the distribution priorities and other structural features of the 
transaction. We note that because the chief executive officer could 
rely, in part, on the review that is already required in order for an 
issuer to comply with Securities Act Rule 193, much of the additional 
costs will relate to reviewing the securitization structure to have a 
reasonable basis to conclude that the expected cash flows are 
sufficient to service payments or distributions in accordance with 
their terms.\958\ We also

[[Page 57268]]

note that the certification requirement does not dictate that the chief 
executive officer follow any particular procedures in order to make the 
certification. By allowing the issuers to determine what procedures are 
necessary to meet the obligations of the certification, we have 
attempted to mitigate the costs associated with compliance. The new 
certification, however, is intended to increase oversight by the chief 
executive officer, which will likely require that issuers create or 
strengthen internal controls and procedures to enable the chief 
executive officer to meet the certification obligation under the new 
requirement. To the extent that issuers already regularly monitor and 
evaluate their policies and procedures, their incremental costs will be 
lower than those issuers with less robust controls and procedures. 
Because the size and scope of these internal systems is likely to vary 
among issuers, it is difficult for us to provide an accurate cost 
estimate.\959\
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    \958\ See Securities Act Rule 193 (requiring, at a minimum, that 
the issuer review must be designed and effected to provide 
reasonable assurances that the disclosure regarding the pool assets 
in the prospectus is accurate in all material respects). In that 
rulemaking, we also added Item 1111(a)(7) to Regulation AB [17 CFR 
229.1111(a)(7)] to require disclosure in the prospectus regarding 
the nature of the review performed by the issuer, and the findings 
and conclusions of the review of the assets. See the January 2011 
ABS Issuer Review Release.
    \959\ The number of ABS deals by each depositor annually varies 
widely. According to ABS issuance databases ABAlert and CMAlert, the 
maximum annual number of ABS issued by a single depositor was 175 
(Countrywide Home Loans in 2005), the maximum annual number issued 
post-crisis was 15 (Citibank in 2013), and, in the real estate 
sector, 14 (Redwood Trust in 2013), the median is 2 deals per year 
per depositor both pre- and post-crisis.
---------------------------------------------------------------------------

    The final rules may also affect competition in the asset-backed 
securities market. For example, the requirement that the chief 
executive officer provide a certification concerning the disclosures 
contained in the prospectus and the structure of the securitization is 
based on the intent that the certification will strengthen oversight 
over the transaction. Prior to today, a certification by the chief 
executive officer has not been a requirement of public offerings of 
ABS. Just as every issuer in an IPO must go through a process to 
satisfy itself with the disclosure in a prospectus, ABS issuers must 
institute controls in order to provide the certification. The burden of 
the certification requirements will likely fall disproportionately on 
smaller-sized sponsors to the extent that there are direct fixed (i.e., 
non-scalable) costs related to administrative and legal expenses. This 
could ultimately result in smaller sponsors not registering their 
offerings on shelf (by registering their ABS on Form SF-1 instead), 
offering them through unregistered offerings, or quitting the 
securitization markets altogether, thereby reducing competition.\960\
---------------------------------------------------------------------------

    \960\ We considered academic studies that examined the overall 
impact of the SOX requirements, which included officer certification 
as one element, for information about the possible differential 
impact of a certification requirement on differently-sized sponsors. 
Because the SOX requirements apply primarily to operating companies 
and include the internal control report requirement and the 
auditor's attestation of the report in addition to officer 
certification, we do not believe these studies provide a direct 
comparison for assessing the impact of the certification alone. For 
a general discussion of costs related to these requirements under 
the Sarbanes-Oxley Act, see, e.g., Office of Economic Analysis, 
Study of the Sarbanes-Oxley Act of 2002 Section 404 Internal Control 
over Financial Reporting Requirements (2009), available at http://www.sec.gov/news/studies/2009/sox-404_study.pdf (finding 
that the start-up costs related to SOX Section 404 compliance and 
the internal control report requirement weighed proportionally more 
on smaller companies, but dissipated over time and noting that 79% 
of executives surveyed acknowledged that compliance had a positive 
impact on the quality of their internal control structure); Cindy R. 
Alexander, Scott W. Bauguess, Gennaro Bernile, Yoon-Ho Alex Lee, & 
Jennifer Marietta-Westberg, Economic Effects of SOX Section 404 
Compliance: A Corporate Insider Perspective, 56 J. Acct. & Econ. 267 
(2013) (finding that corporate executives perceived significant 
benefits from compliance, particularly for larger companies); Ehud 
Kamar, Pinar Karaca-Mandic & Eric Talley, Sarbanes-Oxley's Effects 
on Small Firms: What is the Evidence?, in In the Name of 
Entrepreneurship? The Logic and Effects of Special Regulatory 
Treatment for Small Business 143 (Susan M. Gates & Kristin J. 
Leuschner, eds., Kauffman-RAND Inst. for Entrepreneurship Pub. Pol'y 
2007) (discussing the impact of the entire Sarbanes-Oxley Act, not 
only the CEO certification requirement); Ellen Engel, Rachel M. 
Hayes & Xue Wang, The Sarbanes-Oxley Act and Firms' Going Private 
Decisions, J. Acct. & Econ. (2007) (finding that the frequency of 
going-private transactions increased after the passage of SOX, that 
SOX compliance costs were more burdensome for smaller and less 
liquid firms, and that small firms with highly concentrated 
ownership structures had higher going-private announcement returns); 
and Peter Iliev, The Effect of SOX Section 404: Costs, Earnings 
Quality and Stock Prices, J. Fin. (2010) (finding that among small 
companies, SOX compliance reduced the market value of those that had 
to comply with Section 404 relative to those that did not because 
they were under the $75 million compliance threshold).
---------------------------------------------------------------------------

    As noted above, commenters expressed concern that the certification 
could be interpreted as a guarantee of the future performance of the 
assets underlying the ABS. In an attempt to mitigate these costs and 
taking into account commenters' suggestions, we have revised the 
certification language to reflect that it is a statement of what is 
known by the certifier at the time of the offering and that he or she 
has a reasonable basis to conclude that the securitization is 
structured to produce, but the certification is not a guarantee that it 
will produce, expected cash flows at times and in amounts to service 
scheduled payments of interest and the ultimate repayment of principal 
on the securities (or other scheduled or required distributions on the 
securities, however denominated) in accordance with their terms as 
described in the prospectus.\961\ In addition, to address some 
commenters' concerns about increased certifier liability, which would 
in turn increase costs, the final certification includes a new 
paragraph that clarifies that the certifier has any and all defenses 
available under the securities laws.\962\
---------------------------------------------------------------------------

    \961\ See, e.g., letters from AFME, J.P. Morgan Chase & Co. 
dated Oct. 4, 2010 submitted in response to the 2010 ABS Proposing 
Release (``J.P. Morgan II''), SIFMA III-dealers and sponsors, and 
Wells Fargo II.
    \962\ See, e.g., letters from ABA II, ABAASA II, ASF V, and J.P. 
Morgan II.
---------------------------------------------------------------------------

    When deciding whether to conduct a shelf offering, an issuer may 
consider the review and due diligence costs, the liability 
implications, and the reputational consequences to the chief executive 
officer of signing the certification. We believe that for 
securitizations of low-risk pool assets, simple structures, or 
structures used previously that have performed well in the past, 
issuers likely will conclude that the due diligence, liability, and 
reputation costs will be relatively low. For such securitizations these 
costs will likely be justified by the benefits of quick access to the 
capital markets, and these securitizations will continue to be offered 
off a shelf registration statement. On the other hand, for 
securitizations of high-risk assets and complex cash-flow structures, 
the expected costs of shelf offerings may increase. Issuers may choose 
not to use shelf registration because the chief executive officer may 
need to dedicate additional time to review the pool assets and the 
securitization structure in order to provide the assurances included in 
the certification. In addition, for such securitizations, the potential 
litigation risk to the chief executive officer may be higher, even when 
prudent measures are employed to structure an offering, thus further 
increasing the costs of shelf registration.
    We also acknowledge a commenter's concern that certification is not 
a requirement for any other debt or equity offering and another 
commenter's opinion that the certification requirement will impose a 
barrier to new ABS issuance.\963\ We note, however, unlike other 
offerings, ABS issuers can go directly to shelf without any reporting 
and operating experience for the trust or any size requirement designed 
to be a proxy for market following.\964\ We also note that the

[[Page 57269]]

principal executive and financial officers certify the Exchange Act 
reports that are incorporated by reference into a shelf prospectus of a 
corporate issuer. The certification requirement is not intended to be a 
barrier to new issuance of ABS since the certification is not a 
condition for selling or registering ABS as they may be offered in 
unregistered transactions or registered on new Form SF-1. The 
certification requirement, along with the other shelf transaction 
requirements, should encourage ABS issuers to design and prepare ABS 
offerings with greater oversight and care and should incentivize 
issuers to provide investors with accurate and complete information at 
the time of the offering. It is these transactions that are appropriate 
to be offered to the public off a shelf without prior staff review. For 
these reasons, we are not limiting the certification to disclosure 
alone as suggested by some commenters, but we have taken into account 
those commenters' concerns in developing the text of the final 
certification.
---------------------------------------------------------------------------

    \963\ See letters from Kutak and SIFMA II-investors.
    \964\ We further note that we have replaced the investment-grade 
rating shelf criterion for non-convertible securities with 
alternative criteria that serve as proxies for market following. See 
the Security Ratings Release.
---------------------------------------------------------------------------

    Other financial regulators, including foreign counterparts, have 
adopted similar rules designed to enhance accountability for the 
transaction structure. For example, the European Union adopted 
requirements that ABS issuers disclose in each prospectus that the 
securitized assets backing the issue have characteristics that 
demonstrate a capacity to produce funds to service any payments due and 
payable on the securities.\965\ Although we considered adopting an 
issuer disclosure requirement, we believe that requiring the chief 
executive officer to provide a certification is a stronger approach and 
more appropriate for purposes of determining shelf eligibility.
---------------------------------------------------------------------------

    \965\ Annex VIII, Disclosure Requirements for Asset-Backed 
Securities Additional Building Block, Section 2.1 (European 
Commission Regulation (EC) No. 809/2004 (Apr. 29, 2004). See also 
the North American Securities Administrators Association's 
(``NASAA'') guidelines for registration of asset-backed securities, 
in which sponsors are required to demonstrate that for securities 
without an investment-grade rating, based on eligibility criteria or 
specifically identified assets, the eligible assets being pooled 
will generate sufficient cash flow to make all scheduled payments on 
the asset-backed securities after taking certain allowed expenses 
into consideration. The guidelines are available at http://www.nasaa.org/.
---------------------------------------------------------------------------

    Therefore, while we recognize that the new shelf certification 
requirement introduces new costs to issuers, we believe that its net 
effect on capital formation in the ABS markets would be positive. The 
certification will help to ensure that the chief executive officer of 
the depositor is actively involved in the oversight of the transaction, 
and, as discussed above, along with the other shelf transaction 
requirements, it should encourage ABS issuers to design and prepare ABS 
offerings with greater oversight and care and should incentivize 
issuers to provide investors with accurate and complete information at 
the time of the offering. As a result, we believe that the 
certification may also improve investor perceptions about the accuracy 
and completeness of the disclosures, which may, in turn, help restore 
investors' willingness to invest and participate in the ABS markets. 
The impact of certification requirements in other contexts--in 
particular, certification requirements under the Sarbanes-Oxley Act--
provides information about the potential consequences of certification 
in the securitization market.\966\ Several academic studies found that 
the overall effect on issuer's capitalization and on measures of market 
efficiency has been estimated to be either neutral \967\ or 
positive,\968\ suggesting that many investors perceived that the 
benefits of SOX certification outweighed the costs. We believe there 
will be potentially similar benefits for capital formation and market 
efficiency resulting from the new shelf certification. The final 
certification consists of five paragraphs.\969\ We discuss each one in 
order below.
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    \966\ We note that there are some differences between the SOX 
certification requirements and the certification requirements in the 
rule we are adopting. First, the burdens are different, as SOX 
mandates that a CEO sign certifications that require a sizeable 
commitment of resources, whereas the rule we are adopting may 
require hundreds of ABS deals to be certified each year (see 
footnote 959 for the estimates of annual certification burden per 
depositor) but with a significantly lower burden for each 
certification. Second, the SOX CEO certification carries both civil 
and criminal penalties for false certification, and, thus, due in 
part to the availability of criminal penalties, likely imposes 
higher litigation costs for certifying officers and issuing 
corporations than the new shelf certification.
    \967\ See Utpal Bhattacharya et al., Is CEO Certification of 
Earnings Numbers Value-Relevant?, 14 J. Empirical Fin., 611 (2007) 
and Brett R. Wilkinson & Curtis E. Clements, Corporate Governance 
Mechanisms and the Early-Filing of CEO Certification, 25 J. Acct. & 
Pub. Pol'y, 121 (2006). These papers examined the market reaction to 
early filing of CEO certifications that the Commission required in 
advance of the passage of SOX using event-study methodology and 
found no reaction to early filing for the market as a whole. The 
Battacharya et al. study also found that certification had a neutral 
effect on returns, volatility of returns, and volume of trade not 
only for early certifiers around their certification date, but for 
the non-certifiers as well.
    \968\ See Hsihui Chang et al., CEOs'/CFOs' Swearing by the 
Numbers: Does It Impact Share Price of the Firm?, 81 Acct. Rev. 1 
(2006) (finding also that certifying firms benefited from a 
significant decline in information asymmetry, as measured by bid-ask 
spread, after certification) and Beverly Hirtle, Stock Market 
Reaction to Financial Statement Certification by Bank Holding 
Company CEOs, 38 J. Money Credit and Banking, 1263 (2006) (finding a 
positive market reaction to certification requirements among bank 
holding companies, given the inherent opacity in the banking system, 
with the certification providing valuable information to investors). 
Because we are requiring new asset-level disclosure to address 
asymmetric information in addition to the shelf certification, we 
recognize that the results from these studies may not provide a 
fully comparable basis for the potential impact of requiring 
certification for asset-backed securities.
    \969\ Consistent with other certifications, the language of the 
certification must not be revised in providing the required 
certification. See the 2004 ABS Adopting Release at 1570.
---------------------------------------------------------------------------

(i) Paragraph One
    The first paragraph of the final certification is substantially 
similar to the re-proposed text, with some modifications made in 
response to comments. The chief executive officer must make the 
following statement:

    I have reviewed the prospectus relating to [title of all 
securities, the offer and sale of which are registered] (the 
``securities'') and am familiar with, in all material respects, the 
following: The characteristics of the securitized assets underlying 
the offering (the ``securitized assets''), the structure of the 
securitization, and all material underlying transaction agreements 
as described in the prospectus;

    As proposed, the certifier is required to certify that he or she 
has reviewed the prospectus and the necessary documents to make the 
certification. We believe that the chief executive officer should be 
sufficiently involved in overseeing the transaction and should review 
the prospectus and the documents necessary to make the certification. 
Several commenters suggested that we clarify that the chief executive 
officer may rely on senior officers under his or her supervision that 
are more familiar and involved with the structuring of the transaction 
in order to more accurately reflect the team-oriented nature of the 
transaction.\970\ We understand that a principal officer of the 
depositor may rely on the work of other parties, thus we are not 
requiring that the chief executive officer actually structure the 
transaction. We continue to believe, however, that the chief executive 
officer should provide appropriate oversight so that he or she is able 
to make the certification. Furthermore, the text of this certification 
in this respect is consistent with the text of other certifications, 
which do not specifically state that the certifier relied on the work 
of others.\971\
---------------------------------------------------------------------------

    \970\ See letters from ABA II, ABAASA II, ASF V, BoA II, and 
Wells Fargo II.
    \971\ See, e.g., the 2004 ABS Adopting Release at 1569 (amending 
Item 601 of Regulation S-K to add specific form and content of the 
required ABS Section 302 certification to the exhibit filing 
requirements).

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[[Page 57270]]

    At the suggestion of commenters, we are adding defined terms for 
``securities'' and ``securitized assets'' for purposes of the 
certification and incorporating those defined terms throughout the 
remainder of the certification to ease readability.\972\ In the final 
rule, the term ``securities'' refers to all of the securities that are 
offered and sold with the related prospectus. The term ``securitized 
assets'' refers to the assets underlying the securities that are being 
offered.
---------------------------------------------------------------------------

    \972\ See letters from ABA II, ABAASA II, ASF V, CREFC II, and 
J.P. Morgan II.
---------------------------------------------------------------------------

    Commenters also requested that the paragraph be revised to make it 
more explicit that the certifier is responsible for knowing material 
aspects of the assets and the material underlying transaction 
agreements.\973\ Commenters argued that ``material'' is consistent with 
customary disclosure principles, including Regulation AB, and therefore 
provides consistency.\974\ Additionally, commenters explained that the 
contracts for the transaction and the documents for each underlying 
asset are extensive and that the certifying officer should not be 
expected to be familiar with all of the terms in these documents.\975\ 
We have revised the first paragraph to clarify that the certifier is 
speaking of material facts by inserting ``in all material respects.'' 
We have also used this phrase at the beginning of paragraphs three and 
four to address similar concerns by commenters.
---------------------------------------------------------------------------

    \973\ See letters from ABA II, ABAASA II, AFME, ASF V, BoA II, 
CREFC II, J.P. Morgan II, SIFMA III-dealers and sponsors, and Wells 
Fargo II.
    \974\ See, e.g., letter from ABA II.
    \975\ See, e.g., letter from Wells Fargo II.
---------------------------------------------------------------------------

    We have deleted ``including without limitation'' in response to 
commenters' suggestions that this language made the scope of the 
certification unclear.\976\ In addition, some commenters requested that 
we add ``described therein'' following ``am familiar with the structure 
of the securitization'' to clarify that the certification is based on 
the certifier's review of the prospectus.\977\ The final text does not 
incorporate this suggestion because we do not believe the chief 
executive officer's review should necessarily be based solely on the 
review of the prospectus, which we discuss in more detail below.
---------------------------------------------------------------------------

    \976\ See letters from ABA II, ABAASA II, ASF V, BoA II, CREFC 
II, and J.P. Morgan II.
    \977\ See letters from ABA II, ABAASA II, ASF V, CREFC II, and 
J.P. Morgan II.
---------------------------------------------------------------------------

    Finally, under the re-proposed rule, the certifying officer could 
take into account only internal credit enhancements in making the 
certification.\978\ Commenters, however, believed that the certifier 
should be permitted to take into consideration external credit 
enhancement in providing the certification. One commenter noted, for 
example, that investors in ABS with external credit enhancement rely on 
and give credit for external credit enhancement just as they do for 
internal credit enhancement.\979\ Another commenter noted that external 
credit enhancements can play an integral role in maximizing the 
likelihood that securities will receive payment.\980\ Further, one 
issuer noted that it could not provide the certification unless it is 
able to take into account external credit enhancements.\981\
---------------------------------------------------------------------------

    \978\ See footnotes 33 and 55 in the 2011 ABS Re-Proposal. In 
the 2011 ABS Re-Proposing Release, we noted that internal credit 
enhancement would include subordination provisions, 
overcollateralization, reserve accounts, cash collateral accounts or 
spread accounts, as well as guarantees applicable to an underlying 
loan, whereas, external credit enhancement would include third-party 
insurance to reimburse losses on the pool assets or the securities.
    \979\ See letter from SIFMA III-dealers and sponsors.
    \980\ See letter from ASF V.
    \981\ See letter from Sallie Mae II (noting that it could not 
certify student loan transactions without taking into account 
related government guarantees). In the 2011 ABS Re-Proposing 
Release, we noted internal credit enhancement would include 
guarantees applicable to the underlying loans.
---------------------------------------------------------------------------

    In light of comments, under the final rule, the certifier is 
permitted to consider internal and external credit enhancement in 
providing the certification. We continue to believe, however, that the 
primary focus of the certification should be on the underlying assets 
rather than on any credit enhancement since, consistent with the 
Regulation AB definition of asset-backed security, the cash flows from 
the pool assets should primarily service distributions on the ABS.\982\ 
We also note that we decided not to list ``credit enhancement'' 
specifically in the final certification because we believe that the 
phrase ``the structure of the securitization'' encompasses, among other 
things, credit enhancement and cash flows.
---------------------------------------------------------------------------

    \982\ See Regulation AB definition of asset-backed security in 
Item 1101(c) of Regulation AB.
---------------------------------------------------------------------------

(ii) Paragraph Two
    We did not receive any comments suggesting specific changes to 
paragraph two and we continue to believe that it is appropriate to 
expect signers of a registration statement to satisfy themselves about 
the accuracy of the disclosure at the time of each takedown. The chief 
executive officer must make the following statement:

    Based on my knowledge, the prospectus does not contain any 
untrue statement of a material fact or omit to state a material fact 
necessary to make the statements made, in light of the circumstances 
under which such statements were made, not misleading;
(iii) Paragraph Three
    The third paragraph of the final certification is substantially 
similar to the proposed text, with some modifications. The chief 
executive officer must make the following statement:

    Based on my knowledge, the prospectus and other information 
included in the registration statement of which it is a part fairly 
present, in all material respects, the characteristics of the 
securitized assets, the structure of the securitization and the 
risks of ownership of the securities, including the risks relating 
to the securitized assets that would affect the cash flows available 
to service payments or distributions on the securities in accordance 
with their terms; and

    Paragraph three requires a certification that the disclosures in 
the prospectus and other information in the registration statement are 
fairly presented.\983\ Several commenters requested that we delete the 
term ``fairly present'' and suggested that we use alternative 
language.\984\ Some commenters noted that the term ``fairly presents'' 
is customarily used by experts primarily in certifying the accuracy of 
the financial information.\985\ For example, one commenter stated that 
because the certifying officer is not certifying to the accuracy of the 
financial information, but rather to the adequacy of the disclosure in 
the prospectus regarding the securitization it would be more 
appropriate to use a different term.\986\ Commenters differed as to an 
appropriate replacement. Several commenters recommended ``describe,'' 
\987\ and several other commenters suggested ``disclose.'' \988\ The 
term ``fairly presents'' is used in our regulations with respect to 
financial information; however, we do not intend for the term to have 
the same meaning in this context. We are retaining the phrase in the 
certification because we

[[Page 57271]]

believe it articulates the appropriate standard for the certification. 
The term ``fairly presents,'' as adopted, will require the CEO to 
consider whether the disclosure is tailored to the risks of the 
particular offering and presented in a clear, non-misleading fashion. 
Commenters also requested that we insert the term ``material'' in 
certain places in the paragraph similar to their requests in connection 
with paragraph one.\989\ We are not adding the term ``material'' in 
multiple parts of the paragraph as requested because we believe that 
the phrase ``in all material respects'' sufficiently captures 
materiality across all the statements in the paragraph and therefore 
use of the term ``material'' elsewhere in the paragraph would be 
redundant.
---------------------------------------------------------------------------

    \983\ For the same reasons articulated in our discussion of 
paragraph one, we have also added ``structure of the 
securitization'' here in paragraph three and in paragraph four.
    \984\ See letters from ABA II, ABAASA II, AFME, ASF V, BoA II, 
CREFC II, J.P. Morgan II, SIFMA III-dealers and sponsors, and Wells 
Fargo II.
    \985\ See letters from ABA II, ASF V, J.P. Morgan II, SIFMA III-
dealers and sponsors, and Wells Fargo II.
    \986\ See, e.g., letter from ABA II.
    \987\ See letters from ABAASA II, ASF V, BoA II, J.P. Morgan II, 
and Wells Fargo II.
    \988\ See letters from ABA II (recommending the term ``disclose 
fairly''), AFME, CREFC II, and SIFMA III-dealers and sponsors.
    \989\ See, e.g., letters from ABA II, AFME, BoA II, SIFMA III-
dealers and sponsors, and Wells Fargo II (recommending adding 
``material'' before ``credit enhancements''). See also letters from 
BoA II and Wells Fargo II (proposing to add ``material'' before 
``characteristics of the securitized assets'').
---------------------------------------------------------------------------

    In addition, paragraph three, as re-proposed, would have required 
that the certifier consider the risk factors relating to the 
securitized assets underlying the offering that would affect the cash 
flows sufficient to service payments on the asset-backed securities as 
described in the prospectus. Commenters requested that we revise our 
reference to ``risk factors'' \990\ so that the certifier considers 
instead ``all material risks'' because disclosure of risks related to 
the securitized assets is not limited to the information included under 
the risk factors section of the prospectus but also includes 
information in other parts of the prospectus, such as historical static 
pool ``loss'' data.\991\ One commenter recommended that instead of 
referring to ``all risk factors,'' as proposed, that the certification 
be limited to only the most significant risks because a certifying 
officer cannot reasonably anticipate that an insignificant risk might 
cause significant losses at the time the officer signs the 
certification.\992\ The same commenter noted that the existing standard 
for risk factor disclosure requires ``a discussion of the most 
significant risk factors that make the offering speculative or risky'' 
and expressed concern that the language in paragraph three could lead 
to increased disclosure of risk factors that are not significant to the 
ABS transaction.\993\
---------------------------------------------------------------------------

    \990\ See letters from ABA II, ABAASA II, and ASF V. See also 
letter from CREFC II (recommending a slightly different 
qualification, namely that ``all risks relating to the Assets that 
would materially and adversely affect the cash flows'') (emphasis 
added).
    \991\ See, e.g., letter from ABA II.
    \992\ See letter from BoA II.
    \993\ See id. See also Item 1103(b) of Regulation AB and Item 
503(c) of Regulation S-K.
---------------------------------------------------------------------------

    We have considered the comments received and are revising the 
language of the certification to replace the phrase ``all risk 
factors'' with ``the risks relating to the securitized assets that 
would affect the cash flows available to service payments or 
distributions on the securities in accordance with their terms.'' We 
agree with commenters that the disclosure related to the risks of the 
securitized assets is not limited to only the risk factor section of 
the prospectus and may be appropriately presented in other parts of the 
prospectus. Some commenters also believed that the certification with 
regard to material risks related to the securitized assets should be 
further qualified to include only those that would ``adversely'' affect 
the cash flows ``available'' to service payments on the ABS ``in 
accordance with their terms.'' \994\ We are not inserting the word 
``adversely'' because we believe that the concept is incorporated in 
the term ``risk'' and therefore would be redundant to include. We are, 
however, revising the phrase ``cash flows sufficient'' to ``cash flows 
available'' in order to more accurately reflect the nature of pass-
through certificates and junior tranches of registered ABS. We are also 
adding the phrase ``in accordance with their terms'' as suggested, 
because we believe it better describes the certification that we are 
requiring by paragraph three (i.e., fair presentation of the risks 
relating to the securitized assets that would affect the cash flows 
available to service payments or distributions on the securities in 
accordance with their terms).\995\
---------------------------------------------------------------------------

    \994\ See letters from ASF V and J.P. Morgan II.
    \995\ We are also making revisions to enhance readability by 
listing each element of the certification in paragraph three, which 
eliminates redundancies from the proposed language, as phrases in 
the proposed language such as ``described therein'' and ``as 
described in the prospectus'' are no longer necessary to include. 
See letters from ABAASA II, ASF V, BoA II, J.P. Morgan II, and Wells 
Fargo II (noting that it was unclear how the language after the 
third comma modifies the prior portion of the sentence and also 
whether this language is intended to extend the certification beyond 
the disclosure to the performance of the transaction and 
recommending that ``including all material credit enhancements'' 
should be moved to follow ``the material characteristics of the 
securitized assets underlying the offering described therein'').
---------------------------------------------------------------------------

(iv) Paragraph Four
    Paragraph four of the final certification has also been modified. 
As described below, we have also added a fifth paragraph to address 
concerns related to paragraph four. The chief executive officer must 
make the following statement:

    Based on my knowledge, taking into account all material aspects 
of the characteristics of the securitized assets, the structure of 
the securitization, and the related risks as described in the 
prospectus, there is a reasonable basis to conclude that the 
securitization is structured to produce, but is not guaranteed by 
this certification to produce, expected cash flows at times and in 
amounts to service scheduled payments of interest and the ultimate 
repayment of principal on the securities (or other scheduled or 
required distributions on the securities, however denominated) in 
accordance with their terms as described in the prospectus.

