Par. 10: We have serious concerns about the requirement to provide legal opinions, given the sensitivity
and confidentiality of such opinions. Rather we would like to see the content as suggested in Par. 10 be covered in the representations and warranties. Especially commingling risk and set-off risk are usually not covered by true sale opinions.
Par. 11(b): Perfection (at a later stage) is not a legal concept in all jurisdictions. Further clarification would be helpful.
Par. 13: Please clarify how and to whom the accessibility and availability of the legal opinion should be arranged: at request, on a (pass-word protected) website, to which third parties ? If other than “third party certification agents and competent authorities” should get access, we would prefer to see a limited list. Alternatively, can we use the “confidentiality reasons” to limit the availability of the opinion outside the group of third party certification agents and competent authorities ?
Par. 15: We note that “seller’s insolvency” or “insolvency of the seller” or “insolvent” appear in Article 20(1), (2) and (5), 20(11), 21(6) and 21(7), but is only interpreted for the purpose of Article 20(5).
We would prefer to have one interpretation of insolvency to apply to all STS criteria.
Other comments: Please add “material” between “unremedied” and “breaches”.
Par. 11(a): We do agree with the clarification; examples are not needed.
We do believe that the provided guidance is sufficient and that there are no additional severe clawback provisions to be added.
Par. 12: No further specification is needed; technical insolvency without legal insolvency (or resolution) may not necessarily have to trigger perfection in our view, so we prefer the interpretation as prov
Par. 16: We do agree, although we note that the original lender may not always be (any longer) in a position to provide these representations and warranties.
Par. 18: Can you confirm that further advances are included in Par. 18(b) or add them to Par. 18 ?
Par. 21: Since this Article only requires a confirmation and a cross-reference to the Prospectus (according to the ESMA RTS/ITS on the STS notification), it seems to be relevant that the eligibility criteria are specified in the Prospectus (rather than specification in the transaction documentation, which is not cross-referenced).
Par. 19: There are many types of sale outside the ones mentioned under Par. 18 that nevertheless are not intended to actively manage a portfolio (sale for redemption of the notes, sale to facilitate the recovery process etc.). So we propose to delete Par. 19(b).
Par. 24: We do agree, but would appreciate if you could indicate that the exposures you mention in
Par. 24 are examples and not an exhaustive list.
As we have indicated in our response (like on Q8) on the Consultation on this Delegated Regulation, there remains a lack of clarity on how the definitions will work out for mixed pools of interest only and amortising (mortgage) loans. We would appreciate if the guidelines could list some more specific examples of homogeneous pools, including mixed pools of interest only and amortising mortgage loans.
Par. 28(a): We do not understand the rationale for looking back at changes in past underwriting standards. Investors prefer to see different vintages of exposures in one pool in order to mitigate the impact of economic cycles and the resulting (countercyclical) changes in underwriting standards.
Other comments: We need more guidance on how “any material changes from prior underwriting standards shall be fully disclosed to potential investors without undue delay”: how should this be disclosed (in investor reports ?), what is undue delay (in the next Investor Report ?) and especially how do we determine who is a potential investor ?
Par. 37: We do agree with the principles-based approach and, more specifically, the principles as described in Par. 37.
With regard to Par. 37(d), can you please confirm that this implies that if an originator holds a proper license from a competent authority it meets the requirement of having expertise ?
Can you please confirm that if the origination is outsourced to a sufficiently experienced (according to Par. 37) third party, this criterion is also met ?
Par. 38: We are somewhat surprised by the 5 year requirement in Par. 38, especially where the level 1 text does not refer to time periods. In practice it will be very unlikely that 2 members of the management body and all senior staff responsible for the origination of an entity will have at least 5 years of experience with similar exposures.
Well run organisations typically build their senior teams around people with different backgrounds and not just (f.i.) mortgage originators, so this requirement increases the entry barrier for new entrants.
Par. 25: For the purpose of comparing underwriting criteria it is better to look at asset categories.
Eligibility criteria are not taken into account when exposures are underwritten and are reflective of a mix of factors (investor appetite, funding needs) that are not always directly related to underwriting.
Par. 40: The interpretation creates a problem for legacy transactions, since it looks back to “at the time of selection” and legacy transactions may have used different default definitions and other criteria at the time of selection.
Par. 47 and Par. 49: The terminology “at the origination of the securitisation” is confusing. Can you please confirm that this refers to “at the time of origination of the exposures”, since credit checks are performed at the time of origination of the exposure and it is impossible to do a credit check for all exposures at the time of selection for a securitisation.
Par. 50: We would appreciate some more guidance on what determines a “significantly higher than the average credit score”.
Par. 42: Reporting as per Article 20(11)(a)(ii) of “time and details of the restructuring as well as their performance since the date of restructuring” will have to be within the infrastructure of the Loan Level Data requirements (Article 7(1)(a)) and in aggregated format in the Investor Report (Article 7(1)(e)(i)).