    We have made revisions to this paragraph similar to revisions made 
to paragraph one. First, commenters suggested that we add the word 
``material'' because, in general, the paragraph should relate only to 
material information about the securitized assets, the structure of the 
securitization (as discussed below, which includes any credit 
enhancement) and the related risks of the offering.\996\ We are adding 
the phrase ``all material aspects of'' to paragraph four. Second, 
commenters asked that we remove the limitation that the certifier 
consider only internal credit enhancement in providing the 
certification.\997\ In response to comments, we have revised paragraph 
four to remove this limitation for the same reasons articulated in our 
discussion of paragraph one.\998\
---------------------------------------------------------------------------

    \996\ See letters from ABA II, ABAASA II, ASF V, BoA II, CREFC 
II, J.P. Morgan II, and Wells Fargo II.
    \997\ Several commenters contended that the certifying officer 
must be permitted to take into account the external credit 
enhancements given that they can play a critical role in certain 
transactions. See letters from ABAASA II, ASF V, AFME, and SIFMA 
III-dealers and sponsors. Another commenter requested that the 
Commission clarify that external credit enhancement that is 
ultimately backed by the full faith and credit of the United States 
government may be considered by the certifying officer. See letter 
from Sallie Mae II. This commenter explained that a certifying 
officer cannot certify that ``a transaction backed by FFELP loans is 
designed to produce cash flows at times and in amounts sufficient to 
service expected payments on the ABS'' unless it is able to take 
into account external credit enhancement. To address this issue, 
this commenter recommended that the Commission either exempt ABS 
transactions backed by FFELP loans from the proposed certification 
requirement or clarify that external credit enhancements from 
sources backed by the full faith and credit of the United States 
government may be considered by the certifying officer.
    \998\ As we emphasized in connection with paragraph one, while 
we are permitting the certifier to consider credit enhancement in 
providing the certification, the primary focus in providing the 
certification should be on the assets, not the credit enhancement. 
We note that we have also removed the phrase ``any other material 
features of the transaction'' from paragraph four since we also 
believe that ``structure of the securitization'' encompasses such 
features.

---------------------------------------------------------------------------

[[Page 57272]]

    We also received several detailed comments on the remaining text of 
paragraph four. Some commenters suggested that we replace the word 
``designed'' with ``structured'' when certifying to the cash flows that 
will service payments on the securities.\999\ Commenters explained that 
the term ``structured'' is better understood in the context of these 
transactions and also reflects the nature of these securitizations as a 
type of structured finance.\1000\ Several commenters recommended adding 
that the securitization is structured ``to be expected to produce'' 
rather than just ``structured to produce'' for further clarification 
that paragraph four does not constitute a guarantee.\1001\ We are 
revising the final certification to use the term ``structured'' as 
requested by some commenters; however, we note that we believe the term 
``structured'' to encompass more than tranching to include, among other 
things, selection of the assets, credit enhancement, and other 
structural features designed to enhance credit and facilitate timely 
payment of monies due on the pool assets to security holders.\1002\ We 
are not inserting the term ``expected'' before ``to produce'' because 
we believe that the concept of expected is implicit in the phrase 
``structured to produce'' and that the phrase ``is not guaranteed by 
this certification to produce'' adequately addresses some commenters' 
concern about paragraph four constituting a guarantee.
---------------------------------------------------------------------------

    \999\ See letters from ABA II, ABAASA II, AFME, ASF V, BoA II, 
CREFC II, J.P. Morgan II, SIFMA III-dealers and sponsors, and Wells 
Fargo II.
    \1000\ See, e.g., letter from ABA II.
    \1001\ See letters from J.P. Morgan II and Wells Fargo II.
    \1002\ See, e.g., Item 1113 of Regulation AB (describing the 
disclosure required for the structure of transaction).
---------------------------------------------------------------------------

    Many commenters stressed that they were unsure what the ``expected 
payments'' would be with respect to any particular securitization, such 
as with pass-through certificates or more junior tranches of registered 
ABS. With respect to the issue of pass-through certificates, one 
commenter noted that ``no fixed principal payments are required to be 
made.'' \1003\ Additionally, several commenters explained that the 
proposed language failed to account for the possibility that more 
junior tranches of registered ABS may bear a moderate credit risk 
somewhere in between the most senior registered tranches and the most 
subordinated unregistered tranches.\1004\ Several commenters 
recommended deleting ``expected payment'' and inserting ``the assets 
will produce cash flows at times and in amounts sufficient to service 
payments on the offered securities in accordance with the terms 
described in the prospectus.'' \1005\ One commenter expressed concern 
that the proposed form of the certification could be interpreted to 
suggest that the adverse effects of the potential risk had been negated 
through structuring.\1006\ Therefore, this commenter supported 
modifying the certification so that it clearly states that the risks 
described in the prospectus could adversely affect the cash 
flows.\1007\ Other commenters similarly noted that the certification 
fails to acknowledge the Commission's intent, as stated in the 2010 ABS 
Proposing Release, to qualify the certification by the disclosure in 
the prospectus.\1008\
---------------------------------------------------------------------------

    \1003\ See letter from ABA II (noting that many pass-through 
securities ``require payment only to the extent of cash flows 
actually received and available in accordance with the priority of 
payments waterfall'' and also indicating that credit rating 
agencies, in evaluating the likelihood of the payment on ABS 
classes, typically refer to ``scheduled payments'' of interest and 
``ultimate'' repayment of principal and recommended using those 
terms here).
    \1004\ See letters from AFME, J.P. Morgan II, and SIFMA III-
dealers and sponsors.
    \1005\ See letters from AFME, J.P. Morgan II, SIFMA III-dealers 
and sponsors, and Wells Fargo II.
    \1006\ See letter from ABA II. See also letter from Wells Fargo 
II (stating that the certification, as currently drafted, could be 
interpreted to say that the certifying officer has taken into 
consideration all the material information included in the 
prospectus and that, notwithstanding the risks and uncertainties 
described in the prospectus, the certifying officer has certified 
that the securitization is designed to produce cash flows sufficient 
to service the ABS).
    \1007\ See letter from ABA II (recommending the following 
language: ``provided that the risks described in the prospectus may 
adversely affect such cash flows'').
    \1008\ See letters from ABAASA II, AFME (stating that it is 
important that the certification specifically state that its 
conclusion takes into account any assumptions described in the 
prospectus, and also that it state that cash flows may vary if and 
to the extent that any of the risk factors described in the 
prospectus come to pass), ASF V, and SIFMA III-dealers and sponsors.
---------------------------------------------------------------------------

    To address commenters' concerns with ``expected payments,'' we have 
revised paragraph four so that the certification relates to ``expected 
cash flows at times and in amounts to service scheduled payments of 
interest and the ultimate repayment of principal on the securities (or 
other scheduled or required distributions on the securities, however 
denominated) in accordance with their terms as described in the 
prospectus.'' We agree with commenters that certain ABS may not be 
required to produce fixed payments, as is the case with pass-through 
certificates, and that using the term ``expected payments'' may have 
caused confusion.\1009\ We believe the revised language provides 
greater clarity as to what the chief executive officer is certifying to 
and more precisely captures the varying terminology used to describe 
the amounts due to investors depending upon the type of ABS 
transaction.
---------------------------------------------------------------------------

    \1009\ See, e.g., letter from ABA II.
---------------------------------------------------------------------------

    We also recognize that characterizing the cash flows as 
``sufficient'' to service the payments or distributions may have 
inadvertently implied that there will always be adequate cash flows to 
service such payments or distributions regardless of whether the ABS is 
of a lower tranche or structured as a pass-through security. We have 
deleted the term ``sufficient'' to eliminate this possible 
confusion.\1010\ We believe, however, that even if fixed payments are 
not required to be made, a securitization is structured with the 
expectation that cash flows from the assets will provide distributions 
at certain times and amounts, and accordingly we believe that 
certification should reflect that expectation. We have therefore moved 
``expected'' to before ``cash flows'' to clarify the requirement. We 
also believe that this change addresses some commenters' concerns about 
lower tranches of shelf registered ABS in that the expectation is not 
so much related to payment as to how the cash flow has been structured 
to allocate distributions of interest and principal.
---------------------------------------------------------------------------

    \1010\ We also removed the term ``sufficient'' in paragraph 
three for the same reason where we changed the language from ``the 
cash flows sufficient'' to ``cash flows available.''
---------------------------------------------------------------------------

    One commenter suggested inserting language to indicate that the 
certifying officer's statements are his or her ``current beliefs'' and 
that there may be future developments that would cause his or her 
opinion to change or result in the assets not generating sufficient 
cash flows.\1011\ Also, commenters stressed the importance of including 
cautionary statements in the certification that identify those risks 
and uncertainties as factors that could cause the actual results to 
differ materially from those set forth in the certification.\1012\ 
Several commenters supported the Commission's language outlined in 
Request for Comment No. 4 in the 2011 ABS Re-Proposal.\1013\ As we note 
above,

[[Page 57273]]

the certification will be a statement of what is known by the certifier 
at the time of the offering. This is made clear by the introductory 
language to paragraphs three and four (``based on my knowledge'') and 
therefore we have not made this change.\1014\ We are also revising the 
text to insert the phrase ``a reasonable basis to conclude,'' as 
suggested by some commenters to further clarify that the certification 
applies to what is known at the time of securitization.\1015\ Many 
commenters argued that paragraph four represents an assessment and 
forecast of the future performance of the securitized assets and the 
ABS, which would make it a forward-looking statement, and thus the 
issuers should be entitled to protections afforded by the safe harbor 
for forward-looking statements.\1016\ We do not believe that paragraph 
four is protected by the statutory safe harbor for a forward-looking 
statement.\1017\ We have, however, included ``related risks'' of the 
securitized assets and structure as described in the prospectus to 
address comments that the certifier should be allowed to take risk 
disclosure into account. We also note that because the language of the 
certification cannot be altered, any issues in providing the required 
certification must be addressed through disclosure in the prospectus. 
For example, if the prospectus describes the risk of nonpayment or 
other risk that such cash flows will not be produced, then the 
certifier would take those disclosures into consideration in signing 
the certification.
---------------------------------------------------------------------------

    \1011\ See letter from J.P. Morgan II.
    \1012\ See letters from ABA II, AFME, BoA II, CREFC II, J.P. 
Morgan II, SIFMA III-dealers and sponsors, and Wells Fargo II.
    \1013\ See letters from ABAASA II, AFME, ASF V, and SIFMA III-
dealers and sponsors. See also the 2011 ABS Re-Proposal Release at 
47954, Request for Comment No. 4 (requesting comment on whether to 
allow the certification to state, among other things, that it is 
only an expression of the executive officer's current belief and is 
not a guarantee that those assets will generate such cash flows).
    \1014\ Also note that paragraph one requires that the certifier 
review the prospectus and the necessary documents regarding the 
assets, transactions and disclosures.
    \1015\ See letters from ABAASA II, ASF V, J.P. Morgan II (noting 
that this language is also consistent with the defenses that an 
officer of a registrant would have under the federal securities 
laws), and Wells Fargo II.
    \1016\ See letters from ABAASA II, AFME, ASF V, BoA II, CREFC 
II, J.P. Morgan II, MBA III, SIFMA III-dealers and sponsors, and 
Wells Fargo II.
    \1017\ The statutory safe harbor for forward-looking statements 
is only available to an issuer that is subject to the reporting 
requirements of Section 13(a) or Section 15(d) of the Exchange Act. 
The depositor for the issuing entity of an asset-backed security is 
a different ``issuer'' from that same person acting as a depositor 
for any other issuing entity or for purposes of that person's own 
securities. See Securities Act Rule 191 [17 CFR 230.191], and 
Exchange Act Rule 3b-19 [17 CFR 240.3b-19]. Therefore, at the time 
of an ABS takedown, other than in the case of master trusts, the 
entity acting as issuer is not subject to the reporting requirements 
of Section 13(a) or Section 15(d) of the Exchange Act. See 
Securities Act Section 27A (15 U.S.C. 77z-2).
---------------------------------------------------------------------------

(v) Paragraph Five
    As discussed above, some commenters expressed concern over 
potential increased liability with the certification. We acknowledge 
that the potential litigation risk to the chief executive officer may 
be higher, and we recognize that participants in securities offerings 
who make statements about those offerings can face liability for their 
statements, but we believe that possible additional risk to the 
certifier is justified where each takedown provides investors with 
offering information about the underlying assets and structure of the 
securities and recent market events persuade us that these were 
insufficient incentives for proper oversight over the transaction. In 
this regard, we also note that the certification is tied to the 
disclosure in the prospectus. For example, if the prospectus includes 
disclosure that the terms of the securities do not include any 
expectation (or limited expectation) that the structure will produce 
cash flows sufficient to make distributions, the certifier would 
nonetheless be able to sign the certification because the certification 
is based, in part, on the disclosure in the prospectus. In response to 
commenters' concerns about certifier liability,\1018\ we note that the 
CEO can take steps to mitigate the risks of signing. In addition, the 
final certification includes a fifth paragraph to further clarify that 
the certifier has any and all defenses available to him or her under 
the federal securities laws. The chief executive officer must make the 
following statement:
---------------------------------------------------------------------------

    \1018\ See letter from ASF V (requesting that the Commission 
make clear that the certifying officer have any and all defenses 
available under the federal securities laws as a person signing the 
registration statement and providing recommended language to include 
in the certification). See also letters from ABA II & J.P. Morgan II 
(supporting ASF's recommended language).

    The foregoing certifications are given subject to any and all 
defenses available to me under the federal securities laws, 
including any and all defenses available to an executive officer 
that signed the registration statement of which the prospectus 
referred to in this certification is part.
(vi) Signature Requirement
    In the 2010 ABS Proposing Release, we had proposed that the 
depositor's chief executive officer sign the certification. We 
explained that the chief executive officer of the depositor is already 
responsible for the disclosure as a signer of the registration 
statement.\1019\ We also asked, in the 2010 ABS Proposing Release, 
whether an individual in a different position should be required to 
provide the certification, such as the senior officer of the depositor 
in charge of securitization, in order to be consistent with other 
signature requirements for ABS. In response to comments, as part of the 
2011 ABS Re-Proposal, we re-proposed to allow either the chief 
executive officer of the depositor or the executive officer in charge 
of securitization of the depositor sign the certification.
---------------------------------------------------------------------------

    \1019\ See the 2010 ABS Proposing Release at 23346.
---------------------------------------------------------------------------

    We received various comments on the appropriate party to sign the 
certification. One commenter supported the re-proposal to allow ``the 
executive officer in charge of securitization'' to sign the 
certification but suggested modifying it to require the signature of 
``an executive officer in charge of the securitization.'' \1020\ This 
commenter explained that it may be the case that more than one person 
may satisfy the role of executive officer in charge of securitization, 
and it would be appropriate to permit the executive officer with 
particular knowledge of the specific securitization to sign the 
certification. In response to a request for comment in the 2011 ABS Re-
Proposal regarding whether we should conform signature requirements 
across forms (e.g., Form 10-K and proposed Form SF-3),\1021\ one 
commenter recommended that the ``senior officer in charge of 
securitization'' sign the certification,\1022\ and another suggested we 
broaden the list of signers to include the principal executive officer, 
the principal financial officer and controller or the principal 
accounting officer of the depositor.\1023\ One commenter recommended 
requiring an executive officer with a title such as ``chief transaction 
officer'' if the Commission is seeking a party to assume more 
responsibility for disclosure.\1024\
---------------------------------------------------------------------------

    \1020\ See letter from MBA III (stressing that in the context of 
CMBS it is common for more than one person to satisfy the definition 
of executive officer who has worked closely with the 
securitization).
    \1021\ See Request for Comment No. 3 in the 2011 ABS Re-
Proposing Release. The Form 10-K [17 CFR 249.310] report for ABS 
issuers must be signed either on behalf of the depositor by the 
senior officer in charge of securitization of the depositor, or on 
behalf of the issuing entity by the senior officer in charge of the 
servicing. In addition, the certifications for ABS issuers that are 
required under Section 302 of the Sarbanes-Oxley Act must be signed 
either on behalf of the depositor by the senior officer in charge of 
securitization of the depositor if the depositor is signing the Form 
10-K report, or on behalf of the issuing entity by the senior 
officer in charge of the servicing function of the servicer if the 
servicer is signing the Form 10-K report.
    \1022\ See letter from Sallie Mae II.
    \1023\ See letter from J.P. Morgan II.
    \1024\ See letter from Kutak (proposing ``chief transaction 
officer'' (without defining this position) because the proposed 
certification would not provide any additional oversight than what 
is presently required with regard to the signers of a registration 
statement).
---------------------------------------------------------------------------

    Commenters also provided comments as to why an executive officer 
would be

[[Page 57274]]

unable to provide the certification. For example, some commenters 
argued that executive officers lack the expertise to perform the credit 
analysis necessary to provide the certification.\1025\ Another 
commenter recommended that, with respect to paragraph four as to any 
assurance about the structure and cash flows of the securitization, the 
issuer, not a principal officer, should provide the certification 
because the chief executive officer may be too removed from the process 
and the team approach to securitization may not leave any one person in 
a position to evaluate all of the material attributes of the 
securitization.\1026\
---------------------------------------------------------------------------

    \1025\ See letters from AFME and SIFMA III-dealers and sponsors 
(noting that executives may not be trained to perform the type of 
credit analysis that would be required to give a certification and 
that credit rating agencies are the more appropriate parties to 
perform the credit analysis).
    \1026\ See letter from ABA II.
---------------------------------------------------------------------------

    Similarly, some commenters explained why an executive officer might 
be unwilling to provide the certification. One commenter noted that 
depositors would be unable to effectively price for the possibility of 
liability under such a broad certification.\1027\ The commenter 
explained that to the extent that an executive officer is willing to 
sign it, he or she will likely do so only in the most conservative 
circumstances, which may result in shelf-offered ABS of only the 
highest quality and thus preclude shelf offerings of securities with 
different credit risk and profiles. Another expressed concern that 
principal officers may be discouraged from taking such positions due to 
exposure to personal litigation.\1028\
---------------------------------------------------------------------------

    \1027\ See letter from SIFMA III-dealers and sponsors.
    \1028\ See letter from SIFMA II-investors.
---------------------------------------------------------------------------

    After considering the comments, the final rule requires that the 
certification be signed by the chief executive officer. We are not 
adopting the suggestion that the executive officer in charge of the 
securitization for the depositor sign the certification, as re-
proposed, because we are not acting at this time on the proposal to 
revise the signature requirements for the registration statement. We 
believe that the certification should be signed by a signatory to the 
registration statement. Furthermore, we believe that having the chief 
executive officer as the sole signatory is appropriate for other policy 
reasons. Although we understand that the chief executive officer may 
not personally undertake credit analysis and that he or she will likely 
rely on the work of others to assist him or her with structuring the 
transaction and preparing the certification as noted by some 
commenters, we believe that the depositor's chief executive officer, as 
an officer of the depositor at the highest level, should be responsible 
for providing proper oversight over the transaction and thus should be 
held accountable for the structuring of the transaction and for the 
disclosure provided in the prospectus supplement. In that regard, we 
believe, as we did when we proposed the certification for Exchange Act 
periodic reports, that a certification should cause the chief executive 
officer to more carefully review the disclosure, and in this case, the 
transaction, and to participate more extensively in the oversight of 
each transaction.\1029\
---------------------------------------------------------------------------

    \1029\ See the 2011 ABS Re-Proposing Release at 47951 and the 
2010 ABS Proposing Release at 23345.
---------------------------------------------------------------------------

(vii) Date of the Certification
    The date of the certification, as proposed, is required to be as of 
the date of the final prospectus.\1030\ One commenter supported the 
proposed date because the deal structure will be final at that time and 
the final deal structure is what is being addressed in the 
certification.\1031\
---------------------------------------------------------------------------

    \1030\ See Item 601(b)(36) of Regulation S-K [17 CFR 
229.601(b)(36)]. The certification should be filed as an exhibit to 
the final 424(b)(2) or (5) prospectus. See also new Item 1100(f) of 
Regulation AB [17 CFR 229.1100(f)] (specifying procedures for filing 
required exhibits).
    \1031\ See letter from Sallie Mae II.
---------------------------------------------------------------------------

(viii) Opinion by an Independent Evaluator Alternative
    In the 2011 ABS Re-Proposing Release, we also requested comments on 
whether, in lieu of the requirement that the chief executive officer or 
executive officer in charge of the securitization of the depositor 
provide a certification, the Commission should allow an opinion to be 
provided by an ``independent evaluator.'' \1032\ Several commenters 
supported allowing an opinion by an ``independent evaluator'' in lieu 
of the proposed certification.\1033\ One commenter believed that 
allowing an opinion by an independent evaluator meeting particular 
requirements would provide a more detached and objective basis for 
certification.\1034\ The other commenter stressed that an independent 
evaluator is particularly important in evaluating the structure of a 
transaction given that structures are often the product of investment 
bankers or third parties who know what securities will sell in the 
market.\1035\ Relatedly, several commenters noted that a credit rating 
agency is the more appropriate party to perform the credit analysis 
required.\1036\
---------------------------------------------------------------------------

    \1032\ See Request for Comment No. 12 in the 2011 ABS Re-
Proposing Release.
    \1033\ See letters from C. Barnard (recommending independence, 
experience, and related disclosure requirements related to the 
independent evaluator) and Kutak (suggesting limiting information 
disclosed to identification of the independent evaluator, 
compensation, and affiliations and that the person not be considered 
an expert).
    \1034\ See letter from C. Barnard (acknowledging that such 
opinion could reduce the executive oversight of the transaction 
structure but emphasized that the responsibility for the 
certification would still reside with the executive).
    \1035\ See letter from Kutak.
    \1036\ See letters from AFME and SIFMA III-dealers and sponsors 
(noting that any conflict of interest inherent in the rating 
agency's credit analysis would be magnified exponentially were such 
analysis to be effectively required to be undertaken by an affiliate 
of an issuer). Additionally, SIFMA III-dealers and sponsors was 
troubled that given the Commission's express intent to reduce the 
reliance on credit analysis by NRSROs, that shelf eligibility would 
instead be conditioned on a credit analysis by an officer of the 
depositor.
---------------------------------------------------------------------------

    In contrast, one commenter noted its opposition to allowing the use 
of an independent evaluator, stating that the certification, as 
proposed, may result in a more careful review of the disclosure and 
transaction by the issuer and ultimately higher-quality ABS in shelf 
offerings.\1037\ Another commenter recommended that we not mandate the 
use of an independent evaluator, explaining that it is uncertain, 
especially in the RMBS market, whether there are companies willing to 
serve as an independent evaluator given the possibility of increased 
liability and preclusion from performing other more desirable roles in 
the transaction.\1038\
---------------------------------------------------------------------------

    \1037\ See letter from CFA II.
    \1038\ See letter from MBA III.
---------------------------------------------------------------------------

    As reflected in the comments above, an independent evaluator 
alternative may provide benefits to investors and issuers. For issuers 
that conduct offerings on an infrequent basis, such an alternative may 
be less costly than implementing an infrastructure in order for the 
chief executive officer to conduct the review required by the 
certification. However, as one commenter noted with respect to RMBS, 
such issuers may encounter difficulty hiring a company that is willing 
to provide such services and sign the certification.\1039\ A 
certification by the chief executive officer is designed to increase 
internal oversight within the issuer. For investors, the independent 
evaluator may be able to provide a more detached and objective opinion; 
however, investors should also benefit from the enhanced internal 
oversight by the issuer obtained from the CEO certification. We are 
therefore not adopting the independent evaluator as

[[Page 57275]]

an alternative to providing a certification.
---------------------------------------------------------------------------

    \1039\ See letter from MBA III.
---------------------------------------------------------------------------

(2) Asset Review Provision
(a) Proposed Rule
    Investors have expressed concerns about the effectiveness of the 
contractual provisions related to the representations and warranties 
about the pool assets and the lack of responsiveness by sponsors about 
potential breaches.\1040\ A significant hurdle faced by investors 
seeking to enforce repurchase obligations has been that transaction 
agreements typically have not included specific mechanisms to identify 
breaches of representations and warranties or to resolve a question as 
to whether a breach of the representations and warranties has occurred. 
Further, investors have had to rely upon the trustees to enforce 
repurchase covenants because the transaction agreements do not 
typically contain a provision for an investor to directly make a 
repurchase demand. Investors have been frustrated with this structure 
and process because trustees have not enforced repurchase rights, and 
investors have been unable to locate other investors in order to force 
trustees to do so.\1041\ Furthermore, these contractual agreements have 
frequently been ineffective because, without access to documents 
relating to each pool asset, it can be difficult for the trustee, which 
typically notifies the sponsor of an alleged breach, to determine 
whether a representation or warranty relating to a pool asset has been 
breached.\1042\ The impact of these difficulties for investors is 
particularly concerning given the pervasiveness of misrepresentation 
among securitized residential real estate loans in the 2000's.\1043\
---------------------------------------------------------------------------

    \1040\ In the underlying agreements for an asset securitization, 
sponsors or originators typically make representations and 
warranties about the pool assets and their origination, including 
representations about the quality of the pool assets. Upon discovery 
that a pool asset does not comply with the representation or 
warranty, an obligated party (typically the sponsor) must repurchase 
the asset or replace it with an asset that complies with the 
representations and warranties. See the 2011 ABS Re-Proposal at 
47956-57. See also the Section 943 Adopting Release at 4489-90.
    \1041\ Typically, investor rights require a minimum percentage 
of investors acting together in order to enforce the representation 
and warranty provisions contained in the underlying transaction 
agreements. See Housing Finance Reform: Fundamentals of a 
Functioning Private Label Mortgage Backed Securities Market Hearing 
Before the S. Comm. on Banking, Housing & Urban Affairs, 113th Cong. 
39 (2013) (statement of Adam J. Levitin, law professor at Georgetown 
University Law Center) (noting that ``before PLS [private label 
securities] investors are able to spur a trustee to take action to 
protect their interests, they face the challenge of limited 
information available on which to determine if an event of default 
has occurred, the information problem of identifying other PLS 
investors in their deal, and the collective action problem of 
coordinating the required threshold of PLS investors (who do not 
always have identical incentives and may trade in and out of their 
positions), and the expense of indemnifying the trustee).
    \1042\ See, e.g., Kathryn Brenzel, $615M MBS Suit Aims To 
Rewrite Deal's Terms, Deutsche Says, Law360, May 6, 2013 (noting 
that the defendant argued that the notification provided by the 
trustee did not adequately show misrepresentations). Our requirement 
addresses this problem because the review required will provide 
evidence of misrepresentations that the trustees and investors can 
then use in making a repurchase request.
    \1043\ Between 10% and 30% of securitized residential real 
estate loans exhibited some indication of potential 
misrepresentation. See Tomasz Piskorski et al., Asset Quality 
Misrepresentation by Financial Intermediaries: Evidence from RMBS 
Market, (Nat'l Bureau of Econ. Research, Working Paper No. 18843, 
2013) and John Griffin & Gonzalo Maturana, Who Facilitated 
Misreporting in Securitized Loans?, (University of Texas at Austin, 
Working Paper, 2013), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2256060&download=yes.
---------------------------------------------------------------------------

    To address this concern, we proposed in the 2011 ABS Re-Proposal as 
one of the transaction requirements for shelf eligibility, that the 
underlying transaction documents of an ABS include provisions requiring 
a review of the underlying assets of the ABS for compliance with the 
representations and warranties upon the occurrence of certain post-
securitization trigger events. Specifically, we proposed that the 
transaction agreements require, at a minimum, a review of the 
underlying assets (1) when the credit enhancement requirements, as 
specified in the transaction documents, are not met, or (2) at the 
direction of investors pursuant to processes provided in the 
transaction agreement and disclosed in the prospectus.\1044\ We 
proposed that the review would be conducted by a ``credit risk 
manager'' who would have access to the underlying loan documents to 
assist in determining whether the loan complied with the 
representations and warranties provided to investors.\1045\ A report of 
the findings and conclusions of the review would be provided to the 
trustee to use in determining whether a repurchase request would be 
appropriate, and would also be filed as an exhibit to the Form 10-D.
---------------------------------------------------------------------------

    \1044\ We also proposed that disclosure of the findings and 
conclusions of the review be required on Form 10-D if an event 
triggers a review.
    \1045\ Under the proposal, the credit risk manager would be 
appointed by the trustee and could not be affiliated with any 
sponsor, depositor, or servicer in the transaction. Disclosure about 
the experience of the credit risk manager in prospectuses would also 
be required.
---------------------------------------------------------------------------

    Finally, we proposed to require certain provisions in the 
underlying transaction agreements that would help to resolve repurchase 
request disputes. We discuss the dispute resolution provision 
requirement below in Section V.B.3.a)(3) Dispute Resolution Provision 
because we are adopting it as a stand-alone shelf eligibility 
condition.
    As noted above, studies have highlighted the extent of 
misrepresentations among securitized residential real estate loans in 
the 2000's; however, we are unable to quantify the extent to which 
enforcing representations and warranties was an issue during the 
crisis. While recently adopted Exchange Act Rule 15Ga-1 implementing 
Section 943 of the Dodd-Frank Act requires disclosure of fulfilled and 
unfulfilled repurchase request activity, as a practical matter, it does 
not address directly the enforceability of put-back provisions in the 
underlying transaction agreements. Further, the historical data 
provided by Rule 15Ga-1 is limited, as initially only those 
securitizers that issued ABS between January 1, 2009 and December 31, 
2011 were required to report on Form ABS-15G demand and repurchase 
history that occurred during that same period.\1046\ As we discussed in 
the Section 943 Adopting Release, we limited the rule to a three-year 
look-back period because we recognized concerns regarding the 
availability and comparability of historical information related to 
repurchase demands.\1047\ While we recognize these limitations, we used 
the information contained in recent Form ABS-15G filings in order to 
provide some baseline information on current market practices. Based on 
Form ABS-15G filings of the first quarter of 2013, we find that more 
than 99% of repurchase requests are in dispute, and with respect to the 
resolved requests: 16.5% were satisfied, 48.5% were withdrawn, and 35% 
were rejected.\1048\ These numbers highlight the fact that enforcing 
representations and warranties may be time-consuming and lead to 
uncertain outcomes for investors. We believe that the asset review 
shelf requirement will help to address this problem and enhance the

[[Page 57276]]

enforceability of the representations and warranties regarding the pool 
assets.
---------------------------------------------------------------------------

    \1046\ See Exchange Act Rule 15Ga-1(c)(1). After December 31, 
2011 all securitizers are required to report, on a quarterly basis, 
demand and repurchase activity for any new or outstanding ABS. See 
Exchange Act Rule 15Ga-1(c)(2).
    \1047\ See the Section 943 Adopting Release at 4498-99. We noted 
that the three-year look-back period for initial disclosures struck 
the right balance between the disclosure benefits to investors, 
availability of historical information and compliance costs to 
securitizers. In doing so, we acknowledged that older data may be 
very hard or impossible for securitizers to obtain if they have not 
had systems in place to track the data required for the required 
disclosures, which may lead to less comparable data.
    \1048\ We found similar figures for Form ABS-15G filings in 
other quarters.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Several commenters generally agreed that a review of assets for 
compliance with representations and warranties should be a shelf 
eligibility requirement.\1049\ Commenters made it clear that investors 
desire more robust representation and warranty enforcement 
mechanisms.\1050\ Many commenters noted that a review mechanism would 
enhance investor protection and promote the integrity of asset-backed 
securities.\1051\ Some commenters argued that the proposed requirement 
should not be imposed upon transactions other than RMBS 
transactions.\1052\ They were concerned that enforcement mechanisms 
could increase costs on transactions where there have been only a 
limited number of repurchase requests historically.\1053\ Some 
commenters responded to the 2011 ABS Re-Proposal by suggesting that the 
Commission adopt, as an alternative criterion for shelf eligibility for 
asset classes other than RMBS, the original proposed shelf requirements 
that there be a quarterly third-party review of the assets for 
compliance with the representations and warranties, which we did not 
re-propose in light of comments.\1054\ Below we discuss comments about 
the various parts of the proposal.
---------------------------------------------------------------------------

    \1049\ See letters from C. Barnard, ICI II, MBA III, Metlife II, 
Prudential II, SIFMA II-investors, and Sallie Mae II.
    \1050\ See letters from Metlife II, Prudential II, and SIFMA II-
investors (stating that they do not believe the ABS market will 
recover without a mechanism to enforce breaches of representations 
and warranties).
    \1051\ See letters from ASF III, C. Barnard, ICI II (noting that 
``it would provide investors with a stronger basis to pursue 
remedies under the transaction agreement for violations of 
representations and warranties relating to pool assets, and create 
better incentives for obligated parties to consider and monitor the 
quality of the assets in the pool''), Prudential II, and SIFMA II-
investors.
    \1052\ See letters from ABA II (stating that transactions with 
assets that have no meaningful history of repurchase demands should 
not be subject to the requirement), ABAASA II (noting that the 
proposed requirement should be required only for RMBS transactions), 
ASF III, J.P. Morgan II, and Wells Fargo II (stating that credit 
card and auto transactions should not be subject to the 
requirement), BoA II (recommending a tailored approach), Sallie Mae 
II (noting student loans should not be subject to the proposal), and 
VABSS III (noting that auto deals have not had a history of 
significant repurchases and thus should not incur the costs 
associated with the proposed requirement).
    \1053\ See letters from ABA II, ABAASA II, ASF III, and Wells 
Fargo II (all supporting a review system for residential mortgage-
backed securities transactions and opposing a requirement for other 
asset-backed securities that do not typically have repurchase 
demands).
    \1054\ See letters from ASF III, BoA II, and VABSS III. In the 
2010 ABS Proposing Release, the Commission proposed to require a 
provision in the pooling and servicing agreement requiring the party 
obligated to repurchase the assets for breach of representations and 
warranties to periodically furnish an opinion of an independent 
third party regarding whether the obligated party acted consistently 
with the terms of the pooling and servicing agreement with respect 
to any loans that the trustee put back to the obligated party for 
violation of representations and warranties and which were not 
repurchased. In the 2011 ABS Re-Proposal, we replaced the quarterly 
third-party opinion proposal with a proposed review of the 
underlying assets upon certain triggers being reached in response to 
the comments received on the 2010 ABS Proposal.
---------------------------------------------------------------------------

    Commenters provided varying comments on the appropriateness of the 
proposed review triggers. Several commenters suggested that a trigger 
for review should not be tied to credit enhancement, as proposed.\1055\ 
Commenters stated that, for most transactions, a credit enhancement 
trigger would not be a feasible measurement across asset classes 
because many deals provide for a buildup of credit enhancement over 
time and, under the proposed rule, the first distribution could trigger 
a review.\1056\ One commenter stated that certain transactions do not 
have pool-level credit enhancements that would trigger a review.\1057\ 
Given these potential issues with a credit enhancement trigger, some 
commenters suggested as an alternative that the trigger for review be 
based on a more common measurement of asset performance such as 
delinquencies.\1058\
---------------------------------------------------------------------------

    \1055\ See letters from ABA II, ABAASA II, ASF III, BoA II, 
CREFC II, J.P. Morgan II, Kutak, MBA III, SIFMA III-dealers and 
sponsors, VABSS III, and Wells Fargo II.
    \1056\ See, e.g., letters from ASF III, SIFMA III-dealers and 
sponsors, and Wells Fargo II (explaining that transactions involving 
assets with interest rates in excess of the rates required to be 
paid on the ABS may initially be structured with little or no 
initial overcollateralization and that the required credit 
enhancement is built up over time by applying excess interest to pay 
principal on the ABS, resulting in overcollateralization), BoA II 
(noting that in cases where credit enhancement is built over time, 
credit enhancement levels do not meet required target levels during 
most of the early life of the deal), VABSS III (noting that while 
credit enhancement may increase over time, in other transactions, 
credit enhancement can be reduced if certain performance results are 
achieved).
    \1057\ See letter from MBA III.
    \1058\ See letters from ASF III (suggesting objective factors 
such as cumulative losses, delinquencies, or average loss severity 
be the trigger), Metlife II (noting the review should be based on 
delinquencies as a percentage of the original subordination for the 
senior-most class in a transaction), Prudential II (stating that a 
review should be triggered if the 60+ day delinquencies percentage 
is greater than the currently available credit support or if a loan 
becomes 90 days delinquent within six months of the loan's 
origination or four months from being included in the pool) and 
Sallie Mae II (recommending ``linking the action of the CRM to an 
element that can arise across all asset classes and all structures, 
namely losses'').
---------------------------------------------------------------------------

    As part of the 2011 ABS Re-Proposal, we requested comments on 
certain aspects of the investor-directed trigger. For example, we 
requested comment on whether we should require that at least 5% of 
investors must first call for an investor vote on the question of 
whether to initiate a review before a vote occurs.\1059\ Although 
comments received were mixed, several commenters supported such a 
provision.\1060\ Additionally, many commenters agreed that investors 
should have the ability to direct a review of assets and suggested 
procedures that would provide investors with an effective means to 
request a review while minimizing baseless claims that could impose 
costs.\1061\
---------------------------------------------------------------------------

    \1059\ See Request for Comment No. 30 in the 2011 ABS Re-
Proposing Release at 47958.
    \1060\ See letters from Metlife II (suggesting that we require 
5% of investors to initiate a vote), Prudential II, and SIFMA II-
investors (suggesting that at least 5% of the total interest in the 
pool may poll other investors to determine whether a review should 
be performed). See also letter from Metlife I (explaining that the 
vast majority of securitization transactions require a ``25%-in-
interest voting threshold'' before the trustee can be directed by 
investors to undertake actions such as polling investors as to 
whether to exercise rights or remedies under the transaction 
agreements).
    \1061\ See, e.g., letters from ASF III (stating that its 
investor members generally favor the proposal while issuer members 
generally oppose it), J.P. Morgan II (stating their belief that 
investors representing a minimum of 25% of the pool be required to 
trigger a review), MBA III (noting that a threshold of investors 
should be required to agree to a review due to the potential costs), 
Prudential II (stating that note holders should be permitted to 
request a credit risk manager review if 25% of the note holders 
believe a review is warranted), SIFMA II-investors (stating their 
belief that a review be triggered if investors with at least 25% (by 
principal balance) of the total interest in the pool of securitized 
assets agree to a review), and Sallie Mae II (suggesting specific 
requirements if the final rule permits investors to direct a review 
independently of the credit enhancement trigger).
---------------------------------------------------------------------------

    We also requested comment on whether, as an alternative to 
specifying voting procedures, it would be appropriate to specify 
certain maximum conditions, where the percentage of investors required 
to direct review could be no more than a certain percentage, such as 
5%, 10%, or 25%. Commenters provided differing views on imposing 
maximum conditions. Several commenters suggested that 25% would be the 
appropriate percentage of investors that should agree to a review 
before one is required.\1062\ Another

[[Page 57277]]

commenter suggested that we consider a majority or plurality of those 
casting a vote, and that we also specify a quorum requirement.\1063\ 
One commenter suggested that a super-majority would be 
appropriate.\1064\
---------------------------------------------------------------------------

    \1062\ See letters from J.P. Morgan II (stating that ``if there 
is a requirement for review based on a certain percentage of 
investors, we strongly recommend that the required percentage of 
investors required to direct a review be no less than 25% of each 
class of securities outstanding''), Prudential II (``Note holders 
should be permitted to request a credit risk manager review if 25% 
of the note holders believe a review is warranted. A 25% threshold 
would serve to limit both the number of frivolous claims and any 
unnecessary credit risk manager expenses.''), and Sallie Mae II 
(stating that if an investor is allowed to direct a review, among 
other requirements, the requesting investor must own at least 25% of 
the outstanding principal balance of the related ABS).
    \1063\ See letter from Metlife II.
    \1064\ See letter from Wells Fargo II.
---------------------------------------------------------------------------

    With respect to disclosing the report on the findings and 
conclusions of the review, several commenters recommended that we 
require a summary of the report instead of the proposed requirement 
that the full report be filed as an exhibit to Form 10-D because of 
privacy concerns or potential problems that the requirement would cause 
with workouts or modifications with delinquent borrowers.\1065\
---------------------------------------------------------------------------

    \1065\ See letters from ASF III (noting that the report may 
include confidential or non-public personal information on 
obligors), CREFC II (stating too much detailed information provided 
to the public could provide a borrower with an inappropriate 
advantage in negotiations), MBA III, and Wells Fargo II.
---------------------------------------------------------------------------

    We also received comments on the selection and appointment of the 
credit risk manager. Commenters, in general, opposed the proposal to 
require that the trustee appoint the credit risk manager. Commenters 
noted that the trustee would not be a suitable party to appoint the 
credit risk manager and would not be likely to accept the 
responsibility for appointing the credit risk manager.\1066\ 
Furthermore, commenters generally explained that the appointment by a 
trustee would be unworkable since the trustee is not typically a party 
to the transaction until it closes, therefore the trustee would 
technically not have the authority to appoint the manager until after 
the transaction closes.\1067\ One of these commenters stated that it is 
important to have details about the manager disclosed in the prospectus 
so that investors can fully understand their impact on the 
transaction.\1068\
---------------------------------------------------------------------------

    \1066\ See, e.g., letters from ABA II (noting that appointing 
any transaction party is outside the scope of a trustee's duties), 
ASF III (stating that in conversation with trustees the trustees 
have indicated their discomfort with appointing a manager), BoA II, 
J.P. Morgan II, SIFMA III-dealers and sponsors (noting that trustees 
would not likely accept the responsibility of appointing a manager), 
and VABSS III (stating that the independent reviewer should be 
appointed in the relevant agreement but not solely by the trustee).
    \1067\ See letters from ABA II, ABAASA II, ASF III, BoA II, 
SIFMA II-investors, and VABSS III.
    \1068\ See letter from ABAASA II.
---------------------------------------------------------------------------

    With respect to the proposed prohibited affiliations between the 
credit risk manager and certain transaction parties, several commenters 
supported the proposal, although some commenters suggested that we not 
permit the credit risk manager to be affiliated with other additional 
transaction parties, such as the trustee or any investor.\1069\ One 
commenter stated that the credit risk manager should not be affiliated 
with any party hired by the sponsor or underwriter to perform pre-
closing due diligence on the pool assets.\1070\ However, one commenter 
suggested that the proposal to limit affiliations was overly 
broad.\1071\
---------------------------------------------------------------------------

    \1069\ See letters from Better Markets (stating that, to ensure 
independence, the proposal must provide that the manager have no 
conflicts of interest with any party including investors), J.P. 
Morgan II (suggesting that the manager not be affiliated with other 
transaction parties such as the trustee or any investor), Metlife II 
(noting that independence from other parties in the securitization 
is imperative), Prudential II (also stating the manager not be 
affiliated with the trustee), and SIFMA II-investors.
    \1070\ See letter from SIFMA II-investors.
    \1071\ See letter from MBA III.
---------------------------------------------------------------------------

    Additionally, commenters provided comments about other aspects of 
the credit risk manager. For example, some commenters recommended that 
we revise the title ``credit risk manager'' as it may not properly 
describe its function.\1072\ Commenters also stated that it was 
important for managers to have access to the underlying documents in 
order to perform their duties.\1073\ Some commenters also offered their 
views about the process and conditions for the removal and replacement 
of a credit risk manager. One commenter stated that it would be 
acceptable for the trustee to appoint a new credit risk manager if the 
existing one needs to be removed or replaced for any reason.\1074\ 
Another commenter suggested that we require an affirmative vote of 25% 
of the investors in order for investors to initiate replacement.\1075\ 
One commenter recommended that the transaction documents detail the 
conditions and process for removal.\1076\
---------------------------------------------------------------------------

    \1072\ See letters from ASF III and VABSS III (both noting that 
prior credit risk managers had varied functions including loss 
mitigation and reporting advice to the servicer), and Wells Fargo II 
(noting that the title ``credit risk manager'' could be misleading 
because the credit risk manager would not guarantee the credit of an 
underlying borrower).
    \1073\ See letters from Metlife II, Prudential II, and SIFMA 
III-dealers and sponsors (generally expressing support for the 
proposal to require the manager to have access to all underlying 
documents including the underwriting guidelines and credit 
underwriting files and any other documents necessary to investigate 
compliance).
    \1074\ See letter from MBA III (RMBS).
    \1075\ See letter from Prudential II.
    \1076\ See letter from MetLife II.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Asset Review Provision
    We are adopting, as a second shelf eligibility requirement, that 
the underlying transaction agreements include provisions requiring a 
review of pool assets in certain situations for compliance with the 
representations and warranties made with regard to those assets. Under 
the final rule, the agreements must require a review, at a minimum, 
upon the occurrence of a two-pronged trigger based first upon the 
occurrence of a specified percentage of delinquencies in the pool and 
if the delinquency trigger is met, then upon direction of investors by 
vote. We have made modifications to the review triggers, discussed 
below, that we believe help to address some of the cost concerns 
expressed by commenters for asset classes that historically have seen a 
limited number of repurchase requests. Because we are unable to predict 
which asset classes may experience problems in the future, we believe 
that it is prudent to impose this requirement for all asset 
classes.\1077\
---------------------------------------------------------------------------

    \1077\ We note, for example, that there was not a need to 
enforce representations and warranties for RMBS and CMBS until the 
crisis.
---------------------------------------------------------------------------

    We have taken into consideration the array of comments received 
related to the triggers and potential costs, while at the same time 
balancing the need for stronger mechanisms to enforce underlying 
contract terms. As we noted above, most transaction agreements lack a 
specific mechanism for investors to not only identify potential assets 
that fail to comply with the representations and warranties made but 
also to resolve a question of whether noncompliance of the 
representations and warranties constitutes a breach of the contractual 
provisions. These problems have been compounded by the fact that 
investors typically cannot make repurchase requests directly, thus they 
have had to rely upon the trustees who have not enforced repurchase 
requests in most circumstances. We believe that adopting this shelf 
provision coupled with the new dispute resolution and investor 
communication shelf requirements should provide investors with 
effective tools to address the enforceability of repurchase obligations 
and help overcome collective action problems. In that regard, we see 
these shelf requirements working together to help investors enforce 
repurchase obligations. Our investor communication provision, discussed 
below, will help investors to communicate with each other in order to 
determine whether they should vote to direct a review of the assets and 
later

[[Page 57278]]

whether to initiate a repurchase request. The review of the assets 
required once certain triggers are met will not only benefit investors 
in determining whether the assets have breached the representations and 
warranties but also whether to move forward with a repurchase request. 
Additionally, should those parties with repurchase obligations fail to 
address investors' repurchase requests in a timely manner, investors 
will now have a means to demand resolution through arbitration or 
mediation. We believe that these transactional safeguards will 
collectively enhance the enforceability of representations and 
warranties about the pool assets and provide incentives for obligated 
parties to more carefully consider the characteristics and quality of 
the assets that are included in the pool. Therefore, this shelf 
transaction requirement should encourage ABS issuers to design and 
prepare ABS offerings with greater oversight and care. We believe that 
stronger enforcement mechanisms should incentivize issuers to provide 
investors with accurate and complete information at the time of the 
offering. It is these transactions that are appropriate for public 
offerings off a shelf without prior staff review. The magnitude of 
these benefits will depend on whether the reviewers are able to 
correctly evaluate the contractual terms to identify non-compliance 
with the representations and warranties about the pool assets. Such 
evaluations may be challenging to the extent that the contractual 
language for the representations and warranties are incomplete or 
ambiguous. Nonetheless, we conclude that the asset review provision 
will enhance investor protection for the reasons stated above. We also 
note that the review requirement we are adopting is similar to post-
crisis industry efforts, such as the American Securitization Forum's 
Project RESTART, which includes repurchase principles for 
investigating, resolving, and enforcing remedies with respect to 
representations and warranties in RMBS transactions.\1078\ 
Additionally, some recent CMBS deals have included a provision for a 
third-party review of the underlying assets.
---------------------------------------------------------------------------

    \1078\ See letter from ASF III.
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    While we believe that this review requirement will enhance the 
enforceability of repurchase obligations, we acknowledge that it will 
also increase costs, particularly on investors, who will incur the 
expense of the reviews. A group of investors noted that despite the 
additional costs, increased investor protection will produce net 
economic benefits to investors.\1079\ We expect that the bulk of the 
costs for this shelf requirement will be incurred with individual 
reviews of pool assets directed by investors. There will also be some 
expense arising from retaining a reviewer to conduct the reviews in the 
form of an annual retainer fee.\1080\ Although the exact magnitude of 
the expenses incurred in connection with the reviews is not possible to 
predict, we expect that they will depend on the frequency with which a 
review is triggered and on the extent of the review.\1081\ For 
instance, securitizations of high-risk assets are more likely to meet 
the delinquency threshold and therefore more likely to undergo a review 
and incur the review expenses. Additionally, sponsor representations 
about pool assets characterized by low or no documentation may require 
more time for the reviewer to examine and therefore may result in 
higher expenses. We have attempted to mitigate the potential costs by 
not requiring a review of the assets until after the occurrence of a 
two-pronged trigger as described below. We expect that investors will 
weigh the benefits of a review of the assets against the costs and vote 
for a review only if the benefits justify the costs. This revised 
approach should address concerns about potentially frivolous review 
requests being made at the cost of other investors.
---------------------------------------------------------------------------

    \1079\ See letter from SIFMA II-investors (``The concept of 
increasing costs to investors in order to increase investor 
protections is not new. On balance, the strict enforcement of the 
deal documents by an independent credit risk manager, we believe, 
will in the ordinary course produce net economic benefits to the 
investors.'').
    \1080\ The staff is aware of only several recent unregistered 
RMBS transactions that include a comparable provision for which we 
have some cost information. According to Kroll's Pre-Sale Report for 
J.P. Morgan Mortgage Trust 2013-1, the reviewer will be paid an 
annual retainer fee of $20,000 for the first six years and $12,000 
annually thereafter. The reviewer will also be paid $525 for each 
mortgage loan subject to a review. See Kroll's Pre-Sale Report: J.P. 
Morgan Mortgage Trust 2013-1 (Mar. 20, 2013). We believe that these 
costs figures are generally comparable to the costs that RMBS 
issuers and investors will likely incur in connection with our 
review requirement. The costs for other asset classes may be more or 
less than these costs figures depending upon the quality of the 
assets, the extensiveness of the representations and warranties, and 
the volume of documents required to review.
    \1081\ In a typical ABS transaction, fees are paid before 
distributions are made to investors. We remind issuers that 
information related to the review fees should be disclosed in 
accordance with Regulation AB requirements. See, e.g., Items 
1109(b)(4) and 1113 of Regulation AB.
---------------------------------------------------------------------------

    We also recognize that our approach to require that a reviewer be 
engaged at the time of issuance, as opposed to when the above two 
triggers are met, will be more costly. For asset classes that rarely 
experience breaches of representations and warranties, the benefits of 
this shelf provision may be smaller than for other asset classes and 
thus there may be situations where the costs may be greater than the 
benefits. We believe, however, that for asset classes where the 
likelihood of investors using the review provision is low, the upfront 
retainer fee should also be low. We note also that the requirement that 
the reviewer be engaged at the time of issuance could potentially 
create incentive alignment issues. Because of this requirement, a 
reviewer could seek to be appointed to as many ABS transactions as 
possible, thus potentially creating an incentive to submit reports 
favorable to sponsors and win future business from them. This could 
potentially impact the quality and usefulness of the reports if the 
reviews are not--or are not perceived as being--objective.\1082\ The 
significance of this problem should be reduced to the extent that the 
reviewer's compensation is paid by investors, particularly if done so 
after the objective triggers for the asset reviews are met. In 
addition, transaction agreements may prescribe mechanisms to replace 
reviewers in the event of failure to meet their obligations. Finally, 
reputational concerns could potentially influence reviewers' decisions 
to adhere to their limited role of determining whether the assets 
comply with the representations and warranties made. As discussed 
below, the investors through the trustee, not the reviewer, are 
responsible for determining whether to initiate a repurchase 
request.\1083\ Furthermore, we have chosen to require that the reviewer 
be named in the offering documents because the identity and competency 
of the reviewer is an important consideration for investors in making 
an ABS investment decision.
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    \1082\ We note that our rules do not mandate the particular 
contents of the report. Should these reports ultimately include 
subjective elements, the potential incentive misalignments could 
increase.
    \1083\ As we have indicated above, investors have encountered 
difficulty with getting the trustees to initiate repurchase 
obligations. We believe that the required report of the conclusions 
and findings to the trustee, which should provide evidence of any 
noncompliance, will make it difficult for trustees to ignore 
possible breaches of the contractual provisions.
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(i) Triggers for Review
    As noted above, the 2011 ABS Re-Proposal specified two separate 
events, either of which would trigger a review of the underlying assets 
under the new shelf eligibility requirement. One proposed trigger would 
have required a review when the credit enhancement requirements of the 
transaction are not met. The other proposed trigger would have 
permitted investors to direct a review of the assets, pursuant to

[[Page 57279]]

procedures specified in the transaction agreements. After taking into 
account the comments received related to the applicability of the 
proposed triggers and potential costs, we are modifying the triggers 
for review.
    Under the new shelf eligibility requirement, the pooling and 
servicing agreement, or other transaction agreement, must provide for a 
review of assets, at a minimum, upon the occurrence of a two-pronged 
trigger with the first prong being a percentage of delinquencies in the 
pool and the second prong being the direction of an investor vote, in 
each case as specified in the transaction agreements. Because these 
thresholds are negotiated by sponsors and investors in advance of the 
ABS issuance, and could vary by asset class, deal structure, or 
takedown, this approach allows the market to optimize and determine the 
most effective thresholds, subject to caps discussed below. In 
developing this two-prong trigger approach, we have attempted to 
balance some commenters' concerns about potentially unfounded claims by 
requiring that an objective threshold based on delinquencies first be 
met while protecting investors' ability to effectively direct a review 
at a time when rising delinquencies may begin to cause concern that the 
assets in the pool may not have met the representations and warranties 
made in the transaction documents.
(a) Delinquency Prong
    Rather than tying the trigger to credit enhancement levels, we are 
adopting an objective trigger based on delinquencies.\1084\ As 
summarized above, although commenters generally supported the 
requirement of an objective trigger, many stated that the proposed 
credit enhancement trigger did not easily apply across different asset 
classes and deal structures.\1085\ We received some recommendations for 
alternative objective triggers and, in particular, commenters noted 
that a trigger based on delinquencies would work across all deal 
types.\1086\ The amount of delinquencies in an asset pool is a metric 
that is required to be reported at the time of offering and on an 
ongoing basis.\1087\
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    \1084\ Current Regulation AB does not establish a standard for 
determining delinquencies, and we are not providing a definition of 
delinquency for purposes of the asset review provision. Regulation 
AB requires disclosure of the methodology for determining 
delinquencies in the prospectus and accordingly, we expect that the 
transaction agreements provide the method of determining 
delinquencies. See Item 1101(d) of Regulation AB [17 CFR 
229.1101(d)]. If the transaction agreements do not use delinquencies 
to measure late or non-payment of an underlying obligor, then in 
order to meet this shelf requirement, a comparable metric measuring 
late or non-payment should be used and disclosed. As discussed 
below, the final rule requires disclosure regarding how the 
delinquency trigger was determined to be appropriate. See Item 
1113(a)(7)(i) of Regulation AB [17 CFR 229.1113(a)(7)(i)]. Under the 
new rule, in the case of a transaction using a metric other than 
delinquencies, disclosure regarding why a different metric is 
appropriate would need to be included.
    \1085\ See letters from ASF III, BoA II, MBA III, SIFMA II-
investors, VABSS III, and Wells Fargo II (all noting that many 
transactions do not provide for a specific level of credit 
enhancement to be maintained or the credit enhancement levels build 
up over time to a target. In these situations, the review would be 
triggered before there would be any real indication that there have 
been breaches of representations or warranties).
    \1086\ See letters from ASF III (suggesting objective factors 
such as cumulative losses, delinquencies or average loss severity be 
the trigger), Metlife II (noting the review should be based on 
delinquencies as a percentage of the original subordination for the 
senior-most class in a transaction), and Prudential II (stating that 
a review should be triggered if the 60+ day delinquencies percentage 
is greater than the currently available credit support or if a loan 
becomes 90 days delinquent within six month of the loan's 
origination or four months from being included in the pool).
    \1087\ See Items 1100(b), 1101(c), 1105, 1111(c) and 1121(a)(9) 
of Regulation AB.
---------------------------------------------------------------------------

    We are not specifying the threshold amount of delinquencies that 
must first be reached, given the variety of thresholds that may be 
relevant and the differing approaches offered by commenters. For 
instance, we note that some ABS transactions include delinquent loans 
at the onset. Furthermore, the shelf eligibility requirements permit 
registration of offerings of ABS that include up to 20% of delinquent 
assets.\1088\ We also acknowledge that transaction participants should 
have some flexibility across deal structures and asset classes so that 
they may negotiate the terms appropriate for each particular offering, 
including the appropriate delinquency threshold.\1089\ We recognize, 
however, that providing the transaction parties with such flexibility 
may impose costs to investors depending on the procedures established. 
In particular, we recognize that by not prescribing a particular 
delinquency threshold, transaction parties could theoretically set this 
threshold high and thereby make it difficult for investors to exercise 
their rights under this provision. To address this concern, we are 
requiring disclosure in the prospectus that describes how the 
delinquency trigger was determined to be appropriate.\1090\ The 
disclosure must include a comparison of the delinquency trigger against 
the delinquencies disclosed for prior securitized pools of the sponsor 
for that asset type. Using this disclosure, investors will be able to 
analyze the reasonableness of the delinquency trigger.
---------------------------------------------------------------------------

    \1088\ See General Instruction I.B.1(e) of Form SF-3.
    \1089\ We also note that our proposed credit enhancement trigger 
provided the transaction parties with the flexibility to set the 
target levels of the credit enhancement requirements so that they 
could tailor the procedures to each ABS transaction, taking into 
account the specific features of the transaction and/or asset class.
    \1090\ See Item 1113(a)(7)(i) of Regulation AB.
---------------------------------------------------------------------------

    The final rule provides some specificity as to how the delinquency 
threshold must be calculated in order to provide clarity to issuers and 
consistency to investors across various transactions and assets 
classes, and to prevent possible mechanisms from reducing the 
effectiveness of the trigger. The delinquency prong requires that the 
delinquency threshold be calculated as a percentage of the aggregate 
dollar amount of delinquent assets in a given pool to the aggregate 
dollar amount of all the assets in that particular pool, measured as of 
the end of the reporting period in accordance with the issuer's 
reporting obligations. By requiring that the delinquency calculation be 
measured as a percentage of the aggregate dollar amount of all assets 
in the pool, the calculation will better reflect the magnitude of 
delinquencies, as compared to a delinquency calculation measured by 
counting only the number of delinquent assets without consideration of 
the delinquent assets' relative dollar values.\1091\ Furthermore, to 
prevent issuers from imposing a higher hurdle to trigger the 
delinquency threshold for transactions with multiple sub-pools, we are 
also requiring that the percentage be based on the percentage of 
delinquencies in the sub-pool. For example, if a transaction has 
divided the underlying assets into three sub-pools, there will be three 
separate delinquency trigger calculations. If the delinquencies in one 
sub-pool triggers an investor vote (and, as explained below, the 
subsequent vote is attained to trigger a review), the final rule 
requires that the transaction documents specify, at a minimum, that the 
assets of the respective sub-pool would be subject to review.\1092\ We 
believe that requiring the delinquency threshold to be calculated on a 
sub-pool basis also recognizes the notion that investors would be 
primarily concerned about the

[[Page 57280]]

assets that support their respective pool.\1093\
---------------------------------------------------------------------------

    \1091\ We also note that this requirement is similar to how 
delinquencies are reported by servicers in their monthly reports (as 
a percentage of the ending pool balance).
    \1092\ Transaction participants may, however, provide for 
reviews of additional assets in this instance.
    \1093\ See letter from Metlife II (noting that the review should 
be based on delinquencies as a percentage of the original 
subordination for the senior-most class in a transaction).
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(b) Investor Vote Prong
    The underlying transaction documentation must include a provision 
that, after the delinquency threshold has been reached or exceeded, 
investors have the ability to vote to direct a review. In formulating 
the final rule, we considered whether an investor vote would be 
necessary given that the final rule would require an objective trigger 
first be satisfied. We appreciate the costs that will be incurred by 
the investors in connection with these reviews.\1094\ Furthermore, we 
acknowledge that there may be cases where some investors may not wish 
to incur the cost of an asset review, for example, when the transaction 
is performing as expected. For these reasons, the review is not 
automatic but rather must be initiated by investors as specified in the 
transaction documents. In order to balance the concern that the 
transaction parties may impose stringent voting requirements in the 
transaction documents in an effort to diminish investors' voting 
rights, we have imposed certain restrictions on the voting requirements 
in response to comments that we received.
---------------------------------------------------------------------------

    \1094\ See letter from SIFMA II-investors (noting that although 
the review requirement would result in additional costs, it would 
also increase investor protections).
---------------------------------------------------------------------------

    Under the final rule, if the transaction agreement includes a 
minimum investor demand percentage in order to trigger a vote on the 
question of whether to direct a review, then the maximum percentage of 
investors' interest in the pool required to initiate a vote may not be 
greater than 5% of the total investors' interest in the pool (i.e., 
interests that are not held by affiliates of the sponsor or 
servicer).\1095\ We are imposing this restriction because we believe 
that a higher threshold will blunt its effectiveness.\1096\ Once the 
requisite percentage of investors' interest seeks to initiate a vote, 
as required by the transaction agreement, investors will proceed to 
vote on whether to direct a review. Our interpretation of ``pool,'' as 
discussed above in connection with the delinquency trigger, is also 
applicable for the voting procedures. Thus, if there are multiple sub-
pools, then the calculation of whether there is the requisite 
percentage of investors' interest to initiate a vote would be 
determined based on that particular sub-pool.
---------------------------------------------------------------------------

    \1095\ The final rule does not require that the transaction 
agreement include a minimum investor demand percentage to trigger a 
vote; rather the final rule requires that if such provision is part 
of the transaction agreement, then it may require no more than 5% of 
the total interest in the pool.
    \1096\ See letter from Metlife I (noting that many 
securitization transactions impose a 25%-in-interest voting 
threshold before the trustee can be directed by investors to 
undertake certain actions such as polling investors on questions as 
to whether to exercise certain rights or remedies, thereby making it 
difficult for investors to act).
---------------------------------------------------------------------------

    Under the proposed rule, the transaction parties would have been 
given significant flexibility in setting the voting requirements for 
the investor vote trigger. We are concerned, however, that the 
transaction parties could establish a high delinquency threshold and 
high investor vote threshold as noted by one commenter, thus making it 
difficult for investors to utilize this shelf provision.\1097\ We 
requested comments in the 2011 ABS Re-Proposal on whether we should 
establish maximum conditions for voting. Commenters offered a range of 
thresholds from 25% to a supermajority.\1098\ Under the final rule, the 
transaction parties will be able to specify the percentage of 
investors' interest required to direct a review, provided that the 
threshold of approval shall be no more than a simple majority of those 
interests casting a vote. The final rule requires a simple majority of 
those interests casting a vote as the maximum condition because we 
believe that a simple majority threshold will help to reduce 
potentially frivolous claims while also helping to ensure that 
investors will be able to use the review provision. In addition to 
imposing restrictions on the voting requirements, we note that issuers 
are required to provide disclosure in the prospectus regarding the 
voting procedures for the review under existing Regulation AB, which 
will permit investors to analyze the reasonableness of the voting 
procedures.\1099\
---------------------------------------------------------------------------

    \1097\ See letter from Metlife II (explaining, for example, that 
in a case where a transaction agreement requires 25% of all 
investors to initiate a vote, and 75% of all investors to approve a 
resolution, the likelihood of meeting a voting threshold would be 
slim at best).
    \1098\ See letters from J.P. Morgan II and Sallie Mae II 
(recommending a 25% threshold), MetLife II (suggesting a majority or 
plurality of those casting a vote), and Wells Fargo II (recommending 
a supermajority).
    \1099\ See Item 1113(a)(12) of Regulation AB (requiring 
disclosure regarding allocation of voting rights among security 
holders).
---------------------------------------------------------------------------

    We also recognize that the rule may complicate the voting process 
for investors in transactions that include assets consisting of 
previously issued ABS. In particular, when trigger conditions for a 
review are met in connection with the previously issued ABS, the 
trustee acting on behalf of the investors in the second securitization 
must vote since they are also investors in the first securitization via 
the resecuritization. To address this potential issue, each 
securitization will need to have clearly delineated voting rules and 
eligibility criteria in the event that some of its investors are 
through a resecuritization. It is hard for us to evaluate the extent to 
which this problem may affect the ABS markets because, over the past 
several years, there have been no registered resecuritizations of RMBS, 
CMBS, or Auto ABS.
    The requirements of this shelf eligibility criterion are meant to 
be the minimum procedures that should be included in the transaction 
documents to provide investors with a means to trigger a review of the 
assets. We acknowledge that transaction parties have and may develop 
more specific and robust procedures for monitoring and reviewing assets 
that support the ABS.\1100\ The adoption of this rule will not preclude 
the transaction parties from specifying additional, separate triggers 
for a review in the transaction agreements, as appropriate for a 
particular deal or asset class. To clarify, while we are permitting 
additional triggers to be established by the transaction parties, the 
final rule does not allow the transaction parties to add additional 
restrictions or requirements on the two triggers that we are 
establishing in order to make it more onerous for investors to utilize 
the provision.
---------------------------------------------------------------------------

    \1100\ For example, the shelf requirement would not preclude an 
ABS issuer from including a review trigger for any asset delinquent 
for 120 days or more, without requiring an investor vote, if such a 
trigger is appropriate for that transaction. The transaction 
documents for the shelf registration statement would, however, need 
to include, at minimum, the asset review requirements that we are 
adopting.
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(ii) Scope of the Review
    We are also modifying the proposal to add some specificity 
regarding the scope of the review, since we have changed the objective 
trigger from being based on credit enhancement to one based on 
delinquencies and received varied comments regarding the appropriate 
scope for a review based on delinquencies.\1101\ Under the final rule, 
once both prongs have been met (the delinquencies have reached or 
exceeded the threshold and investors have voted to conduct a review), a 
review must be

[[Page 57281]]

conducted of all assets that are 60 or more days delinquent as reported 
in the most recent periodic report, at a minimum, for compliance with 
the related representations and warranties, as suggested by commenters. 
We are also adopting, as proposed, that the transaction agreement must 
provide the reviewer with access to copies of the underlying loan 
documents in order to determine whether the loan complied with the 
representations and warranties.\1102\ As discussed below, a summary of 
the reviewer's report must be included in the Form 10-D.\1103\
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    \1101\ See letters from Metlife II (stating that a random sample 
of all 60+ day delinquent loans should be reviewed once a review is 
triggered) and Prudential II (stating that once a review is 
triggered the reviewer should be required to ``review all 60+ day 
delinquent loans and prior defaults'').
    \1102\ See General Instruction I.B.1(b)(B) of Form SF-3.
    \1103\ We would expect that the reviewer would conduct the 
review and provide its report to the trustee in a reasonably prompt 
manner once the review is triggered.
---------------------------------------------------------------------------

(iii) Report of the Findings and Conclusions
    As proposed, under the final rule, a report of the reviewer's 
findings and conclusions for all assets reviewed will be required to be 
provided to the trustee.\1104\ The trustee could then use the report to 
determine whether a repurchase request would be appropriate under the 
terms of the transaction agreements. We are also requiring, as 
proposed, that disclosure be provided about any event triggering a 
review of the assets in the Form 10-D filing for the period in which 
the event occurred.\1105\
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    \1104\ See General Instruction I.B.1(b)(E) of Form SF-3.
    \1105\ If the transaction parties decide to include additional 
triggers beyond the minimum two-prong trigger required by this shelf 
eligibility rule, then disclosure is required about those trigger 
events as well.
---------------------------------------------------------------------------

    We proposed to require that any report of results provided to the 
trustee also be filed on periodic report Form 10-D. Commenters 
generally supported filing the reports on Form 10-D. Several commenters 
indicated, however, that privacy concerns may arise related to the 
information about the underlying loans if a full report is filed and 
recommended that we instead require summaries of the reports.\1106\ We 
are persuaded by commenters that only a summary of the report of the 
findings and conclusions needs to be included on the Form 10-D. We 
acknowledge, however, a potential cost of this approach is that 
investors may not receive all of the information necessary to determine 
whether the trustee, or another party with demand rights, has made an 
appropriate decision regarding whether to initiate a repurchase 
request.
---------------------------------------------------------------------------

    \1106\ See letters from ABAASA II, ASF III, CREFC II, MBA III, 
VABSS III, and Wells Fargo II.
---------------------------------------------------------------------------

(iv) Selection of the Reviewer
    In response to comments received, we are not adopting the proposal 
to require that the trustee appoint the reviewer. We are requiring, 
instead, that the pooling and servicing agreement or other transaction 
agreement provide for the selection and appointment of the reviewer 
since we believe that the transaction parties should be able to agree 
on who should serve as the reviewer.\1107\
---------------------------------------------------------------------------

    \1107\ See General Instruction I.B.1(b) of Form SF-3.
---------------------------------------------------------------------------

    We are requiring, as proposed, disclosure in the prospectus of the 
name of the reviewer, its form of organization, the extent of its 
experience serving as a reviewer for ABS transactions involving similar 
pool assets, and the manner and amount in which the reviewer is 
compensated.\1108\ ABS investors will benefit from this increased 
disclosure as they will be able to assess the qualifications of the 
reviewer. ABS issuers will incur some additional disclosure costs to 
provide this information. In addition, as proposed, under the new rule 
disclosure is required with respect to: The reviewer's duties and 
responsibilities under the governing documents and under applicable 
law; any limitations on the reviewer's liability under the transaction 
agreements; any indemnification provisions; any contractual provisions 
or understanding regarding the reviewer's removal, replacement, or 
resignation, and how any related expenses would be paid.\1109\ In 
addition, we are adopting, as proposed, a requirement that if, during 
the reporting period, the reviewer has resigned, or has been removed, 
replaced or substituted, or if a new reviewer has been appointed, then 
disclosure regarding the event and circumstances surrounding the change 
must be provided in the report for the period in which the event 
occurred.\1110\
---------------------------------------------------------------------------

    \1108\ See Item 1109(b) of Regulation AB [17 CFR 229.1109(b)].
    \1109\ Id.
    \1110\ See Item 1121(d)(2).
---------------------------------------------------------------------------

    We are also adopting a requirement that prohibits the reviewer from 
being affiliated with certain transaction parties and from performing 
certain duties due to concerns over potential conflicts of interest. 
Under the final rule, the reviewer, at a minimum, cannot be affiliated 
with the sponsor, depositor, servicer, the trustee, or any of their 
affiliates.\1111\ In addition, a conflict may arise if the reviewer is 
also assigned the responsibility under the transaction documents to 
determine whether non-compliance with representations and warranties 
constitutes a breach of any contractual provision. Therefore, the 
reviewer shall not be the party to determine whether the non-compliance 
constitutes a breach. We believe that the role of the reviewer should 
be limited to reviewing the assets' compliance with the representations 
and warranties since we believe that the investors through the trustee 
are the most appropriate parties for determining, after reviewing the 
report of the conclusions and findings, whether to pursue a repurchase 
claim. In response to comments, particularly in the context of CMBS, 
the final rule will permit that the reviewer may be the same party 
serving another role in the transaction, provided that it is not 
affiliated with the sponsor, depositor, servicer, trustee, or any of 
their affiliates. As recommended by one commenter, however, the final 
rules prohibit the reviewer from being the same party or an affiliate 
of the party hired by the sponsor or underwriter to perform pre-closing 
due diligence on the pool assets due to the inherent conflict posed by 
the same party performing the pre-closing review and the review 
required by this shelf provision.\1112\ The reviewer is also prohibited 
from being affiliated with the trustee in light of several commenters 
recommending this prohibition given the economic relationships the 
trustee or its affiliates may have with other transaction parties and 
the conflicts of interest that such relationships may create.\1113\ We 
have not, however, added investors as a prohibited affiliation, as some 
commenters requested.\1114\ We understand that issuers might view 
investor affiliation with the reviewer as a possible conflict; however, 
since issuers will be responsible for selecting the reviewer, they will 
be able to address any concern. We do not think such an affiliation 
will likely cause harm or conflict to investors as a whole because, if 
there is evidence of high or growing delinquencies in the asset pool, 
it would be in the best interest of investors as a whole to have a 
review conducted in order to determine whether investors should make a 
repurchase demand.\1115\ Because the

[[Page 57282]]

rule establishes the minimum restrictions on affiliations, the 
transaction parties could agree to exclude other parties based on their 
relationships. As proposed, the final rule requires disclosure about 
those relationships in the prospectus, which will help alert investors 
to any potential conflicts.\1116\
---------------------------------------------------------------------------

    \1111\ See Item 1101(m) of Regulation AB (defining the 
reviewer).
    \1112\ See letter from SIFMA II-investors.
    \1113\ See letters from Better Markets, J.P. Morgan II, and 
Prudential II.
    \1114\ See letters from Better Markets and J.P. Morgan II.
    \1115\ However, any investor, or affiliate of an investor, 
affiliated with a sponsor, depositor, or any servicer would not 
qualify as a reviewer. For example, in the context of CMBS, an 
investor that is affiliated with a special servicer would not 
qualify as a reviewer.
    \1116\ Item 1119 of Regulation AB requires disclosure of any 
known, material relationships among the various parties to the 
transaction and the character of those relationships.
---------------------------------------------------------------------------

    As noted above, some commenters suggested, as an alternative, that 
we revert back to an approach proposed in the 2010 ABS Proposing 
Release. They recommended that we allow issuers of asset classes other 
than residential mortgages the option to choose between the 2011 ABS 
Re-Proposal to require review of the assets upon certain triggers being 
met or the 2010 ABS Proposal to allow for a third-party review 
opinion.\1117\ These commenters explained that the 2010 ABS Proposal 
for a third-party review opinion would limit costs on the issuers where 
repurchases have not presented the same difficulties as they have in 
RMBS.\1118\ However, in response to the 2010 ABS Proposal, some 
commenters stated that the third-party opinion provision would not 
provide investors with the protection they would need in the event 
issues arise with the enforcement of representations and warranties 
provisions because, in general, transaction agreements have not 
included mechanisms to identify potential breaches of representations 
and warranties.\1119\ The rule we are adopting is designed to protect 
against potential risks even where they have not surfaced in the past. 
As noted above, a group of investors commented that despite the 
additional costs, increased investor protections will produce net 
economic benefits to investors.\1120\ In light of these considerations, 
rather than permitting a third-party opinion as an alternative 
requirement for shelf eligibility, we have revised the review process 
to address the costs concerns.
---------------------------------------------------------------------------

    \1117\ See letters from ASF III, BoA II, and VABSS III. See also 
footnote 1054.
    \1118\ See letters from ASF III, BoA II, and VABSS III.
    \1119\ See letters from ABAASA I, ASF I, BoA I, J.P. Morgan I, 
Metlife I, Prudential I, SIFMA I, VABSS I, Vanguard, and Wells Fargo 
I.
    \1120\ See letter from SIFMA II-investors.
---------------------------------------------------------------------------

(3) Dispute Resolution Provision
(a) Proposed Rule
    In the 2011 ABS Re-Proposal, along with the credit risk manager 
proposal, we proposed to require that underlying transaction documents 
include repurchase request dispute resolution procedures. As we have 
noted elsewhere, not only have investors lacked a mechanism to identify 
potential breaches of the representations and warranties, they have 
also lacked a mechanism to require sponsors to address their repurchase 
requests in a timely manner.\1121\ Under the proposal, the transaction 
agreements would be required to provide that if an asset subject to a 
repurchase request pursuant to the terms of the transaction agreements 
is not repurchased by the end of the 180-day period beginning when 
notice is received, then the party submitting such repurchase request 
will have the right to refer the matter, at its discretion, to either 
mediation or third-party arbitration, and the party obligated to 
repurchase must agree to the selected resolution method. As noted 
above, the dispute resolution provision, along with the other new shelf 
transaction requirements, should encourage ABS issuers to design and 
prepare ABS offerings with greater oversight and care. We believe that 
the dispute resolution provision will enhance the enforceability of the 
transaction terms and should incentivize issuers to provide investors 
with accurate and complete information at the time of the offering. We 
believe that these requirements are appropriate for asset-backed 
securities transactions to be offered to the public off a shelf 
registration statement.
---------------------------------------------------------------------------

    \1121\ See the 2011 ABS Re-Proposal at 47956-57. See also the 
Section 943 Adopting Release at 4489-90.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Commenters generally supported a dispute resolution process.\1122\ 
Several commenters recommended that we require that binding arbitration 
be the sole process.\1123\ We received a significant number of comments 
stating that 180 days is an appropriate time period for the obligated 
party to review repurchase requests.\1124\ One commenter stated that 
180 days may not be long enough for RMBS.\1125\ Another commenter noted 
that transactions backed by assets that have shorter maturity dates 
should have a shorter timeframe.\1126\ Although the proposed rule did 
not specifically address payment of the costs of the dispute resolution 
process, several commenters made recommendations for which party should 
pay.\1127\ We also received comments that we specify that a repurchase 
is not the only way a repurchase request can be satisfied.\1128\
---------------------------------------------------------------------------

    \1122\ See letters from ASF III, BoA II, J.P. Morgan II, MBA 
III, Metlife II, Prudential II, SIFMA III-dealers and sponsors, and 
Wells Fargo II.
    \1123\ See letters from BoA II, J.P. Morgan II, Prudential II, 
SIFMA II-investors, SIFMA III-dealers and sponsors, and Wells Fargo 
II (all noting that binding arbitration would be the best form of 
dispute resolution).
    \1124\ See letters from ASF III, J.P. Morgan II, Metlife II, and 
Prudential II.
    \1125\ See letter from MBA III (stating that due to rebuttals it 
may take longer than 180 days to resolve a dispute).
    \1126\ See letter from Metlife II (stating that 180 days may be 
too long for shorter term transactions since some investors may hold 
classes that pay off sooner).
    \1127\ Nine commenters suggested that the party that loses the 
dispute should pay for all legal fees incurred by the prevailing 
party. See letters from ABASA II, BoA II, J.P. Morgan II, MBA III, 
Metlife II, SIFMA II-investors, SIFMA III-dealers and sponsors, and 
Sallie Mae II. One commenter recommended that the arbitrator should 
be responsible for determining who pays. See letter from Prudential 
II. Another suggested that the transaction documents specify who 
pays for the resolution. See letter from Wells Fargo II.
    \1128\ See letters from ASF III (stating that the requirement, 
as written, may have the unintended effect of restricting the 
resolution of a repurchase request to only repurchasing the asset), 
MBA III (stating ``given the potential for non-repurchase resolution 
of a breach, MBA recommends changing the focus of the Re-proposal 
from `repurchases' not completed in 180 days to `resolutions' not 
completed within 180 days''), and SIFMA II-investors and SIFMA III-
dealers and sponsors (noting that remedies for a breach would be 
``cure of the breach, repurchase of the affected pool asset for the 
purchase price specified in the transaction documents, or, if 
applicable and if provided in the transaction documents, 
substitution of a pool asset having substantially similar 
characteristics as the defective pool asset'').
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Dispute Resolution Shelf 
Requirement
    As a third transaction requirement for shelf registration, we are 
requiring, as proposed but with slight modification, that the 
underlying transaction documents include dispute resolution procedures 
for repurchase requests.\1129\ We note that our original proposal for 
the dispute resolution requirement appeared in the same subsection of 
Form SF-3 as our credit risk manager proposal, even though we intended 
them to operate separately from each other. Thus, while we believed 
that our asset review shelf requirement would help investors evaluate 
whether a repurchase request should be made, we structured the dispute 
resolution provision so that investors could utilize the dispute 
resolution provision for any repurchase request, regardless of whether 
investors direct a review of the assets. We believe that organizing the 
dispute resolution requirement as a separate subsection in the shelf 
eligibility requirements will help to

[[Page 57283]]

clarify the scope of the dispute resolution provision.
---------------------------------------------------------------------------

    \1129\ Disclosure regarding the dispute resolution procedures is 
required in the prospectus under Item 1111(e) of Regulation AB.
---------------------------------------------------------------------------

    As we have discussed above, the shelf eligibility conditions that 
we are adopting are intended to help ensure that ABS shelf offerings 
have transactional safeguards and features that make securities 
appropriate to be issued off a shelf. We believe that the dispute 
resolution provision will provide a key procedural safeguard for 
investors to resolve disputes over repurchase requests in an effective 
and timely manner. We expect that the dispute resolution provision 
should generate efficiencies in the repurchase request process. We 
believe that, as a result of the asset review provision and the dispute 
provision, sponsors may have an increased incentive to carefully 
consider the characteristics of the assets underlying the 
securitization and to accurately disclose these characteristics at the 
time of the offering. We also believe that investors should benefit 
from reduced losses associated with nonperforming assets since, as a 
result of this new shelf requirement, sponsors will have less of an 
incentive to include nonperforming assets in the pool.
    Under the new rule, the transaction agreements must provide that if 
an asset subject to a repurchase request pursuant to the terms of the 
transaction agreements is not resolved by the end of the 180-day period 
beginning when notice is received, then the party submitting such 
repurchase request will have the right to refer the matter, at its 
discretion, to either mediation or third-party arbitration, and the 
party obligated to repurchase or replace must agree to the selected 
resolution method.\1130\ In response to comments, the final rule 
applies to those assets subject to a repurchase request that has not 
been resolved. We agree with several commenters that indicated that the 
term ``resolved'' is more appropriate than ``repurchased,'' which was 
proposed, since ``repurchased'' could have the unintended effect of 
restricting resolution of a repurchase request only to repurchasing the 
asset.\1131\ We also believe that investors should be able to utilize 
the dispute resolution provision not only in connection with those 
requests in which the sponsor has failed to respond in a timely manner 
but also for those requests in which investors believe that the 
resolution offered by the sponsor does not make them whole.
---------------------------------------------------------------------------

    \1130\ Several commenters asked us to clarify that a repurchase 
is not the only way a repurchase request can be satisfied. See 
letters from ASF III, MBA III, SIFMA II-investors, and SIFMA III-
dealers and sponsors.
    \1131\ See letters from ASF III, MBA III, SIFMA II-investors, 
and SIFMA III-dealers and sponsors. We made a similar change in an 
asset-level data point capturing repurchase requests in order to use 
consistent terminology and to help ensure accurate tracking of the 
status of repurchase requests. See footnote 225.
---------------------------------------------------------------------------

    We realize there are possible costs associated with setting the 
waiting period at 180 days before the party submitting the request has 
the right to refer the matter to mediation or arbitration. On the one 
hand, we recognize that there is the possibility that 180 days may not 
be long enough to come to a resolution due to numerous rebuttals in 
some situations, as noted by one commenter.\1132\ This commenter 
recommended that the 180 days serve as a timeframe for due diligence 
and discussion and that the transaction parties be permitted to specify 
in the transaction agreements how much additional time beyond the 180 
days the responsible party should be provided before the requesting 
party has the right to refer the dispute to mediation or arbitration. 
We believe that such an approach, however, may result in investors 
having to wait too long before being able to proceed to mediation or 
arbitration. On the other hand, we also recognize that the 180-day 
period may be too long for shorter term transactions since some 
investors may hold classes of assets that pay off sooner than 180 days. 
Although commenters generally supported the 180-day waiting period, one 
commenter recommended, for shorter term transactions, that the 
timeframe be reduced to 90 days before investors could proceed to 
mediation or arbitration.\1133\ While we appreciate the timing issues 
raised by shorter term transactions, it is not clear that 90 days 
provides the responsible party with enough time to complete due 
diligence and engage in discussions with the requesting party. For 
these reasons, we believe 180 days, in general, fairly balances the 
need of investors for quick resolution with the desire of issuers for 
time to address the request.
---------------------------------------------------------------------------

    \1132\ See letter from MBA III.
    \1133\ See letter from MetLife II.
---------------------------------------------------------------------------

    In addition, some commenters recommended that we require binding 
arbitration as the single form of dispute resolution. Because we 
believe that investors should have access to all options available to 
resolve a dispute, we are not requiring a specific form or process to 
resolve disputes. The final rule permits a demanding party to determine 
what form of dispute resolution is appropriate.
    Finally, after considering the comments received, we are requiring 
that the transaction documents specify that if arbitration occurs, the 
arbitrator will determine the party responsible for paying the dispute 
resolution fees and in the case of mediation, the parties, with the 
assistance of the mediator, will mutually agree on the allocation of 
the expenses incurred. While some commenters recommended that the 
losing party should pay the expenses, we believe that letting the 
arbitrator or the parties in mediation determine who pays balances 
competing concerns. On the one hand, some commenters expressed concern 
about the possibility of investors using the dispute resolution process 
for frivolous disputes and therefore recommended that we require the 
transaction documents to specify that the losing party pays.\1134\ On 
the other hand, there may be instances where the requesting party uses 
the dispute resolution process for a legitimate claim and the 
arbitrator rules against the claim but believes that the requesting 
party should not be required to bear all the expenses associated with 
the dispute resolution.\1135\ By giving the arbitrator the discretion 
to make this determination based on the facts and circumstances of the 
repurchase claim at issue, we believe investors will not be discouraged 
from using the dispute resolution process for valid claims while also 
curbing potentially frivolous claims, given the possibility of having 
to pay the fees associated with the dispute resolution.
---------------------------------------------------------------------------

    \1134\ See, e.g., letters from BoA II, J.P. Morgan II, and MBA 
III.
    \1135\ See letter from Prudential II.
---------------------------------------------------------------------------

    We recognize that the dispute resolution provision could result in 
increased costs for ABS issuers and investors. We believe that these 
costs will likely be similar to other securities industry dispute 
resolution costs, which typically include filing fees, hearing session 
fees, and other miscellaneous arbitrator or mediator expenses. 
According to FINRA, arbitration and mediation filing fees depend on the 
size of the claim and can be up to $500 for an amount in controversy 
over $100,000.\1136\ In addition, the dispute parties will incur the 
costs of arbitrator/mediator compensation, which depends on the length 
of the hearing and the complexity of the case. A typical arbitration 
hearing of three days can cost from $2,700 to $6,750 for an amount in 
controversy in the $100,000 to $500,000 range.\1137\ A typical

[[Page 57284]]

mediation hearing of one day can cost between $1,000 and $6,400.\1138\ 
The parties will also incur attorneys' fees with arbitration or 
mediation hearings, which will depend upon the length of the hearing, 
the number of attorneys involved, and the amount of preparation 
required.
---------------------------------------------------------------------------

    \1136\ For more information about securities-related arbitration 
and mediation, including typical costs, see FINRA's Dispute 
Resolution Web site, http://www.finra.org/ArbitrationAndMediation/FINRADisputeResolution/.
    \1137\ See FINRA Manual, Section 12902, Hearing Session Fees, 
and Other Costs and Expenses, available at http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=4190. See 
also Seth Lipner, Is Arbitration Really Cheaper?, Forbes, July 14, 
2009, available at http://www.forbes.com/2009/07/14/lipner-arbitration-litigation-intelligent-investing-cost.html (stating that 
the average arbitration requires three days of hearings).
    \1138\ See FINRA's Mediation Web site, http://www.finra.org/ArbitrationAndMediation/Mediation/Process/MediationSessions/index.htm (stating that mediations usually take one day). We used 
mediation hourly rates provided by the American Arbitration 
Association for cost estimates for mediation since FINRA does not 
provide information on mediator's hourly rates. For more information 
about the costs of mediation, see the American Arbitration 
Association's Web site, www.adr.org.
---------------------------------------------------------------------------

    Because the dispute resolution provision is not limited strictly to 
repurchase requests connected with a review pursuant to the asset 
review provision, there is a possibility that frivolous repurchase 
requests could be made and thus subject to the dispute resolution 
process. As discussed above, under the final rule the requesting party 
could be responsible for paying the dispute resolution expenses based 
on a determination by the arbitrator (or if the parties mutually agree 
that the requesting party should incur these expenses in the case of 
mediation). This is intended to limit the number of potentially 
frivolous claims.
(4) Investor Communication
(a) Proposed Rule
    In the 2011 ABS Re-Proposing Release, we proposed, as a shelf 
eligibility requirement, a method for facilitating investor 
communication with other investors related to their rights under the 
terms of the ABS. In particular, the proposed rule would require that 
the transaction agreements contain a provision requiring the party 
responsible for filing the Form 10-D to include in ongoing distribution 
reports on Form 10-D any request received from an investor to 
communicate with other investors related to investors exercising their 
rights under the terms of the asset-backed security. The request to 
communicate would be required to include: the name of the investor 
making the request, the date the request was received, and a 
description of the method by which other investors may contact the 
requesting investor. As we discussed in the 2011 ABS Re-Proposing 
Release, investors have raised concerns about the inability to locate 
other investors in order to enforce rights contained in the transaction 
documents, such as those relating to the repurchase of underlying 
assets for breach of representations and warranties.\1139\ Frequently, 
in order to act, the transaction agreements require a minimum 
percentage of investors acting together. Additionally, as one investor 
noted, since most ABS are held by custodians or brokers in ``street 
name'' through the Depository Trust Company (DTC), investors face 
further difficulties in trying to locate one another to communicate 
about exercising their investor rights.\1140\
---------------------------------------------------------------------------

    \1139\ See the 2011 ABS Re-Proposing Release at 47959. See also 
Alex Ulam, Investors Try to Use Trustees as Wedge in Mortgage Put-
Back Fight, American Banker (June 24, 2011) (noting that many 
attempted put-backs have ``flamed out after investor coalitions 
failed to get the 25% bondholder votes that pooling and servicing 
agreements require for a trustee to be forced to take action against 
a mortgage servicer''); Tom Hals & Al Yoon, Mortgage Investors 
Zeroing in on Subprime Lender, Thomson Reuters (May 9, 2011) (noting 
that gathering the requisite number of investors needed to demand 
accountability for faulty loans pooled into investments is a 
laborious task).
    \1140\ See letter from MetLife I. DTC is a securities depository 
and a clearing agency registered with the Commission and provides 
settlement services, including immobilizing securities and making 
book-entry changes to ownership of securities deposited by its 
participants, in order to facilitate the end-of-day net settlement 
in multiple markets. For a more detailed description of DTC's 
services see The Depository Trust Company Assessment of Compliance 
with the CPSS/IOSCO Recommendations for Securities Settlement 
Systems (Dec. 12, 2011), http://dtcc.com/en/legal/policy-and-compliance.aspx.
---------------------------------------------------------------------------

    While we did not propose specific procedural requirements for 
verifying that the person requesting to communicate is a beneficial 
owner of the particular ABS, we proposed to include an instruction to 
limit investor verification requirements, if the underlying transaction 
agreements contain such procedures, to no more than the following: (1) 
If the investor is a record holder of the securities at the time of a 
request to communicate, then the investor would not have to provide 
verification of ownership because the person obligated to make the 
disclosure will have access to a list of record holders; and (2) if the 
investor is not the record holder of the securities at the time of the 
request to communicate, the person obligated to make the disclosure 
must receive a written statement from the record holder verifying that, 
at the time the request is submitted, the investor beneficially held 
the securities.
(b) Comments on Proposed Rule
    Many commenters were generally supportive of the concept to allow 
for mechanisms for investors to contact and communicate with each 
other.\1141\ Some commenters generally supported the proposal that 
investors' requests to communicate be reported on Form 10-D.\1142\ 
Other commenters suggested that the Commission allow for alternative 
methods of communication and recommended that the Commission permit the 
use of investor registries and trustee Web site processes currently in 
practice for many recent CMBS transactions.\1143\ Some of these 
commenters noted that it would be quicker for investors to communicate 
with each other on a Web site compared to requiring the issuer to 
include the notice on Form 10-D and would be less costly.\1144\ One of 
these commenters also recommended a Web site approach because it would 
provide investors with more privacy, which investors may want in 
certain situations.\1145\ The other commenter noted that a Web site 
approach could provide investors with an open and instant dialogue with 
other investors.\1146\
---------------------------------------------------------------------------

    \1141\ See letters from ABA II, ABAASA II, ASF III, BoA II, 
CREFC II, ICI II, MBA III, Metlife II, Prudential II, VABSS III, and 
Wells Fargo II.
    \1142\ See letters from ASF III, BoA II, ICI II, Metlife II, and 
VABSS III.
    \1143\ See letters from ABA II, ABAASA II, ASF III, BoA II, 
CREFC II, Metlife II, MBA III, Prudential II, VABSS III, and Wells 
Fargo II.
    \1144\ See letters from CREFC II and Wells Fargo II.
    \1145\ See letter from CREFC II.
    \1146\ See letter from Wells Fargo II.
---------------------------------------------------------------------------

    Commenters suggested other methods to simplify the verification 
process. One commenter opposed the proposed instruction on how an 
investor's ownership of the securities is verified because most 
certificates are held through DTC, which may make it difficult and 
costly to determine who the ultimate holders are.\1147\ Several 
commenters suggested requiring investors to complete a certification 
regarding their ownership.\1148\ Another commenter suggested a written 
certification plus one or more items to verify interest.\1149\ One 
commenter suggested that the right to communicate be limited to current 
investors and that the nature of communication be limited to a 
``factual statement that the investor wishes to communicate with other 
investors with respect to exercising a right under the transaction 
documents.'' \1150\ This commenter explained that limiting the nature 
of the

[[Page 57285]]

communication would eliminate any need for the filing party to monitor 
or edit the communication and also would address any liability concerns 
associated with the inclusion of references to a specific party to the 
transaction or as to what contractual standard may have been violated. 
Responding to a request for comment in the 2011 ABS Re-Proposing 
Release,\1151\ some commenters stated the disclosure should include a 
reason for the communication that would be specified in a pre-set 
list.\1152\ One commenter, however, opposed requiring the issuer to 
disclose the type or category of matter that the investor wishes to 
discuss with other investors.\1153\
---------------------------------------------------------------------------

    \1147\ See letter from CREFC II.
    \1148\ See letters from MBA III and Wells Fargo II.
    \1149\ See letter from ABA II (stating ``in circumstances in 
which rapid verification of investor status has been required, 
trustees have accepted screen shots from DTC, letters from 
registered broker-dealers affirming the identity of the beneficial 
owner on whose behalf they hold a position, and copies of trade 
confirmations'').
    \1150\ See letter from MBA III.
    \1151\ See Request for Comment No. 43 in the 2011 ABS Re-
Proposing Release (requesting comment as to whether a pre-set list 
of reasons for communication should be required--the pre-set list 
would include the following categories: Servicing, trustee, 
representations and warranties, voting matters, pool assets, and 
other).
    \1152\ See letters from ABAASA II and BoA II.
    \1153\ See letter from ABA II (noting its belief that ``such 
information is more appropriately conveyed directly by the investor 
itself and should not be given an imprimatur of the issuer (or 
trustee) involved in facilitating the request'').
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Investor Communication 
Shelf Requirement
    We are adopting, as proposed, a shelf eligibility requirement that 
an underlying transaction agreement include a provision to require the 
party responsible for making periodic filings on Form 10-D to include 
in the Form 10-D any request from an investor to communicate with other 
investors related to an investor's rights under the terms of the ABS 
that was received during the reporting period by the party responsible 
for making the Form 10-D filings.\1154\ Without an effective means for 
investors to communicate with each other, investors may be unable to 
utilize the contractual rights provided in the underlying transaction 
agreements.\1155\ Therefore, we are requiring that the investor 
communication provision be included in an underlying transaction 
agreement so that the party responsible for making Form 10-D filings 
will be contractually obligated to disclose an investor's desire to 
communicate.\1156\ We continue to believe that this is an appropriate 
requirement for ABS shelf eligibility because facilitating 
communications among investors enables them to more effectively 
exercise the rights included in the underlying transaction agreements, 
which we believe will enhance the enforceability of representations and 
warranties regarding the pool assets. As noted above, the new shelf 
transaction requirements should encourage ABS issuers to design and 
prepare ABS offerings with greater oversight and care. We believe that 
stronger enforcement mechanisms should incentivize issuers to provide 
investors with accurate and complete information at the time of the 
offering. This shelf eligibility requirement, for example, will assist 
investors in exercising their rights related to the new asset review 
provision required for shelf eligibility. Those rights would include 
the right to direct a review of underlying assets to determine whether 
the assets comply with the representations and warranties. 
Consequently, we believe that these new shelf requirements aimed at 
helping investors exercise their contractual rights will assist in 
increasing investors' participation in the ABS markets and thereby 
foster greater capital formation.
---------------------------------------------------------------------------

    \1154\ Most ABS issuers report and distribute payments to 
investors on a monthly basis. The Form 10-D is required to be filed 
within fifteen days after a required distribution date, and a 
distribution date is typically two weeks after the end of a 
reporting period. For example, under our final rule, for the month 
of June, a request from an investor would have to be received prior 
to the close of the reporting period on June 30, a distribution 
would be due to investors by July 15, and the Form 10-D filing due 
date would be July 30.
    \1155\ See Paul A. Burke & Michael C. Morcom, Improving Issuer-
Investor Communication in U.S. Securitization Transactions, J. 
Structured Fin., Summer 2013, at 27-31 (discussing the problems 
associated with the current communication process between issuers 
and investors and arguing that ``[a] critical piece of an effective 
bondholder communication system is [the] initial `push' of 
information out to the investor'').
    \1156\ See also new Item 1121(e) (requiring disclosure of 
investors' request to communicate on Form 10-D).
---------------------------------------------------------------------------

    In previous releases, we have recognized that in certain 
circumstances the Internet can present a cost-effective alternative or 
supplement to traditional disclosure methods. We considered whether a 
Web site or investor registry would be a more effective approach to 
facilitate investor communication, including consideration of the 
comments received supporting a Web site approach. While we appreciate 
some of the potential benefits that may be afforded by a Web site 
approach, such as faster dissemination of the notices and more robust 
communication capabilities as noted by some commenters,\1157\ we 
believe that requiring that the investor communication notices be filed 
with the Form 10-D is the best way to ensure that these requests reach 
investors. This approach is consistent with our efforts to facilitate 
the distribution of all investor information regarding the ABS in one 
place at an expected time--that is, through distribution reports that 
are attached as exhibits to the Form 10-D. We also believe that this 
approach is a cost-effective means for issuers to provide investors 
with communication notices since we are using an existing periodic 
report. Additionally, by requiring issuers to file the notices with the 
Commission, as opposed to posting the notices on a Web site, we will be 
able to more effectively monitor compliance with this shelf requirement 
and provide investors with reliable access to the notices through 
EDGAR, even at times when the markets are in distress and issuers' Web 
sites are not accessible. Finally, we note that while our shelf 
requirement is intended to provide investors with at least one method 
to contact other investors, the final rule does not preclude issuers 
from utilizing Web sites to provide investors with more robust 
communications capabilities and we encourage issuers to do so.
---------------------------------------------------------------------------

    \1157\ See, e.g., letters from CREFC II and Wells Fargo II.
---------------------------------------------------------------------------

    We acknowledged in the 2011 ABS Re-Proposing Release that 
transaction parties might want to specify procedures in the underlying 
transaction agreements for verifying the identity of a beneficial owner 
in a particular ABS prior to including a notice in a Form 10-D. While 
we did not propose specific procedural requirements to be added to the 
agreements, we did propose to limit the extent of the verification 
procedures that the transaction parties could impose to verify investor 
ownership. As summarized above, several commenters consisting of 
issuers, investors, trustees, and trade associations suggested that the 
investor verification procedures should be easy and quick to perform 
and provided various recommendations for the Commission to 
consider.\1158\ Taking into account suggestions from commenters, we are 
modifying part of the proposed instruction to specify that, if the 
investor is not the record holder of the securities, an issuer may 
require no more than a written certification from the investor that it 
is a beneficial owner and another form of documentation such as a trade 
confirmation, an account statement, a letter from the broker or dealer, 
or other similar document verifying ownership.\1159\ We are making this

[[Page 57286]]

change since ownership of most ABS is held in book-entry form through 
DTC.\1160\ We are also adopting, as proposed, the other part of the 
instruction that states that if the investor is the record holder of 
the securities, an investor will not have to provide verification of 
ownership because the person obligated to make the disclosure will have 
access to a list of record holders.
---------------------------------------------------------------------------

    \1158\ See letters from ABA II, BoA II, CREFC II, and MBA III.
    \1159\ We note that these ownership verification procedures are 
less prescriptive than the ownership eligibility requirements to 
submit a proposal under Exchange Act Rule 14a-8; however, we believe 
that this flexibility is appropriate because the provision is more 
limited in its scope to only providing notification to other 
investors of their interest to communicate.
    \1160\ See letter from CREFC II (explaining that although the 
trustee can request a list of beneficial owners from DTC, the 
process can be costly and can take days or weeks to complete).
---------------------------------------------------------------------------

    Under the final rule, the disclosure in Form 10-D is required to 
include no more than the name of the investor making the request, the 
date the request was received, a statement to the effect that the party 
responsible for filing the Form 10-D has received a request from such 
investor, stating that such investor is interested in communicating 
with other investors about the possible exercise of rights under the 
transaction agreements, and a description of the method by which other 
investors may contact the requesting investor.\1161\ While we requested 
comment on whether we should prescribe a pre-set list of objective 
categories from which an investor could choose for the purpose of 
indicating why it is requesting communication with other investors, we 
are not requiring that the investor specify the substance of the 
communication due to concerns raised by commenters. As summarized 
above, some commenters opposed imposing any obligation on the party 
responsible for filing the Form 10-D to monitor or edit the 
communications.\1162\ We also agree with one commenter that the 
substance of the communication is more appropriately conveyed directly 
by the investor and should not be given an imprimatur of the party 
involved in facilitating the communication request.\1163\ Thus, the 
purpose of this communication requirement is not to communicate 
specific issues or concerns of an investor but rather is intended to be 
a method for investors to notify other investors of their interest to 
communicate.
---------------------------------------------------------------------------

    \1161\ See Item 1121(e) and Item 1.B. of Form 10-D.
    \1162\ See letters from ABA II and MBA III.
    \1163\ See letter from ABA II.
---------------------------------------------------------------------------

    As proposed, we are also including an instruction to Item 1121(e) 
of Regulation AB to define the type of notices that are required to be 
on Form 10-D. The party responsible for filing the Form 10-D will be 
required to include disclosure of only those notices of an investor's 
desire to communicate where the communication relates to the investor 
exercising its rights under the terms of the ABS. Thus, the party 
responsible for filing is not required to disclose an investor's desire 
to communicate for other purposes, such as identifying potential 
customers or marketing efforts.\1164\
---------------------------------------------------------------------------

    \1164\ To the extent an investor wishes to communicate with 
other investors about other matters, the investor must consider 
independently the potential applicability of other regulatory 
provisions under the federal securities laws. For example, an 
investor proposing to commence a tender offer for securities in the 
ABS class must evaluate whether such a communication is subject to 
Exchange Act Sections 14(d) and 14(e) and Regulations 14D and 14E 
thereunder.
---------------------------------------------------------------------------

    While we acknowledge that issuers will incur some cost to implement 
this provision, we believe, taken together with the new asset review 
provision, that the disclosure will benefit investors by helping them 
establish communication and overcome collective action problems. As a 
result, this requirement should help investors exercise their rights 
under the transaction agreements, including those that are required to 
be included in the transaction documents to comply with shelf 
eligibility requirements. We acknowledge that the rule will minimally 
increase the costs for the party responsible for making the periodic 
filings on Form 10-D since it will need to modify its existing 
information systems to receive investors' requests to communicate. 
However, this is a very low cost method to help distinguish shelf 
appropriate ABS offerings. The Form 10-D is an existing periodic report 
that provides investors with, among other things, distribution 
information and pool performance information for the distribution 
period. Given the nature and frequency of the Form 10-D, we believe 
that adding the investor communication request requirement to the Form 
10-D is appropriate and beneficial to investors because it will 
facilitate the distribution of all investor information regarding the 
ABS in one place, at an expected time. Using an existing form will also 
limit the cost for issuers because a separate reporting mechanism will 
not be necessary. While we have sought to limit costs by using Form 10-
D, we recognize for those issuers that currently offer investor 
registries or Web sites and decide to continue to offer those methods 
of communication that there will be additional costs.
(b) Shelf Eligibility--Registrant Requirements
    In the 2010 ABS Proposing Release, we proposed new registrant 
requirements related to compliance with the proposed transaction 
requirements for shelf eligibility (i.e., risk retention, a third-party 
opinion provision in transaction agreements, an officer certification, 
and an undertaking to file ongoing Exchange Act reports).\1165\ We 
proposed that prior to filing a registration statement on proposed Form 
SF-3 to the extent the depositor, any issuing entity that was 
previously established by the depositor, or an affiliate of the 
depositor is or was at any time during the previous twelve months 
required to comply with the proposed transaction requirements of Form 
SF-3 with respect to a previous offering of asset-backed securities 
involving the same asset class, such depositor, each such issuing 
entity, and any affiliate of the depositor must have filed all material 
required to be filed during the twelve months (or shorter period that 
the entity was required to have filed such materials). Also, such 
material, other than certain specified reports on Form 8-K, must have 
been filed in a timely manner.\1166\ Finally, we proposed a separate 
registrant requirement that there be disclosure in the registration 
statement stating that the proposed registrant requirements have been 
complied with.
---------------------------------------------------------------------------

    \1165\ For a list of existing shelf eligibility conditions that 
we are including in new Form SF-3, see footnote 874.
    \1166\ See General Instruction I.A.2 to Form SF-3.
---------------------------------------------------------------------------

    In light of the changes to proposed amendments to the transaction 
requirements for shelf eligibility, we revised the proposed registrant 
requirements to make conforming changes in the 2011 ABS Re-Proposal. We 
re-proposed that to the extent the depositor, any issuing entity that 
was previously established by the depositor, or any affiliate of the 
depositor is or was at any time during the twelve month look-back 
period required to comply with the proposed transaction requirements of 
Form SF-3 with respect to a previous offering of asset-backed 
securities involving the same asset class then the registrant must meet 
certain registrant requirements at the time of filing the shelf 
registration statement. The re-proposed registrant requirements would 
require that such depositor, each such issuing entity, and any 
affiliate of the depositor must have timely filed all required 
certifications and all transaction agreements that contain the required 
provisions relating to the credit

[[Page 57287]]

risk manager, repurchase request disputes, and investor communication.
    In addition, we re-proposed to make the proposed separate 
registrant requirement that would have required the registrant to 
include disclosure in the registration statement stating the depositor 
has complied with the registrant requirements an instruction rather 
than a shelf eligibility registrant requirement.
    Because we did not receive any comments on the revised registrant 
requirements for shelf eligibility, we are adopting the revised 
registrant requirements largely as re-proposed. Under the final rule, 
we are retaining the registrant requirement that was previously in Form 
S-3 relating to delinquent filings of the depositor or an affiliate of 
the depositor for purposes of new Form SF-3. Since registrants are 
already required to comply with this particular existing shelf 
registrant requirement, registrants should not incur additional 
compliance costs.
    The final rule also requires that to the extent the depositor or 
any issuing entity that was previously established by the depositor, or 
any affiliate of the depositor is or was at any time during the twelve 
month look-back period required to comply with the transaction 
requirements of Form SF-3 with respect to a previous offering of asset-
backed securities involving the same asset class, then such depositor, 
each such issuing entity, and any affiliate of the depositor, must have 
timely filed all required certifications and all transaction agreements 
that contain the required provisions relating to the asset review 
provision, dispute resolution, and investor communication.
    We believe that connecting the registrant requirements to the 
transaction requirements of prior offerings by the depositor, or 
affiliates of the depositor, will incentivize the depositor to timely 
file all required transaction documents with the required provisions 
and the required certifications.
    In addition, as proposed, we are including an instruction stating 
that the registrant must disclose in a prospectus that it has met the 
registrant requirements. We believe disclosure of compliance with the 
registrant requirements will provide a means for market participants 
(as well as the Commission and its staff) to better gauge compliance 
with the shelf eligibility conditions of Form SF-3.
(c) Annual Evaluation of Form SF-3 Eligibility in Lieu of Section 
10(a)(3) Update
(1) Annual Compliance Check Related to Timely Exchange Act Reporting
(a) Proposed Rule
    As we noted in the 2010 ABS Proposing Release, Form S-3 eligibility 
is determined at the time of filing the registration statement and 
again at the time of updating the registration statement under 
Securities Act Section 10(a)(3) by filing audited financial 
statements.\1167\ We explained that, because ABS registration 
statements do not contain financial statements of the issuer, we 
believe a different periodic determination of continued shelf 
eligibility must be established. We believed that such an evaluation 
would provide us and the staff with a better means to oversee 
compliance of the new Form SF-3 eligibility conditions that would 
replace the investment-grade ratings requirement. Therefore, in lieu of 
the Section 10(a)(3) updating, we proposed to revise Securities Act 
Rule 401 to require, as a condition to conducting an offering off an 
effective shelf registration statement, an annual evaluation of whether 
the Exchange Act reporting registrant requirements have been satisfied. 
An ABS issuer wishing to conduct a takedown off an effective shelf 
registration statement would be required to evaluate whether the 
depositor, any issuing entity previously established by the depositor 
or any affiliate of the depositor that was required to report under 
Sections 13(a) and 15(d) of the Exchange Act during the previous twelve 
months for asset-backed securities involving the same asset class, have 
filed such reports on a timely basis, as of 90 days after the end of 
the depositor's fiscal year end.\1168\ Under this proposal the related 
registration statement could not be utilized for subsequent offerings 
for at least one year from the date the depositor or the affiliated 
issuing entity that had failed to file Exchange Act reports then became 
current in its Exchange Act reports (and the other requirements had 
been met).
---------------------------------------------------------------------------

    \1167\ 15 U.S.C. 77j(a)(3).
    \1168\ See the 2004 ABS Adopting Release at 1525 (noting our 
belief that given past deficiencies in Exchange Act reporting 
compliance in the ABS sector that issuers that fail to comply with 
their responsibilities under the Exchange Act for prior transactions 
should not continue to receive the benefits of shelf registration 
and, further, that issuers should not be able to create a new 
special purpose depositor to avoid the consequences of Exchange Act 
reporting noncompliance).
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    We received only a few comments on our proposal. One commenter 
expressed concern that it is not possible for ABS issuers to fully 
verify compliance with the Exchange Act reporting registrant 
requirements as of 90 days after the end of the depositor's fiscal year 
end because there could be an unknown defect, latent or otherwise, in 
one or another of the relevant issuing entities' reports or reporting 
history.\1169\ Another commenter suggested that the loss of shelf 
eligibility should not be automatic.\1170\ This commenter suggested 
allowing for an explanation and any resulting penalty should be at the 
staff's discretion.\1171\
---------------------------------------------------------------------------

    \1169\ See letter from ASF III.
    \1170\ See letter from SIFMA III-dealers and sponsors.
    \1171\ Id.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    Under the new rule, an ABS issuer with an effective shelf 
registration statement will be required to evaluate whether the 
depositor, any issuing entity previously established by the depositor 
or any affiliate of the depositor was required to report under Sections 
13(a) or 15(d) of the Exchange Act during the previous twelve months 
for asset-backed securities involving the same asset class, have filed 
such reports on a timely basis. As noted above, one commenter expressed 
concern that ABS issuers would be unable to fully verify compliance 
with the Exchange Act reporting registrant requirements as of 90 days 
after fiscal year end due to an unknown defect in one or another of the 
relevant issuing entities' periodic reports or reporting history.\1172\ 
We note that this annual compliance check is the same evaluation 
undertaken today by registrants at the time of filing the registration 
statement and at the time of filing Form 10-K; therefore, we expect 
that issuers would use the same procedures that are used to verify 
compliance at the time of filing the registration statement. As a 
result, this rule conforms the ABS process to the corporate issuers' 
process. Additionally, we believe that the costs will be minimal and 
limited to ABS issuers performing the same procedures they perform at 
the time of filing a registration statement. We believe that

[[Page 57288]]

this annual shelf eligibility compliance check will benefit investors 
because it will encourage issuers to file their Exchange Act reports in 
connection with prior offerings at the required time and therefore 
enhance informed investment decisions. We acknowledge, however, that 
there will be costs to those issuers that determine, as a result of 
their annual evaluation, that they did not timely file their Exchange 
Act reports and lose shelf access since they will be required to use 
Form SF-1. These costs are related to market timing given the 
possibility of additional staff review that may occur with a Form SF-1 
compared to Form SF-3. We believe that this new provision simply 
ensures that the shelf process for ABS includes a mechanism to check 
whether the shelf issuer is current and timely with its Exchange Act 
reporting obligations as is currently required for corporate shelf 
issuers.
---------------------------------------------------------------------------

    \1172\ See letter from ASF III (also suggesting that we follow 
Rule 401(g) and deem the registration statement to be filed on the 
proper registration form unless and until the Commission notifies 
the issuer of its objection). We note that Rule 401(g) applies to 
automatically effective registration statements, and those are not 
the type of registration statements in question here.
---------------------------------------------------------------------------

(2) Annual Compliance Check Related to the Fulfillment of the 
Transaction Requirements in Previous ABS Offerings
(a) Proposed Rule
    In the 2010 ABS Proposing Release, we also proposed to require 
that, for continued shelf eligibility, an ABS issuer would be required 
to conduct an evaluation at the end of the fiscal quarter prior to the 
takedown of whether the ABS issuer was in compliance with the proposed 
transaction requirements relating to risk retention, third-party 
opinions, the officer certification, and the undertaking to file 
ongoing reports. If the ABS issuer was not in compliance with the 
transaction requirements, then it could not utilize the registration 
statement or file a new registration statement on Form SF-3 until one 
year after the required filings were filed.
    In the 2011 ABS Re-Proposal, we re-proposed this registrant 
requirement to require an annual evaluation of compliance with the 
transaction requirements of shelf registration rather than an 
evaluation on a quarterly basis as we had originally proposed. 
Therefore, notwithstanding that the registration statement may have 
been previously declared effective, in order for the registrant to 
conduct a takedown off an effective registration statement, an ABS 
issuer would be required to evaluate, as of 90 days after the end of 
the depositor's fiscal year end, whether it meets the registrant 
requirements. Under the 2011 ABS Re-Proposal, to the extent that the 
depositor or any issuing entity previously established by the depositor 
or any affiliate of the depositor, is or was at any time during the 
previous twelve months, required to comply with the proposed new 
transaction requirements related to the certification, credit risk 
manager and repurchase dispute resolution provisions, and investor 
communication provision, with respect to a previous offering of ABS 
involving the same asset class, such depositor and each issuing entity 
must have filed on a timely basis, at the required time for each 
takedown, all transaction agreements containing the provisions that are 
required by the proposed transaction requirements as well as all 
certifications.
    In response to commenters' concerns that the one-year penalty for 
non-compliance with the transaction requirements was too extreme, we 
revised and re-proposed to allow depositors and issuing entities to 
cure any failure to file the required certification or transaction 
agreements with the required shelf provisions. Under the proposed cure 
mechanism, the depositor or any issuing entity would be deemed to have 
met the registrant requirements, for purposes of Form SF-3, 90 days 
after the date all required filings were made.
(b) Comments on Proposed Rule
    Commenters recommended that we reduce the waiting period after 
curing the deficiency. Some commenters requested that the waiting 
period after curing the deficiency be reduced to 30 days.\1173\ Another 
commenter recommended changing the period to 30 or 45 days.\1174\
---------------------------------------------------------------------------

    \1173\ See letters from CREFC II and Kutak.
    \1174\ See letter from MBA III.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    The final rule includes a registrant requirement that requires an 
annual evaluation of compliance with the transaction requirements of 
shelf registration, as re-proposed in the 2011 ABS Re-Proposing 
Release. Under the final rule, notwithstanding that the registration 
statement may have been previously declared effective, in order to 
conduct a takedown off an effective shelf registration statement, an 
ABS issuer would be required to evaluate, as of 90 days after the end 
of the depositor's fiscal year end, whether it meets the registrant 
requirements, which is the same look-back period for the ABS issuer as 
the compliance evaluation for Exchange Act reporting described above.
    Under the final rule, a depositor and issuing entity may cure the 
deficiency if it subsequently files the information that was required. 
After a waiting period, it will be permitted to continue to use its 
shelf registration statement.\1175\ Under the cure mechanism, the 
depositor and issuing entity will be deemed to have met the registrant 
requirements, for purposes of Form SF-3, 90 days after the date all 
required filings are filed.
---------------------------------------------------------------------------

    \1175\ Curing the deficiency also allows the depositor, or its 
affiliates, to file a new registration statement if it also meets 
the other registrant requirements. See General Instruction I.A.1. of 
Form SF-3. As we emphasized in the 2011 ABS Re-Proposing Release, 
failure to file the information required (i.e., the required 
certification and transaction agreements with required provisions) 
will be a violation of our rules, and subject to liability 
accordingly. Furthermore, failing to provide disclosure at the 
required time periods may raise serious questions about whether all 
required disclosure was provided to investors prior to investing in 
the securities.
---------------------------------------------------------------------------

    Because the issuer can cure the deficiency while it continues to 
use the shelf and before the required annual evaluation, the issuer can 
avoid being out of the market. For example, a depositor with a December 
31 fiscal year end has an effective shelf registration statement and on 
March 30 of Year 1, it evaluates compliance with all registrant 
requirements under new Rule 401(g) (90 days after the last fiscal year 
end) and determines that it is in compliance. The depositor then offers 
ABS but does not timely file the required transaction agreements that 
should have been filed on June 20 of Year 1. The depositor would be 
able to continue to use its existing shelf until it is required to 
perform the annual evaluation required by new Rule 401(g), on March 30 
of Year 2. After March 30 of Year 2 and until June 20 of Year 2 (one 
year after the agreements should have been filed), the depositor would 
not be able to offer ABS off of the shelf registration statement, and 
would not be permitted to file a new shelf registration statement. 
However, if the depositor had cured the deficiency by filing the 
agreements on July 1 of Year 1, under the final rule, a new 
registration statement could be filed 90 days after July 1 of Year 1 
(or September 29 of Year 1), instead of waiting until June 20 of Year 2 
(when it otherwise would meet the twelve month timely filing 
requirement). In that case, at the time of the next annual evaluation 
for the registration statement on March 30 of Year 2, the depositor 
would be deemed to have met the registrant requirements because it 
would have cured the deficiency more than 90 days earlier on July 1 of 
Year 1, and thus the depositor could continue to use its existing shelf 
registration statement.\1176\
---------------------------------------------------------------------------

    \1176\ Using the example above, if the failure occurs in the 
first 90 days of the year before the March 30 annual compliance 
evaluation, but the issuer corrects the deficiency by filing the 
required information before providing the evaluation on March 30, 
the issuer will still be deemed to satisfy the registrant 
requirements for purposes of continued shelf eligibility and thus 
not be required to wait until March 30 of the next year to use the 
existing shelf registration statement or file a new one. The issuer, 
however, must still wait 90 days after filing the required 
information before using the existing effective shelf registration 
statement or filing a new shelf registration statement. We have 
revised the requirement to make this clear.

---------------------------------------------------------------------------

[[Page 57289]]

    Our approach is designed to strike a balance between encouraging 
issuers' compliance with the shelf transaction requirements and 
commenters' concerns that the one-year time out period in the 2010 ABS 
Proposals was too long. Also, as discussed above, we received comments 
that 90 days was still too long and that a 30 or 45 day waiting period 
would be more appropriate.\1177\ We continue to be concerned that 30 or 
45 days would not adequately incentivize issuers to comply with the 
transaction requirements. Based on staff observations of shelf 
offerings since the crisis, registrants typically conduct between two 
and three offerings during the course of a year. Under such conditions, 
a short waiting period such as 30 or 45 days would provide minimal, if 
any, incentive to comply with transaction requirements.
---------------------------------------------------------------------------

    \1177\ See letters from MBA III and SIFMA III-dealers and 
sponsors.
---------------------------------------------------------------------------

    We are not adopting another commenter's suggestion that the loss of 
shelf eligibility not be automatic and that issuers should instead be 
allowed to explain and be penalized at the staff's discretion.\1178\ 
The eligibility requirement is an incentive for issuers to comply with 
the shelf transaction requirements--providing the market with 
information about the issuer and thus an appropriate eligibility 
criterion to offer securities off the shelf. Furthermore, an ad hoc 
review of justifications for delays or missing filings would be 
inefficient use of the Commission's resources and would not incentivize 
issuers to monitor compliance.
---------------------------------------------------------------------------

    \1178\ See letter from SIFMA III-dealers and sponsors.
---------------------------------------------------------------------------

    We believe that the annual shelf eligibility compliance check will 
benefit investors because it will encourage issuers to file their 
transaction documents in connection with prior offerings at the 
required time and therefore enhance informed investment decisions. We 
acknowledge that the annual evaluations of compliance with the 
transaction requirements will impose additional costs on ABS issuers in 
the form of systems needed to examine compliance with the filing 
requirements. However, we believe that these costs should be minimal 
because issuers should already have, in most instances, systems 
designed to ensure that the transaction agreements are being filed 
timely in accordance with rules under the Securities Act.
4. Continuous Offerings
(a) Proposed Rule
    In the 2010 ABS Proposing Release, we had proposed to amend Rule 
415 to limit the registration of continuous offerings for ABS offerings 
to ``all or none'' offerings. In an ``all or none'' offering, the 
transaction is completed only if all of the securities are sold. In 
contrast, in a ``best-efforts'' or ``mini-max'' offering, a variable 
amount of securities may be sold by the issuer. In those latter cases, 
because the size of the offering would be unknown, investors would not 
have the transaction-specific information and, in particular, would not 
know the specific assets to be included in the transaction. Thus, 
information about the asset pool required by Item 1111 of Regulation 
AB, either in its existing form or as amended today, could not be 
complied with.\1179\ As noted in the 2010 ABS Proposing Release, we 
believe that our proposed restriction would help ensure that ABS 
investors receive sufficient information relating to the pool assets, 
if an issuer registered an ABS offering to be conducted as a continuous 
offering.\1180\
---------------------------------------------------------------------------

    \1179\ The staff has advised us that they believe that neither 
``best efforts'' offerings nor any continuous offerings have been 
utilized in the past for public offerings of asset-backed 
securities.
    \1180\ See the 2010 ABS Proposing Release at 23350.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Only one commenter commented on the proposal to limit the use of 
continuous offerings on shelf to ``all or none'' offerings.\1181\ This 
commenter agreed that ``in a continuous offering where the ultimate 
size of the offering is unknown, investors would not necessarily know 
the specific assets to be included in the transaction'' and the 
proposal properly eliminates this issue. However, this commenter 
suggested more guidance on what constitutes an ``all or none'' 
offering.\1182\
---------------------------------------------------------------------------

    \1181\ See letter from ASF I.
    \1182\ See letter from ASF I (suggesting that there are 
offerings that should not be included in the ``mini-max'' 
definition).
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    We are adopting the rule as proposed. The new rule will provide ABS 
investors in continuous ABS offerings with information about all 
relevant pool assets and would close a potential gap in our regulations 
for ABS offerings. Under the final rule, the continuous offering must 
be commenced promptly and must be made on the condition that all of the 
consideration paid for such security will be promptly refunded to the 
purchaser unless (A) all of the securities being offered are sold at a 
specified price within a specified time, and (B) the total amount due 
to the seller is received by the seller by a specified date.\1183\
---------------------------------------------------------------------------

    \1183\ All or none offerings are described in Exchange Act Rules 
10b-9 [17 CFR 240.10b-9] and 15c2-4 [17 CFR 240.15c2-4] in the same 
manner.
---------------------------------------------------------------------------

    As one commenter noted, in some ABS offerings, all or a portion of 
one or more classes of ABS that are offered for sale to investors 
through one or more underwriters may initially be retained by the 
depositor or sold to one or more of its affiliates.\1184\ In these 
cases, the offerings may be conducted as a firm commitment underwritten 
offering or as a best efforts offering. The commenter believed that 
such offering would not be a ``mini-max'' offering because the total 
size of the offering is known and disclosed in the prospectus. We agree 
with the commenter that these offerings would not be a ``mini-max'' 
offering if the prospectus includes all transaction-specific 
information, including information about the specific assets included 
in the pool.
---------------------------------------------------------------------------

    \1184\ See letter from ASF I (noting that this typically arises 
when the offered securities have a lower return or carry a lower 
spread relative to market demand and confirming that any subsequent 
sale of the securities by the depositor or its affiliates would be 
undertaken in accordance with the registration provisions under the 
Securities Act).
---------------------------------------------------------------------------

    This rule will be beneficial to investors in continuous offerings 
by ensuring that the information they receive is about all pool assets 
underlying the asset-backed securities they purchase. While ABS 
offerings are typically not conducted as a continuous offering, we 
believe that it is important for us to close a potential gap in our 
regulations for ABS offerings so that ABS investors receive this 
material information when making an investment decision--irrespective 
of the type of public offering. We acknowledge that restricting 
continuous offerings to ``all or none'' limits issuers' choice and may 
potentially impose costs on those issuers that would have preferred to 
conduct the offering on a best efforts basis. However, we also note 
that the staff is not aware of any prior public offering of ABS that 
was conducted on a continuous offering--either as ``all or none'' or 
best efforts--and therefore we expect these costs to be minimal. For 
similar reasons, we do not believe that the amended rule will have an 
impact

[[Page 57290]]

on competition, efficiency, or capital formation.
5. Mortgage Related Securities
(a) Proposed Rule
    In the 2010 ABS Proposing Release, we proposed to require that 
offerings of mortgage related securities be eligible for shelf 
registration on a delayed basis only if, like other asset-backed 
securities, they meet the registrant and transaction requirements for 
shelf registration. Under the proposal, delayed shelf offerings of 
mortgage related securities could be registered only on new Form SF-3, 
and accordingly, must meet the eligibility requirements of Form SF-3. 
We proposed eliminating the provision in Rule 415 that permits the 
registration of ``mortgage related securities,'' as that term is 
defined in Section 3(a)(41) of the Exchange Act, for shelf offerings 
without regard to form eligibility requirements. This was a provision 
that was added to Rule 415 contemporaneous with the enactment of 
SMMEA.\1185\ Therefore, under the provision, an offering of mortgage 
related securities did not have to meet the requirements of Form S-3 
and could have been registered on a delayed basis on Form S-1.\1186\ As 
we stated in the 2010 ABS Proposing Release, we proposed this 
requirement based on our belief that mortgage related securities should 
be required to meet all the requirements that we proposed for shelf 
eligibility in order to be eligible for registration on a delayed basis 
since these securities present the same complexities and concerns as 
other ABS.\1187\
---------------------------------------------------------------------------

    \1185\ See Section V.A. Background and Economic Discussion.
    \1186\ See footnote 61 of the 2004 ABS Adopting Release.
    \1187\ See the 2010 ABS Proposing Release at 23350.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    One commenter agreed that mortgage related securities should be 
held to the same standards as other asset-backed securities.\1188\ 
Another commenter believed that both proposed Forms SF-1 and SF-3 
should be available for delayed offerings of mortgage related 
securities ``to accommodate issuers or transactions that may not have a 
need for an SF-3 registration or assets that are unique and better 
suited for an SF-1 filing,'' but the commenter did not provide specific 
examples or further explanation.\1189\
---------------------------------------------------------------------------

    \1188\ See letter from CFA I.
    \1189\ See letter from MBA I.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    We are revising Rule 415 as proposed. The change requires that 
mortgage related securities meet all criteria for eligibility for shelf 
registration on new Form SF-3. We believe that mortgage related 
securities should meet all the requirements we are adopting in order to 
be eligible for shelf registration on a delayed basis since these 
securities present the same complexities and concerns as other asset-
backed securities. If we continue to allow issuers of mortgage related 
securities to offer securities on a delayed basis off the shelf without 
regard to the shelf eligibility requirements, we would effectively 
allow mortgage related securities issuers to circumvent the 
requirements we are adopting.
    We believe that the amendment to Rule 415 adopted today will result 
in consistent and fair treatment of all asset-backed securities, 
regardless of the nature of the underlying pool assets. We believe that 
the impact of this rule on competition and capital formation will be 
minimal since most, if not all, issuers of mortgage related securities 
have met the shelf eligibility requirements and conducted offerings off 
shelf registration statements.

C. Exchange Act Rule 15c2-8(b)

1. Proposed Rule
    Except for securities issued under master trust structures, shelf-
eligible ABS issuers generally are not reporting issuers at the time of 
issuance. Under Exchange Act Rule 15c2-8(b),\1190\ with respect to an 
issue of securities where the issuer has not been previously required 
to file reports pursuant to Sections 13(a) or 15(d) of the Exchange 
Act, unless the issuer has been exempted from the requirement to file 
reports thereunder pursuant to Section 12(h) of the Exchange Act, a 
broker or dealer is required to deliver a copy of the preliminary 
prospectus to any person who is expected to receive a confirmation of 
sale at least 48 hours prior to the sending of such confirmation (``48-
hour preliminary prospectus delivery requirement''). The rule contains 
an exception to the 48-hour preliminary prospectus delivery requirement 
for offerings of asset-backed securities eligible for registration on 
Form S-3. An exception to the 48-hour preliminary prospectus delivery 
requirement was first provided in 1995 by staff no-action 
position.\1191\ This staff position was later codified in 2004.\1192\
---------------------------------------------------------------------------

    \1190\ 17 CFR 240.15c2-8(b).
    \1191\ See footnote 163 of the 2004 ABS Adopting Release and 
accompanying text (discussing staff no-action letters providing 
relief to ABS issuers from Rule 15c2-8(b)).
    \1192\ In the 2004 ABS Adopting Release, we noted some concerns 
that investors did not have sufficient time to consider ABS offering 
information. However, as we were considering other proposals at that 
time that sought to address information disparity in the offering 
process, we decided to codify the staff position.
---------------------------------------------------------------------------

    In light of recent economic events and to make this rule consistent 
with our other proposed revisions, in the 2010 ABS Proposing Release, 
we proposed to eliminate this exception so that a broker or dealer 
would be required to deliver a preliminary prospectus at least 48 hours 
before sending a confirmation of sale for all offerings of asset-backed 
securities, including those involving master trusts. Because each pool 
of assets in an ABS offering is unique, we believe that an ABS offering 
is akin to an IPO, and therefore we believe the 48-hour preliminary 
prospectus delivery requirement in Rule 15c2-8(b) should apply. Even 
with subsequent offerings of a master trust, the offerings are more 
similar to an IPO given that the mix of assets changes and is different 
for each offering. Additionally, requiring that a broker or dealer 
provide an investor with a preliminary prospectus at least 48 hours 
before sending a confirmation of sale should be feasible and made 
easier to implement as a result of our proposal that a form of 
preliminary prospectus be filed with the Commission at least three 
business days in advance of the first sale in a shelf offering.
2. Comments on Proposed Rule
    Commenters generally supported the proposal.\1193\ Several trade 
associations agreed that investors should have sufficient time to 
review an offering.\1194\ One trade association supported the proposal, 
but suggested an ``access equals delivery'' model akin to final 
prospectuses to satisfy the requirements.\1195\ One individual 
commenter supported the proposal but suggested that ABS structured as 
master trusts be treated differently so as not to require information 
delivered previously to be delivered again.\1196\
---------------------------------------------------------------------------

    \1193\ See letters from ASF I, A. Zonca, BoA I, MBA I, Sallie 
Mae I, and SIFMA I.
    \1194\ See letters from ASF I, MBA I, and SIFMA I.
    \1195\ See letter from ASF. See also letters from MBA I and 
SIFMA I (focusing their comments in this area on the waiting period 
that would be required by proposed Rules 424(h) and 430D).
    \1196\ See letter from A. Zonca (also suggesting that ABS master 
trusts not be required to deliver the information if any changes to 
previously delivered information relates to new account additions 
with balances representing less than five percent of the master 
trust).

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[[Page 57291]]

3. Final Rule and Economic Analysis of the Final Rule
    We are eliminating the exception in Rule 15c2-8(b) for shelf-
eligible asset-backed securities from the 48-hour preliminary 
prospectus delivery requirement as proposed.\1197\ Under the final 
rule, a broker or dealer is required to comply with the 48-hour 
preliminary prospectus delivery requirement with respect to the sale of 
securities by each ABS issuer, regardless of whether the issuer has 
previously been required to file reports pursuant to Sections 13(a) or 
15(d) of the Exchange Act.\1198\ In addition, the 48-hour preliminary 
prospectus delivery requirement also applies to ABS issuers utilizing 
master trust structures that are exempt from the reporting requirements 
pursuant to Section 12(h) of the Exchange Act. This requirement is 
necessary because assets in a master trust routinely change, whether or 
not they are exempt from or subject to Section 13(a) or 15(d) reporting 
requirements. In a master trust securitization, assets may be added to 
the pool in connection with future issuances of the securities backed 
by the pool.\1199\ Although ABS issuers utilizing master trust 
structures may be reporting under the Exchange Act at the time of a 
``follow-on'' or subsequent offering of securities, additional assets 
are added to the entire pool backing the trust in connection with a 
subsequent offering of securities.
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    \1197\ Because of the other changes we are adopting, we are also 
repealing Securities Act Rule 190(b)(7). Rule 190(b)(7) provides 
that if securities in the underlying asset pool of asset-backed 
securities are being registered, and the offering of the asset-
backed securities and the underlying securities is not made on a 
firm commitment basis, the issuing entity must distribute a 
preliminary prospectus for both the underlying securities and the 
expected amount of the issuer's securities that is to be included in 
the asset pool to any person who is expected to receive a 
confirmation of sale of the asset-backed securities at least 48 
hours prior to sending such confirmation. Rule 190(b)(7) effectively 
overrules the exclusion in Rule 15c2-8 for ABS issuers from the 48-
hour preliminary prospectus delivery requirement for particular 
types of ABS offerings. Because we are repealing the Rule 15c2-8 
exclusion for ABS issuers, and because our disclosure requirements 
regarding the underlying securities for resecuritizations requires 
significantly more information than what is required in Rule 
190(b)(7) to be provided in the preliminary prospectus, we are 
deleting Rule 190(b)(7).
    \1198\ See definition of issuer in relation to asset-backed 
securities in Exchange Act Rule 3b-19.
    \1199\ The typical master trust securitization is backed by 
assets arising out of revolving accounts such as credit card 
receivables or dealer floorplan financings.
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    The adoption of today's amendment will benefit investors by 
allowing them more time to consider the characteristics of the 
offering. We recognize that this benefit may be lower for investors in 
ABS structured as master trusts, because such offerings are issued from 
an existing issuing entity, which would have previously disclosed much 
of the information to be provided in the 48-hour preliminary 
prospectus. Nonetheless, such investors should benefit from having 
additional time to consider information about the new assets that is 
not provided in Exchange Act reports. The cost of today's amendment 
will be borne by issuers, who will have to prepare and provide to 
investors the preliminary prospectus. These costs will likely be small 
as a result of our other new rule requiring that a preliminary 
prospectus be filed with the Commission at least five days in advance 
of the first sale.\1200\
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    \1200\ See Section V.B.1 New Shelf Registration Procedures.
---------------------------------------------------------------------------

    We considered one commenter's suggestion to provide for an ``access 
equals delivery'' model akin to final prospectuses.\1201\ Access equals 
delivery is only permitted for a final prospectus and not a preliminary 
prospectus. The rule is the same for prospectuses of both corporate 
securities as well as ABS. The commenter did not address why ABS should 
be different from corporate securities in the context of delivery of a 
preliminary prospectus under Rule 15c2-8(b).\1202\
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    \1201\ See letter from ASF I. See also the Securities Offering 
Reform Release at 44783.
    \1202\ However, as is the case today, delivery of a preliminary 
prospectus may be made electronically as permitted under our current 
rules. See Use of Electronic Media for Delivery Purposes, Release 
No. 33-7233 (Oct. 6, 1995) [60 FR 53458] (the 1995 Release).
---------------------------------------------------------------------------

    We are also adopting, as proposed, a correcting amendment to Rule 
15c2-8(j). Paragraph (j) states that the terms ``preliminary 
prospectus'' and ``final prospectus'' include terms that are defined in 
Rule 434.\1203\ In 1995, at the same time we adopted Rule 434, we added 
paragraph (j) to expand the use of the terms ``preliminary prospectus'' 
and ``final prospectus'' to reflect the terminology used in Rule 
434.\1204\ Rule 434, however, was later repealed in 2005.\1205\ 
Accordingly, we are deleting paragraph (j), which is no longer 
applicable.
---------------------------------------------------------------------------

    \1203\ 17 CFR 230.434. Securities Act Rule 434 allowed issuers 
and other offering participants to meet their prospectus delivery 
requirement by delivering a preliminary prospectus and a term sheet 
or abbreviated term sheet before or at the time of sale. The 
information contained in the preliminary prospectus, confirmation 
and term sheet or abbreviated term sheet must, in the aggregate, 
meet the informational requirements of Securities Act Section 10(a).
    \1204\ See Section II.B.4.a of Prospectus Delivery; Securities 
Transactions Settlement, Release No. 33-7168 (May 11, 1995) [60 FR 
26604].
    \1205\ Rule 434 was repealed in the Securities Offering Reform 
Release.
---------------------------------------------------------------------------

D. Including Information in the Form of Prospectus in the Registration 
Statement

1. Presentation of Disclosure in Prospectuses
(a) Proposed Rule
    We proposed to eliminate the current practice in shelf ABS 
offerings of providing a base prospectus and prospectus supplement by 
requiring the filing of a form of prospectus at the time of 
effectiveness of the Form SF-3 and a single prospectus for each 
takedown. As we noted in the 2010 ABS Proposing Release, we are 
concerned that the base and supplement format has resulted in unwieldy 
documents with excessive and inapplicable disclosure that is not useful 
to investors.\1206\ To address this concern, we proposed to add a 
provision in proposed Rule 430D and an instruction to proposed Form SF-
3 that would require ABS issuers to file a form of prospectus at the 
time of effectiveness of the proposed Form SF-3 and to file a single 
prospectus for each takedown, which would include all of the 
information required by Regulation AB. We also proposed to require each 
depositor to file a separate registration statement for each form of 
prospectus. Under this proposal, each registration statement would 
cover offerings by depositors securitizing only one asset class.
---------------------------------------------------------------------------

    \1206\ See the 2010 ABS Proposing Release at 23352.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Several commenters supported \1207\ our proposal requiring the 
filing of one integrated prospectus rather than a base prospectus and 
prospectus supplement for each takedown, and one commenter 
opposed.\1208\ One commenter, in support of the proposed rules, 
believed that our proposal will provide investors with clearer 
information relating to the assets that are the subject of the takedown 
by not being encumbered with information that may not relate to that 
particular transaction.\1209\ Another commenter, opposing the proposal, 
argued that our concern that the base and supplement format has 
resulted in unwieldy documents with excessive and inapplicable 
disclosure that is not useful to investors is unwarranted.\1210\
---------------------------------------------------------------------------

    \1207\ See letters from BoA I, CFA I, and MBA I.
    \1208\ See letter from ASF I.
    \1209\ See letter from CFA I.
    \1210\ See letter from ASF I (expressed views of issuers only). 
ASF investor members offered mixed views on the proposal.
---------------------------------------------------------------------------

    With respect to our proposal to limit each shelf registration 
statement to one

[[Page 57292]]

asset class, one commenter asserted its belief that this proposal had 
no bearing on the nature and quality of disclosure for any particular 
shelf offering.\1211\ This commenter also noted that our proposed 
limitation would not permit securitization platforms where more than 
one depositor transfers or sells pool assets into the same issuing 
entity to conduct shelf offerings. The commenter, although opposing the 
proposal, recommended that the Commission clarify the scope of any 
limitation so that multiple depositors who transfer or sell pool assets 
into the same issuing entity would be permitted under the final rule.
---------------------------------------------------------------------------

    \1211\ See letter from ASF I.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    After considering the comments provided, we are adopting the rule 
regarding presentation of disclosure in prospectuses as proposed so 
that issuers must file a form of prospectus at the time of 
effectiveness of Form SF-3 and file a single prospectus for each 
takedown.\1212\ We continue to believe that the current format has the 
unintended effect of encouraging ABS issuers to draft disclosure 
documents that build in maximum flexibility for as many differing 
transactions as possible with the investor bearing the burden of 
determining which disclosures are relevant to a particular transaction. 
Given that the registration statement is primarily for the benefit of 
investors, we believe that we should facilitate investor understanding 
and access to prospectuses for ABS and eliminate unnecessary 
disclosures given to investors.\1213\ A single form of prospectus at 
the time of effectiveness and a single prospectus for each takedown 
should provide investors with clearer and more focused information 
relating to the assets that are the subject of the takedown by not 
encumbering investors with information that may not relate to that 
particular transaction. Additionally, because we believe that this rule 
will enhance investor understanding of the offering materials and the 
transaction, the rule will, in turn, promote more efficient capital 
formation. While we note one commenter's view that the existing 
practice did not result in unwieldy documents,\1214\ we remain 
concerned about the usefulness of the prospectus supplement format for 
investors, especially in light of other commenters' support for our 
proposal and the staff's experience in reviewing prospectuses in 
registration statements and in takedowns.\1215\
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    \1212\ See General Instruction IV of Form SF-3.
    \1213\ See the 2010 ABS Proposing Release at 23352.
    \1214\ See letter from ASF I.
    \1215\ See letters from BoA I, CFA I, and MBA I.
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    We are also adopting our proposed limitation of one asset class per 
registration statement with one clarification in response to 
comments.\1216\ We continue to note the practice of some issuers to 
include multiple depositors, multiple base prospectuses and multiple 
prospectus supplements all in one registration statement.\1217\ We 
believe that this practice has made the disclosure difficult for 
investors to understand and difficult for market participants to locate 
and obtain offering documents. Although one commenter stated that 
limiting each shelf registration statement to one asset class has no 
bearing on the quality or nature of the disclosure for any particular 
shelf offering, we disagree.\1218\ The cumulative effect of including 
multiple depositors, multiple base prospectuses and multiple prospectus 
supplements in one registration statement is an unwieldy registration 
statement for investors to navigate in determining what information 
they should review before making their investment decision and 
difficult for market participants to follow which registration 
statement relates to which takedown. By limiting a registration 
statement to one asset class, the quality and nature of the disclosure 
should be enhanced as the disclosure would be presented in a more 
accessible and useful format for investors. While the revisions to both 
presentation of disclosure as well as the limitation of one asset class 
per registration statement could place additional costs on issuers that 
need to file additional registration statements, we believe that these 
additional costs are reasonable in light of the expected improved 
transparency benefits for investors.\1219\ Furthermore, we believe that 
our pay-as-you-go amendment that we are also adopting should offset 
some of the costs that issuers could incur with additional registration 
statements.
---------------------------------------------------------------------------

    \1216\ See General Instruction IV of Form SF-3. We note existing 
market practice in the case of some master trust structures, such as 
credit card ABS involving a single platform, in which multiple 
affiliated depositors transfer credit card receivables into the 
issuing entity. We would view, in these limited instances, such 
master trust structure with a single securitization platform as one 
transaction (that is, one program), with multiple registrants.
    \1217\ See the 2010 ABS Proposing Release at 23352.
    \1218\ See letter from ASF I.
    \1219\ See Section X Paperwork Reduction Act (estimating this 
requirement will result in approximately four new registration 
statements to be filed annually by shelf ABS issuers).
---------------------------------------------------------------------------

2. Adding New Structural Features or Credit Enhancements
(a) Proposed Rule
    We proposed to restrict the ability of ABS issuers to add 
information about new structural features or credit enhancements by 
filing a prospectus under Rule 424(b).\1220\ It has been our 
longstanding position, as articulated in the 2004 ABS Adopting Release, 
that structural features or credit enhancements must be fully described 
in the registration statement at the time of effectiveness.\1221\ As 
part of this position, we have stated that a takedown off a shelf that 
involves new structural features or credit enhancements that were not 
described as contemplated in the base prospectus will usually require a 
post-effective amendment rather than describing them in the final 
prospectus filed with the Commission pursuant to Securities Act Rule 
424.\1222\ In that regard, we proposed to codify our position that when 
an issuer desires to add information that relates to new structural 
features or credit enhancements, the issuer must file that information 
by a post-effective amendment to the registration statement. By 
requiring the issuer to file a post-effective amendment, the 
Commission's staff would have an opportunity to review the disclosure 
regarding these new structural features and credit enhancements that 
would be contemplated for future takedowns from the shelf registration 
statement.
---------------------------------------------------------------------------

    \1220\ See the 2010 ABS Proposing Release at 23353.
    \1221\ See the 2004 ABS Adopting Release at 1524.
    \1222\ See id. See also the 2010 ABS Proposing Release at 23353 
(noting that although Rule 430B provides all issuers on Form S-3 
with the ability to include information previously omitted in a 
prospectus filed pursuant to Securities Act Rule 424(b), the staff 
has continued to apply our position articulated in the 2004 ABS 
Adopting Release).
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(b) Comments on Proposed Rule
    Commenters were generally supportive of our proposal to codify the 
requirement of a post-effective amendment for new structural features 
or credit enhancements.\1223\ One commenter believed that all market 
participants would benefit from the enhanced understanding of a 
transaction that would result from the proposed rule.\1224\ One 
commenter noted that the proposed rule would provide the staff with 
time to focus on new structural features or credit

[[Page 57293]]

enhancements.\1225\ Another commenter noted that the proposed rule 
would allow the Commission to control the purpose of shelf filing and 
allow for more targeted review.\1226\ One commenter noted that the term 
``structural features'' is too vague and suggested that the Commission 
provide more specificity.\1227\
---------------------------------------------------------------------------

    \1223\ See letters from BoA I, CFA I, MBA I, Prudential I, and 
Wells Fargo I.
    \1224\ See letter from Prudential I.
    \1225\ See letter from CFA I.
    \1226\ See letter from Wells Fargo I.
    \1227\ See letter from BoA I.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    After considering the comments, we are adopting, as proposed, new 
Securities Act Rule 430D(d)(2), which codifies a longstanding position 
of the Commission that an ABS issuer must file a post-effective 
amendment to the registration statement when it wants to add 
information about new structural features or credit enhancements that 
were not described as contemplated in the base prospectus of an 
effective registration statement. As noted above, one commenter stated 
that the term ``structural features'' was too vague to use as a trigger 
for a post-effective amendment and was concerned that the term could be 
interpreted to trigger a post-effective amendment for minor structural 
adjustments that would not have required a post-effective amendment 
under the existing standard.\1228\ Because our new rule merely codifies 
the Commission's longstanding position, the final rule does not change 
when such requirement is triggered.\1229\
---------------------------------------------------------------------------

    \1228\ See letter from BoA I.
    \1229\ See the 2004 ABS Adopting Release at 1524 (``A takedown 
off of a shelf that involves assets, structural features, credit 
enhancement or other features that were not described as 
contemplated in the base prospectus will usually require either a 
new registration statement (e.g., to include additional assets) or a 
post-effective amendment (e.g., to include new structural features 
or credit enhancement) rather than simply describing them in the 
final prospectus filed with the Commission pursuant to Securities 
Act Rule 424.'').
---------------------------------------------------------------------------

    We believe that codification of our existing position will provide 
issuers with clarity about how the rules work. It will also help to 
ensure that the staff has the opportunity to review these new 
structural features or credit enhancements that would be contemplated 
for future offerings. Because this rule is simply a codification of our 
existing position, we believe that the new rule will result in no 
material increase in costs and will be neutral in terms of its impact 
on competition, efficiency, and capital formation.

E. Pay-as-You-Go Registration Fees

1. Proposed Rule
    To alleviate some of the burden of managing multiple registration 
statements among ABS issuers, we proposed to allow, but not require, 
ABS issuers eligible to use Form SF-3 to pay filing fees as securities 
are offered off a shelf registration statement, commonly known as 
``pay-as-you-go.'' \1230\ Under the proposal, the triggering event for 
a fee payment would be the filing of a preliminary prospectus.
---------------------------------------------------------------------------

    \1230\ In 2005, we first adopted pay-as-you-go rules to allow 
well-known seasoned issuers using automatic shelf registration 
statements to pay filing fees at the time of a securities offering. 
See Section V.B.2.b.(D) of the Securities Offering Reform Release. 
Under the current pay-as-you-go procedure for WKSIs, an issuer can 
pay any filing fee, in whole or in part, in advance of takedown or 
at the time of takedown, providing flexibility in the timing of the 
fee payment. Issuers using pay-as-you-go can still deposit monies in 
an account for payment of filing fees when due. The fee rules 
applicable to the use of such account, also referred to as the 
``lockbox account,'' apply. The amount of the fee is calculated 
based on the fee schedule in effect when the money is withdrawn from 
the lockbox account. This flexibility had been provided so issuers 
may determine the fee payment approach most appropriate for them. 
See footnote 529 of the Securities Offering Reform Release. See 
Securities Act Rules 456(b) [17 CFR 230.456(b)] and 457(r) [17 CFR 
230.457(r)].
---------------------------------------------------------------------------

2. Comments on Proposed Rule
    Several trade associations agreed that the proposal would be a 
helpful change.\1231\ Some commenters noted that they would like the 
Commission to clarify that, under existing Rule 457(p), if an ABS 
offering is not completed, or the size of the offering is reduced, 
after the fee is paid, the unused portion of the fee can be applied to 
future takedowns off the same or a replacement registration statement 
by the depositor or an affiliate of such depositor.\1232\ One issuer 
requested that the timing of the fee payment be changed from the filing 
of the preliminary prospectus to the filing of the final prospectus in 
order to alleviate any risk that the issuer did not pay sufficient 
registration fees to cover any upsizing of the offering as well as to 
alleviate the possibility of overpayment of the registration fees if 
the offering is downsized.\1233\
---------------------------------------------------------------------------

    \1231\ See letters from ABA I, ASF I, MBA I, and SIFMA I.
    \1232\ See letters from ASF I, BoA I, MBA I, and Sallie Mae I.
    \1233\ See letter from Sallie Mae I.
---------------------------------------------------------------------------

3. Final Rule and Economic Analysis of the Final Rule
    We are adopting, as proposed, revisions to our rules to permit ABS 
issuers to pay registration fees as securities are offered off a 
registration statement as opposed to paying all registration fees 
upfront at the time of filing a registration statement on Form SF-3. As 
proposed, under the new rule, a dollar amount or a specific number of 
securities is not required to be included in the calculation of the 
registration fee table in the registration statement, unless a fee 
based on an amount of securities is paid at the time of filing.\1234\ 
As proposed, the fee table on the cover of the registration statement 
must list the securities or class of securities registered and must 
indicate if the filing fee will be paid on a pay-as-you-go basis.\1235\
---------------------------------------------------------------------------

    \1234\ See new Securities Act Rule 457(s).
    \1235\ In the case of ABS, the fee table on the registration 
statement typically lists the offering of certificates and notes as 
separate classes of securities. Each class (or tranche) of those 
certificates and notes offered would not need to be separately 
listed on the fee table. However, if the ABS is a resecuritization, 
where registration of the underlying securities would be required 
under Rule 190 and the underlying security was not listed on the fee 
table of the Form SF-3 registration statement, the underlying 
securities would need to be registered on a different new 
registration statement. Likewise, if a servicer or trustee invests 
cash collections in other instruments which may be securities under 
the Securities Act, such as guarantees or debt instruments of an 
affiliate, under Rule 190 those underlying securities also may need 
to be registered concurrently with the asset-backed offering. If 
those underlying securities were not listed on the fee table of the 
registration statement, a new registration statement would be 
required.
---------------------------------------------------------------------------

    Under the final rule, as proposed, the triggering event for a fee 
payment will be the filing of an initial preliminary prospectus.\1236\ 
At the time of filing an initial preliminary prospectus,\1237\ the ABS 
issuer is required to include a calculation of registration fee table 
on the cover page of the prospectus and to pay the appropriate fee 
calculated in accordance with Securities Act Rule 457. In light of one 
commenter's concern about the possibility of overpaying the 
registration fee by requiring it to be paid in connection with the 
preliminary prospectus, we note ABS issuers opting to pay the required 
registration fees with each takedown could rely upon Rule 457(p) to 
apply a portion of the fee associated

[[Page 57294]]

with the unsold securities under a previously-filed registration 
statement as an offset against the filing fee due at the time of the 
preliminary prospectus filing by the same depositor or affiliates of 
the depositor across asset classes. Similarly, such registrants could 
apply unused fees paid in connection with a preliminary prospectus 
filing toward a future takedown off the same registration statement. We 
believe that this amendment will alleviate some of the burden ABS 
issuers incur with managing multiple registration statements. 
Additionally, it should offset some of the additional costs that 
issuers will incur with our new rule, discussed earlier, requiring a 
separate registration statement for each form of prospectus. We also 
believe that our pay-as-you-go rule should produce some efficiencies in 
the shelf offering process by providing shelf issuers with greater 
payment flexibility.
---------------------------------------------------------------------------

    \1236\ See new Securities Act Rule 456(c). Unlike the pay-as-
you-go rules for WKSIs, we do not believe that a cure period is 
necessary for ABS issuers because we are requiring ABS issuers to 
pay the required fee at the time the preliminary prospectus is 
filed. The timing of the fee payment for ABS would not give rise to 
the same effective date and registration concerns that arise with 
WKSIs. See Section V.B.2.b.(D) of the Securities Offering Reform 
Release.
    \1237\ If, after the initial preliminary prospectus, an issuer 
files a subsequent preliminary prospectus or prospectus supplement 
solely to update the fee table and pay additional fees, the 
subsequent preliminary prospectus will not trigger a new waiting 
period. See discussion in Section V.B.1 New Shelf Registration 
Procedures related to preliminary prospectuses and related waiting 
periods.
---------------------------------------------------------------------------

F. Codification of Staff Interpretations Relating to Securities Act 
Registration
    We proposed to codify several staff positions relating to the 
registration of asset-backed securities.\1238\ In proposing these 
codifications, we sought to simplify our rules by making our staff's 
positions more transparent and readily available to the public.
---------------------------------------------------------------------------

    \1238\ See Section VII.A. of the 2010 ABS Proposing Release.
---------------------------------------------------------------------------

1. Fee Requirements for Collateral Certificates or Special Units of 
Beneficial Interest
    We proposed to amend Rule 190 \1239\ of the Securities Act to 
clarify the existing requirement that if the pool assets for the asset-
backed securities are collateral certificates or special units of 
beneficial interest (SUBIs),\1240\ then the offer and sale of those 
collateral certificates or SUBIs must be registered concurrently with 
the registration of the asset-backed securities. While the offer and 
sale of the certificates or SUBIs must be concurrently registered, we 
proposed to codify the staff position that no separate registration fee 
for the collateral certificates or SUBIs is required to be paid, 
provided that the certificates or SUBIs meet the requirements of Rule 
190(c).\1241\ Additionally, we proposed to amend Rule 457 \1242\ of the 
Securities Act, governing the computation of registration fees, to 
reflect the staff's position that where the securities to be offered 
are collateral certificates or SUBIs underlying asset-backed securities 
which are being concurrently registered, no separate fee for the 
certificates or SUBIs will be payable.
---------------------------------------------------------------------------

    \1239\ 17 CFR 230.190. Rule 190 governs the registration 
requirements for the underlying securities of an asset 
securitization.
    \1240\ In some ABS transactions backed by auto leases, the 
leases and car titles are originated in the name of a separate trust 
to avoid the administrative expenses of re-titling the physical 
property underlying the leases. The separate trust, commonly 
referred to as the ``origination trust'' or ``titling trust,'' will 
issue a collateral certificate, often called a ``special unit of 
beneficial interest,'' to the issuing entity for the asset-backed 
security. The issuing entity will then issue the asset-backed 
securities backed by the collateral certificate or SUBI.
    \1241\ Rule 190(c) provides for the conditions in which an 
asset-backed issuer is not required to register a pool asset 
representing an interest in or the right to the payments or cash 
flows of another asset.
    \1242\ 17 CFR 230.457.
---------------------------------------------------------------------------

    Several commenters supported the proposal to codify the staff's 
position in Rule 190 and Rule 457 under the Securities Act.\1243\ One 
commenter noted generally that codifying the staff's interpretations is 
a benefit for all market participants,\1244\ and another commenter 
indicated that it concurred with the Commission's rationale.\1245\ No 
commenter opposed the proposal. After considering the comments, we are 
adopting the amendments to Rule 190 and Rule 457 of the Securities Act 
as proposed.\1246\
---------------------------------------------------------------------------

    \1243\ See letters from BoA I, Prudential I, and SIFMA I.
    \1244\ See letter from Prudential I.
    \1245\ See letter from BoA I.
    \1246\ See 17 CFR 230.190(d) and 457(t).
---------------------------------------------------------------------------

2. Incorporating by Reference Subsequently Filed Exchange Act Reports
(a) Proposed Rule
    Item 12(b) of Form S-3 requires that the registrant incorporate by 
reference all subsequently filed Exchange Act reports prior to the 
termination of the offering. In the 2004 ABS Adopting Release, we 
explained that Item 12(b) of Form S-3 is required for asset-backed 
issuers only ``if applicable.'' \1247\ The staff has provided 
interpretive guidance to issuers as to which periodic reports and other 
Exchange Act reports the issuer may be required to incorporate by 
reference into the registration statement.\1248\ The staff has noted 
that information filed with a current report on Form 8-K prior to the 
termination of the offering would often be required to be incorporated 
into the registration statement.\1249\ In contrast, the staff has 
explained that Form 10-D or Form 10-K reports may not necessarily 
contain information that is required to be, or that the issuer desires 
to be, incorporated by reference into the registration statement.\1250\
---------------------------------------------------------------------------

    \1247\ See Section III.A.3 of the 2004 ABS Adopting Release.
    \1248\ See Interpretation 15.02 of the Division's Manual of 
Publicly Available Interpretations on Regulation AB and Related 
Rules.
    \1249\ Examples of circumstances when an asset-backed issuer may 
be required to incorporate by reference its current reports on Form 
8-K into the registration statement include filing required 
exhibits, such as legal and tax opinions, or to provide disclosure 
under Item 6.05 of Form 8-K regarding changes in the composition of 
the pool assets.
    \1250\ We explained in the 2010 ABS Proposing Release that 
because the Form 10-Ds and Form 10-Ks that are filed prior to the 
termination of the offering are generally for a different ABS issuer 
than the ABS issuer that has filed the prospectus, the Form 10-D and 
Form 10-K reports may not be relevant to the asset-backed offering 
that is the subject of the prospectus. See Section VII.B of the 2010 
ABS Proposing Release.
---------------------------------------------------------------------------

    To simplify our rules, we proposed to codify the staff's position 
that an issuer of asset-backed securities may modify the incorporation 
by reference language included in the registration statement to provide 
that only the current reports on Form 8-K subsequently filed by the 
registrant prior to the termination of the offering shall be deemed to 
be incorporated by reference into the registration statement.\1251\
---------------------------------------------------------------------------

    \1251\ See Section VII.B of the 2010 ABS Proposing Release.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Several commenters supported the proposal, and no commenters 
opposed it.\1252\ One commenter believed that the proposed rule struck 
the right balance by permitting issuers to incorporate by reference 
only Form 8-K filings rather than requiring issuers to incorporate all 
subsequently filed Exchange Act reports.\1253\ Some commenters 
indicated that the proposed rule is consistent with current practice of 
issuers.\1254\
---------------------------------------------------------------------------

    \1252\ See letters from BoA I, MBA I, Prudential I, and SIFMA I.
    \1253\ See letter from BoA I.
    \1254\ See letters from BoA I and MBA I.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    After consideration of the comments, we are adopting the proposed 
codification of the staff's position regarding incorporation by 
reference of subsequently filed periodic reports in Form SF-3. Thus, 
under Item 10(d) of Form SF-3, the prospectus shall provide a statement 
regarding the incorporation by reference of Exchange Act reports prior 
to the termination of the offering pursuant to one of the following two 
ways. The registrant may state that all reports subsequently filed by 
the registrant pursuant to Sections 13(a), 13(c), or 15(d) of the 
Exchange Act prior to the termination of the offering shall be deemed 
to be incorporated by reference into the prospectus. In the 
alternative, the registrant may state that all current reports on Form 
8-K subsequently filed by the registrant

[[Page 57295]]

pursuant to Sections 13(a), 13(c), or 15(d) of the Exchange Act prior 
to the termination of the offering shall be deemed to be incorporated 
by reference into the prospectus.
    We believe that the codification of these staff positions will 
simplify our rules by making our staff's positions more transparent and 
readily available to the public. Because these codifications are 
consistent with current practice of issuers, we do not believe that 
they will pose a cost to either issuers or investors.

VI. Filing Requirements for Transaction Documents

A. Proposed Rule

    Item 1100(f) of Regulation AB allows ABS issuers to file agreements 
or other documents as exhibits on Form 8-K and, in the case of 
offerings off a shelf registration statement, incorporate the exhibits 
by reference instead of filing a post-effective amendment. In the 2010 
ABS Proposing Release, we noted our belief that the information in the 
transaction agreements and other documents provide important 
information on the terms of the transactions, representations and 
warranties about the assets, servicing terms, and many other rights 
that would be material to an investor. In the staff's experience with 
the filing of these documents, some ABS issuers have delayed filing 
such material agreements with the Commission until several days or even 
weeks after the offering of securities off a shelf registration 
statement. We also noted that investors have expressed concerns 
regarding the timeliness of information in ABS offerings, including the 
timeliness of the filing of these documents.\1255\ In light of these 
concerns, we proposed to revise Item 1100(f) of Regulation AB to state 
explicitly that the exhibits filed with respect to an ABS offering 
registered on Form SF-3 must be on file and made part of the 
registration statement at the latest by the date the final prospectus 
is required to be filed.\1256\ In response to the 2010 ABS Proposing 
Release, some commenters recommended that the exhibits should be 
available for investor review prior to making an investment 
decision.\1257\ Therefore, in the 2011 ABS Re-Proposing Release, we re-
proposed the amendments to Item 1100(f) of Regulation AB to also 
require that the underlying transaction documents, in substantially 
final form, be filed and made part of the registration statement by the 
date the preliminary prospectus is required to be filed rather than by 
the date that the final prospectus is required to be filed.
---------------------------------------------------------------------------

    \1255\ See the 2010 ABS Proposing Release at 23388.
    \1256\ We permit the filing of these agreements with the Form 8-
K and incorporated by reference into the registration statement in 
lieu of filing a post-effective amendment to the registration 
statement. As such, the filing requirements for these agreements, 
including the timing of the filing, is governed by our registration 
requirements, not the provisions of Form 8-K.
    \1257\ See letters from Tricadia Capital, Pacific Life Insurance 
Company, PPM America, Inc., Allstate Investments LLC, New York Life 
Investments, Guardian Life Insurance Company, AllianceBernstein 
L.P., Prudential Fixed Income Management, Principal Real Estate 
Investors, Capital Research Company, T. Rowe Price Associates, Inc., 
BlackRock, AEGON USA Investment Management, and State Street 
Corporation (collectively, ``CMBS Investors'') dated Feb. 25, 2011 
submitted in response to the 2010 ABS Proposing Release (suggesting 
that the rules require that key disclosures, including the pooling 
and servicing agreement, be made available to investors during the 
marketing period so that investors have adequate time to review 
prior to making an investment decision), Prudential I (noting its 
concern with possible ``last minute financial engineering'' that 
contributes to poor understanding of the transaction), and SIFMA I 
(requesting for purposes of shelf eligibility that we clarify that 
if exhibits are timely filed in substantially final form, the fact 
that any such document is subsequently amended or otherwise 
corrected will not be viewed by the Commission as a failure to 
timely file the corrected document).
---------------------------------------------------------------------------

B. Comments Received on Proposed Rule

    Comments on the re-proposed amendments to Item 1100(f) of 
Regulation AB were mixed with mostly investors supporting the 
amendments \1258\ and issuers opposing them.\1259\ The commenters that 
opposed the proposal generally believed that the preliminary prospectus 
provides all material information related to a particular transaction 
and, therefore, there is no material benefit to providing the 
transaction documents in substantially final form.\1260\ The commenters 
also were concerned that the requirement would likely result in 
additional costs to issuers or consumers; \1261\ that it would pose a 
restriction on the parties' ability to tailor the transaction to meet 
investor requests; \1262\ revising the prospectus and the transaction 
documents at the same time could lead to more inconsistencies or 
errors; \1263\ and may require the filing of the same documents three 
times.\1264\ Some commenters also believed that for certain 
transactions the documents cannot be given in the proposed time 
frame.\1265\ Similarly, another commenter contended that the 
requirement compels issuers to ``finalize transaction agreements'' by 
the time of the preliminary prospectus filing, which will inevitably 
delay issuers' access to the market and thereby potentially expose both 
issuers and investors to market movements that may be adverse to one or 
the other.\1266\
---------------------------------------------------------------------------

    \1258\ See letters from ASF V (expressed views of investors 
only), Better Markets, ICI II, MetLife II (stating that the 
prospectus and transaction documents in substantially final form 
should be provided at least five business days before the first sale 
in an offering), Prudential II (stating that a draft set of 
operative documents should be released at least five business days 
prior to the first sale in the offering and the executed set of 
operative documents should be released with the final prospectus 
filing at least three business days prior to closing), and SIFMA II-
investors.
    \1259\ See letters from ABA II, AFME, ASF V (expressed views of 
dealers and sponsors only), Kutak, SIFMA III-dealers and sponsors, 
Sallie Mae II, VABSS III, and Wells Fargo II.
    \1260\ See, e.g., letters from ABA II, Sallie Mae II (suggesting 
the transaction documents should be filed no earlier than the time 
the final prospectus is filed), SIFMA III-dealers and sponsors, 
VABSS III, and Wells Fargo II. See also letter from AFME (supporting 
SIFMA's (dealer and sponsor members) position and stating that any 
filing requirements adopted by the Commission should be consistent 
with the requirements already in place in the European Union and its 
member states, such as posting the relevant closing documents on an 
issuer Web site).
    \1261\ See letters from Sallie Mae II (focusing on increased 
costs to the issuer without any explanation or quantification), 
VABSS III (focusing on costs to the issuer without any explanation 
or quantification), and Wells Fargo II.
    \1262\ See letters from AFME and SIFMA III-dealers and sponsors.
    \1263\ See letter from ABA II (stating that the proposed 
amendments to Item 1100(f) will impose unnecessary costs and timing 
constraints on the issuer and introduce ``inefficiencies into the 
offering process,'' but if the Commission requires ``current 
documentation'' before pricing, the ABA believes that to the extent 
that deal-specific terms create significant changes to or 
clarifications of the forms filed with the registration statement, 
then the updated documents should be made available to investors one 
business day before they are asked to make an investment decision).
    \1264\ See letter from ASF V (stating that a filing may be 
necessary, at the time the preliminary prospectus is filed, again at 
the time the final prospectus is filed, in the event a change (other 
than a ``minor'' change) to the agreement occurs, and at or after 
the time those transaction agreements are executed because 
``regulations appear to provide that an exhibit to a registration 
statement filed without signatures would be considered an incomplete 
exhibit and, therefore, could not be incorporated by reference in 
any subsequent filing under any Act administered by the 
Commission'').
    \1265\ See letters from ABA II (stating swap agreements are 
generally negotiated after the transaction has been priced to 
reflect pricing terms and market conditions on the date of entry and 
that some of the technical real estate mortgage investment conduit 
(``REMIC'') provisions that must be added into RMBS and CMBS 
documentation cannot be provided within the proposed time frame (but 
also have little relevance for investors, so long as they are 
properly drafted) and Kutak (suggesting the documents are constantly 
being revised, although in most cases, not materially, until the 
final prospectus is filed).
    \1266\ See letter from ASF V (without clarification as to why 
this requirement may delay pricing and the formation of contracts).
---------------------------------------------------------------------------

    On the other hand, some investors believed that the transaction 
documents

[[Page 57296]]

should be provided in substantially final form at least five business 
days before the first sale in an offering,\1267\ and one of these 
investors believed that an executed set of operative documents should 
be released with the filing of the final prospectus (at least three 
business days prior to closing).\1268\ One investor stated that access 
to these documents was necessary in order to conduct appropriate due 
diligence on transactions,\1269\ and a group of investors also stated 
that the underlying transaction documents are material to their 
investment decision and should be available in substantially final form 
at the time the preliminary prospectus is filed.\1270\ Another group of 
investors supported the proposal and stated that ``[t]he complexity of 
those transactions does not lend itself to abbreviated disclosure.'' 
\1271\ Another commenter noted that ``access to the underlying 
transaction documents is also essential for the benefit of investors.'' 
\1272\
---------------------------------------------------------------------------

    \1267\ See letters from ASF V (expressed views of investors 
only), MetLife II, Prudential II, and SIFMA II-investors.
    \1268\ See letter from Prudential II.
    \1269\ See letter from MetLife II (stating that in order to 
conduct due diligence, investors need access to the following 
documents: The pooling and servicing agreement and a blackline 
against the original pooling and servicing agreement contained in 
the shelf; the representations, warranties, and exceptions and a 
blackline against industry model representations and warranties 
(e.g., CMBS or other sectors that adopt these); or a blackline 
against original representations and warranties contained in the 
shelf; and the indenture (along with any blacklines thereto)).
    \1270\ See letter from ASF V (expressed views of investors 
only).
    \1271\ See letter from SIFMA II-investors.
    \1272\ See letter from Better Markets.
---------------------------------------------------------------------------

    In the 2011 ABS Re-Proposing Release, we also requested comment on 
whether we should require issuers to file as an exhibit a copy of the 
representations, warranties, remedies, and exceptions marked to show 
how it compares to industry-developed model provisions. The comments 
that we received on our request for comment as to filing exhibits 
marked to industry-developed models were mixed with investors 
supporting the proposal \1273\ and mostly issuers opposing it.\1274\
---------------------------------------------------------------------------

    \1273\ See letters from ASF V (expressed views of investors 
only), MetLife II (recommending that a copy of the current pooling 
and servicing agreement be marked against the original pooling and 
servicing agreement in the registration statement), and Prudential 
II (recommending that we should require certain marked copies of 
current filings against prior filings to assist investors in 
identifying structural changes and suggesting that the release of 
operative documents and blacklined documents should begin within 30 
days after adoption of the new rules because this information is 
critical to an investor's understanding of a securitization).
    \1274\ See letters from Better Markets, CREFC II (noting that 
the representations and warranties will be in the ``substantially 
final mortgage loan purchase agreement'' filed with the Rule 424(h) 
filing), MBA II (with respect to CMBS), and SIFMA III-dealers and 
sponsors (noting its support of industry efforts to develop model 
provisions but emphasizing that such models do not currently exist 
for most asset classes and that identifying trade associations to be 
tasked with generating model provisions and doing so in a fair and 
open manner would be an enormous challenge while resulting in 
minimal additional investor protection).
---------------------------------------------------------------------------

C. Final Rule and Economic Analysis of the Final Rule

    After considering the comments received, we are adopting the 
requirement, as proposed in the 2010 ABS Proposing Release, to clarify 
existing exhibit filing requirements by making explicit that the 
exhibits filed with respect to an ABS offering, registered on new Form 
SF-3, must be on file and made part of the registration statement at 
the latest by the date the final prospectus is filed. We believe that 
this revision should address the problem that we noted above about some 
issuers delaying their filing of the transaction agreements with the 
Commission until several days and, in some cases, even weeks after a 
shelf offering of the securities. We also note that ABS shelf offerings 
were designed to mirror non-shelf offerings in terms of filing the 
exhibits and final prospectuses. Because all exhibits to Form SF-1 must 
be filed by the time of effectiveness, we believe that all transaction 
agreements for shelf offerings filed as exhibits should be filed and 
made part of the shelf registration statement by the time of the final 
prospectus.
    We are not adopting at this time, however, the part of the proposal 
to require the transaction documents be filed, in substantially final 
form, and made part of the registration statement by the date the 
preliminary prospectus is required to be filed. We continue to consider 
the balance between investors' interest in having access to the 
transaction documents earlier and the costs and difficulties with 
requiring issuers to provide the transaction documents in substantially 
final form by the time of the preliminary prospectus. Also, in light of 
the new disclosure requirements that must be provided at the time of 
the preliminary prospectus, as well as the certification by the issuer 
that the prospectus must fairly present information about the 
transaction, including the structure of the transaction, we believe 
further consideration is warranted. Therefore, the proposal to require 
the transaction documents be filed, in substantially final form, and 
made part of the registration statement by the date of the preliminary 
prospectus is required to be filed remains outstanding and unchanged.
    In light of the comments received, we are also not adopting any 
requirements that investors be provided with blacklines of how the 
issuer's representations and warranties compare against the industry-
developed model provisions or blacklines of how the transaction 
documents compare to the transaction documents from prior transactions 
or from prior versions of the transaction documents filed for the 
current transaction. While we believe that these types of marked 
documents could be an important tool for the identification of discrete 
or material changes between original and revised documents, we 
acknowledge commenters' concerns that there is no consistent industry 
standard at this time nor a clear identity of what other agreements to 
use as a comparison. We also believe, at this time, that most investors 
should have the capacity to produce documents marked to show 
differences from prior documents.

VII. Definition of Asset-Backed Security

A. Proposed Rule

    As part of our effort to provide more timely and detailed 
disclosure regarding the pool assets to investors, we proposed 
revisions to the Regulation AB definition of an asset-backed 
security.\1275\ A security must meet the definition of an ``asset-
backed security'' under Regulation AB in order to utilize the 
disclosure requirements of Regulation AB and be eligible for shelf 
registration as an asset-backed security.\1276\ As noted in previous 
releases, a core principle of the Regulation AB definition of an asset-
backed security is that the security is backed by a discrete pool of 
assets that by their terms convert into cash, with a general absence of 
active pool management. However, in response to commenters and previous 
staff interpretation, in 2004, we adopted certain exceptions to the 
``discrete pool'' requirement in the definition of asset-backed 
security to accommodate master trusts, prefunding periods, and 
revolving periods.\1277\
---------------------------------------------------------------------------

    \1275\ See Item 1101(c) of Regulation AB.
    \1276\ See Item 1100 of Regulation AB.
    \1277\ See Item 1101(c)(3) of Regulation AB.
---------------------------------------------------------------------------

    In the 2010 ABS Proposing Release, we proposed to amend the 
``discrete pool of assets'' exceptions to the current definition of 
``asset-backed security'' by amending:
    (i) The master trust exception to exclude securities that are 
backed by

[[Page 57297]]

assets that arise in non-revolving accounts;
    (ii) the revolving period exception to reduce the permissible 
duration of the revolving period for securities backed by non-revolving 
assets from three years to one year; and
    (iii) the prefunding exception to decrease the prefunding limit 
from 50% to 10% of the offering proceeds or, in the case of master 
trusts, from 50% to 10% of the principal balance of the total asset 
pool.\1278\
---------------------------------------------------------------------------

    \1278\ See the 2010 ABS Proposing Release at 23389.
---------------------------------------------------------------------------

    We were concerned that pools that are not sufficiently developed at 
the time of an offering to fit within the ABS disclosure regime may, 
nonetheless, qualify for ABS treatment, which may result in investors 
not receiving appropriate information about the securities being 
offered.\1279\ Consequently, we proposed amendments to these exceptions 
in order to restrict deviations from the ``discrete pool of assets'' 
requirement.
---------------------------------------------------------------------------

    \1279\ Id.
---------------------------------------------------------------------------

B. Comments on Proposed Rule

    While some commenters provided specific comments, several 
commenters provided general comments on the proposal to change the 
definition of asset-backed security. One commenter noted that the 
changes to the definition would not prohibit public issuances of ABS 
with larger prefunding accounts and revolving periods, and noted that 
such offerings would be governed by the more extensive disclosure 
requirements of Form S-1.\1280\ Another commenter requested that the 
definition of asset-backed security be sufficiently narrow to restrict 
access to only those securities where sufficient and robust disclosure, 
including collateral pool disclosure, can be provided during the 
initial offering process and at the same time, the definition should be 
calibrated to permit a reasonable degree of flexibility to accommodate 
innovation and new product development.\1281\
---------------------------------------------------------------------------

    \1280\ See letter from ELFA I.
    \1281\ See letter from FSR.
---------------------------------------------------------------------------

1. The Master Trust Exception
    One commenter supported the proposal to exclude securities that are 
backed by assets that arise in non-revolving accounts.\1282\ This 
commenter noted that master trust structures are appropriate for 
sponsors with recurring variable collateral funding needs (e.g., credit 
cards, fleet leases, floor plans, and rental cars) and that any asset 
type that follows a traditional amortization schedule or without the 
ability to redraw on the loan generally should not be included in a 
publicly issued master trust structure.\1283\
---------------------------------------------------------------------------

    \1282\ See letter from Prudential I.
    \1283\ See letter from Prudential I.
---------------------------------------------------------------------------

    However, other commenters opposed the proposal to limit the 
exception to master trusts backed by revolving accounts.\1284\ Several 
commenters believed that distinguishing securities backed by revolving 
versus non-revolving assets is unwarranted. One commenter noted that it 
did not believe there is any credit, disclosure, or other investor 
protection reason to support the change.\1285\ The issuer and investor 
members of another commenter agreed that, in applying the master trust 
exception, efforts to distinguish securities backed by revolving versus 
non-revolving assets will impose artificial limits on which asset 
classes may use the master trust structure, thereby eliminating an 
investment option that both issuers and investors desire.\1286\
---------------------------------------------------------------------------

    \1284\ See letters from AFME/ESF, ASF I, BoA I, and IPFS I.
    \1285\ See letter from IPFS I.
    \1286\ See letter from ASF I.
---------------------------------------------------------------------------

    Some commenters noted that the master trust structure is commonly 
used to securitize mortgages in the United Kingdom and that the 
proposed rule would result in those mortgage master trusts no longer 
being eligible for shelf registration.\1287\ One commenter noted that 
European market participants expressed concern that since the proposed 
change would reduce the ability of mortgage master trust issuers to 
place their bonds in the U.S. market, it would effectively reduce the 
efficiency of issuances for existing master trusts, which would 
adversely impact the overall efficiency of the asset-backed 
market.\1288\
---------------------------------------------------------------------------

    \1287\ See letters from AFME/ESF (noting that it would still be 
possible for such transactions to be registered in the U.S. using a 
new registration statement for each offering) and BoA I (noting that 
while the domestic RMBS market does not currently utilize a master 
trust structure, given the current mortgage finance market, we 
should allow for the possibility that a master trust structure could 
develop).
    \1288\ See letter from AFME/ESF.
---------------------------------------------------------------------------

2. The Revolving Period Exception
    Although an investor commenter supported the proposal relating to 
reducing the revolving period for non-revolving assets (e.g., auto 
loans and equipment loans), the commenter acknowledged that concerns 
about lack of information about new collateral additions to the pool 
would be mitigated if the issuer would be required to file loan-level 
information at issuance and each month that new assets are added to the 
collateral pool.\1289\ This commenter also noted that this transparency 
will allow investors to evaluate the changing nature of the risk 
layering introduced by the new assets.
---------------------------------------------------------------------------

    \1289\ See letter from Prudential I.
---------------------------------------------------------------------------

    Several commenters opposed the proposal.\1290\ One commenter noted 
that investors have a significant interest in purchasing ABS supported 
by non-revolving assets with longer maturities than are possible 
without the use of revolving periods and reducing the revolving period 
to one year would effectively eliminate the ability of issuers to 
satisfy such investor demand.\1291\ One commenter stated that the 
primary effect of not being able to register these offerings on Form 
SF-3 would be to increase the timing and cost burdens placed on 
issuers.\1292\ Another commenter stated that the proposed one-year 
period for revolving periods should not apply to certain loans that are 
homogenous in nature.\1293\ It explained, for example, that since all 
loans issued under a federal student loan program such as the Federal 
Family Education Loan Program (``FFELP'') \1294\ have the same credit 
risk, investors need not be concerned that the addition of future FFELP 
loans would adversely impact the credit quality of the asset 
pool.\1295\
---------------------------------------------------------------------------

    \1290\ See letters from ASF I, Sallie Mae I, and VABSS I.
    \1291\ See letter from ASF I (also noting that the current 
three-year limitation on the use of revolving periods for non-
revolving assets already limits the ability to issue publicly-
registered ABS matching investor preferences).
    \1292\ See letter from VABSS I.
    \1293\ See letter from Sallie Mae I (also proposing, in the 
alternative, a three-year revolving period limitation for homogenous 
assets, such as FFELP loans, and a one-year revolving period 
limitation for other assets).
    \1294\ See letter from Sallie Mae I (noting that FFELP loans are 
generally based on need, instead of credit quality of the underlying 
obligor).
    \1295\ See letter from Sallie Mae I (also noting that revolving 
periods allow issuers to efficiently manage their funding needs 
without having to issue additional bonds).
---------------------------------------------------------------------------

3. The Prefunding Exception
    Certain investor members of one commenter were supportive of the 
proposal to decrease the prefunding limitation.\1296\ Several 
commenters did not support the proposal to decrease the prefunding 
limitation and believed that the prefunding amount should remain at 50% 
of the offering proceeds.\1297\ One commenter noted that by utilizing 
securitizations rather than more expensive warehouse credit facilities 
or other financing alternatives, it is able to pass along cost savings 
to consumers via

[[Page 57298]]

low interest rates and that reducing the limit to 10% would reduce 
flexibility and cost efficiencies when executing a 
securitization.\1298\
---------------------------------------------------------------------------

    \1296\ See letter from ASF I.
    \1297\ See letters from AmeriCredit, IPFS I, and VABSS I.
    \1298\ See letter from AmeriCredit (also suggesting that 
disclosures involving prefunding structures be required to include 
certain representations and warranties that there has been no 
material variation in the overall composition of the characteristics 
(such as underwriting, origination, or pool selection criteria) of 
the initial loans and the pool of loans as whole after giving effect 
to the transfer of the subsequent loans).
---------------------------------------------------------------------------

    Issuer members of one commenter noted that the greater the limits 
on prefunding, the more expensive the carrying costs for originators 
and, potentially, the higher the borrowing rates for consumers and 
small businesses.\1299\ This commenter suggested that the prefunding 
limit instead be based on the duration of the prefunding period,\1300\ 
or the prefunding limit should decrease from 50% to 25% (but retain a 
prefunding period of up to one year), which would make the standard 
consistent with the prefunding standards under the Employee Retirement 
Income Security Act of 1974 (``ERISA'').\1301\ Several other commenters 
also suggested that a 25% prefunding ceiling would be more appropriate 
for the same reason.\1302\ Another commenter suggested reducing the 
limit to 20%, while imposing a 10% limit in the case of shelf offerings 
on Form SF-3 because it would be more consistent with market practice 
and more restrictive than the limitation on prefunding that is 
applicable to ABS that are eligible for sale under ERISA.\1303\
---------------------------------------------------------------------------

    \1299\ See letter from ASF I.
    \1300\ See letter from ASF I (suggesting, for example, 
permitting prefunding not in excess of 10% where a prefunding period 
may last up to one year, prefunding not in excess of 25% where a 
prefunding period may last up to nine months, and prefunding not in 
excess of 50% where a prefunding period may last up to six months).
    \1301\ Pub. L. No. 93-406, 88 Stat. 829 (1974). ERISA is a 
federal law that sets uniform minimum standards to ensure that 
employee benefit plans are established and maintained in a fair and 
financially sound manner. In addition, employers have an obligation 
to provide promised benefits and satisfy ERISA's requirements for 
managing and administering private retirement and welfare plans.
    \1302\ See letters from BoA I and Sallie Mae I.
    \1303\ See letter from SIFMA I (also noting that the Commission 
staff would have the opportunity to review and comment on the 
disclosure for an offering on Form SF-1 where the 20% limit would be 
applicable and reiterating that a 10% limit on prefunding is 
appropriate in a shelf offering).
---------------------------------------------------------------------------

    Lastly, one student loan issuer believed that the proposed 10% 
limitation on prefunding should not apply to FFELP loans (or other 
asset types) that are homogenous in nature.\1304\
---------------------------------------------------------------------------

    \1304\ See letter from Sallie Mae I.
---------------------------------------------------------------------------

C. Final Rule and Economic Analysis of the Final Rule

    We are adopting the prefunding limitation in the definition of 
asset-backed security, as proposed, with some modification. The new 
rule decreases the prefunding limit from 50% to 25% (instead of 10%, as 
proposed) of offering proceeds or, in the case of master trusts, the 
principal balance of the total asset pool. The new rule is based on 
suggestions from several commenters that 25% would be an appropriate 
restriction, in part, because it is consistent with prefunding 
standards under ERISA.
    We believe that this reduction will result in the asset pool being 
more developed at the time of the offering, which will provide 
investors with more appropriate information about the securities being 
offered. We recognize, however, that the rule could impose higher 
carrying costs on originators and, in turn, potentially higher 
borrowing rates for consumers and small businesses. We believe that our 
final rule balances the need to provide investors with more appropriate 
information and these cost concerns by raising the prefunding period 
limit from the proposed 10% to 25% of the offering proceeds (or 
principal balance of the total assets for master trusts).
    We are not adopting the revision to the master trust exception to 
exclude securities that are backed by assets that arise in non-
revolving accounts because we are persuaded by commenters' concerns 
that it would eliminate the use of shelf for certain master trusts. The 
cost of not adopting this revision today is the possibility that more 
ABS issuers of non-revolving assets will utilize master trust 
structures, which will result in investors lacking access to 
information about all pool assets before making an investment decision. 
This concern is mitigated, to some extent, by the adoption of initial 
and ongoing asset-level disclosure requirements for some asset classes.
    We are also not adopting the proposal to revise the revolving 
period exception that would reduce the permissible duration of the 
revolving period for securities backed by non-revolving assets from 
three years to one year due to comments received. An investor commenter 
noted, for example, that receiving updated asset-level information 
about the pool's assets on an ongoing basis would mitigate concerns 
regarding the duration of the revolving period.\1305\ We also 
recognize, as noted by another commenter, that shortening the revolving 
period for securities backed by non-revolving assets could preclude 
certain issuers, such as auto and equipment issuers, from issuing 
securities with longer maturities than the underlying loans.\1306\
---------------------------------------------------------------------------

    \1305\ See letter from Prudential I.
    \1306\ See letter from ASF I.
---------------------------------------------------------------------------

VIII. Exchange Act Reporting

A. Distribution Reports on Form 10-D

1. Delinquency Presentation
(a) Proposed Rule
    In the 2004 ABS Adopting Release, we stated that delinquency 
disclosures required in the Fo