Par. 43: “neither the debtor nor the guarantor” is very restrictive. This way, the availability of a guarantee as additional security, would become an additional risk of not getting STS status. This cannot be the intention, so please replace this by “either the debtor or the guarantor”.
Par. 44 and Par. 45: For the avoidance of doubt, can you please confirm that not all potential sources of information have to be checked at origination of an exposure ?
Par. 46: The reference to all exposures of an obligor rather than the restructured exposure for determining credit impairedness, is not in line with market practice and very detrimental to debtors, and especially retail and SME debtors.
Par. 51: We would like to see an exception for “ramp-up” or “warehousing” structures, where it is not really possible to meet this requirement.
Par. 54: While Par. 47 of the Background and rationale states that “this criterion should not aim to exclude ….interest only residential mortgages from STS securitisation”, we do not see this reflected explicitly in the guidelines.
In our view, (Dutch) interest only residential mortgage loans fall outside the scope of Article 20(13) since:
-the contractual terms do not provide for a sale of the mortgaged asset for the redemption of the loan;
-only in case the debtor cannot repay its debt (from refinancing, own resources etc.) the mortgage asset
will be foreclosed;
-the mortgaged receivables are securitised, not the mortgaged asset, so there is no “residual value”, but
only a residual claim.
We would appreciate if this could be conformed in the guidelines.
Par. 53: A fixed percentage for all asset classes does not reflect the different nature of the asset classes and especially not the different maturity profiles of asset classes.
So we would be in favor of more differentiation in asset classes.
Par. 56: Can you give further guidance on “not unusually limited”, and especially what determines a
“major share” and “relevant scenarios”?
Par. 57(e): We would appreciate more elaboration on the “concise sensitivity analysis”. What are the required scenarios?
Par. 58: Hedging multiple risks with one measure can be beneficial to the investor if not all the risks fully materialise and as long as the measure is large enough to cover the sum of the potential risks.
Par. 59: Can you please indicate how and to whom information/reasoning should be disclosed on a continuous basis ? Can this be done in the Investor Report ?
We do agree.
Par. 69: Instead of “a seller’s default”, we would prefer reference to “an unremedied and unwaived seller’s default”, since a simple seller’s default will not always lead to enforcement or acceleration.
Principal payments will not exclusively be used to repay investors when there are obligations ranking higher in the waterfall (taxes, corporate services).
The reference to Article 20(12) does not seem to be correct. Should it be Article 20(7) ?
Par. 71: So we understand that for a confirmation (triggers yes/no) as indicated in the ESMA draft of the STS Notification, it will not be required to indicate which triggers (which “may include” the triggers described in the Guidelines) will be applied ?
Par. 72: An insolvency-related event with the servicer should not automatically trigger a replacement of the servicer.
Par. 73: This paragraph is confusing and can better be deleted.
Par. 77: For “exposures of a similar nature” we refer to our comments on Q12 (Par. 25)
Par. 78: We would appreciate to receive more guidance on the proof (of well documented and adequate policies, procedures and risk management controls) to be “substantiated by a third-party review”; who could be a third party, what should the review exactly cover ?
Par. 74: We do agree with the principles-based approach and, more specifically, the principles as described in Par. 74.
With regard to Par. 74(d), can you please confirm that this implies that if a servicer holds a proper license from a competent authority it meets the requirement of having expertise ?
Can you please confirm that if the servicing is outsourced to a sufficiently experienced (according to
Par. 74) third party, this criterion is also met ?
The references to origination, originating and underwriting should be replaced by references to servicing.
Par. 75: We are somewhat surprised by the 5 year requirement in Par. 75, especially where the level 1 text does not refer to time periods. In practice it will be very unlikely that 2 members of the management body and all senior staff responsible for the servicing of an entity will have at least 5 years of experience with similar exposures.
Well run organisations typically build their senior teams around people with different backgrounds and not just (f.i.) mortgage servicers, so this requirement increases the entry barrier for new entrants.
And the reference to Par. 7(a) in Par. 75(b)(iii) does not seem to be correct. Should it be Par. 75(a) ?
Par. 79: We do agree that this confirmation is required, but wonder whether a simple yes/no
will be sufficient or that more explanation may sometimes be needed.
Would it be sufficient to provide a generic description or summary?
Remedies and actions can be very client specific and it might be difficult to specify these in advance.
We would appreciate further clarification of the terms “fiduciary duties” and “clearly identified”.
We do agree.
Par. 85: The pool audit does not cover the eligibility criteria, so Par. 85(a) should be deleted.
Ineligible exposures will be bought back by the seller, based on the representations and warranties.
Par. 86: This confirmation should be provided in the Prospectus.
Par. 87: This raises the question what are “potential investors” and who determines that a party is getting this status. Is it allowed to have this information in a pass-word protected environment ?
Par. 89: It is not completely clear whether the information should be disclosed to the extent available (it is often not available for more seasoned exposures) or only if available for all exposures.
Can you clarify whether “energy performance certificates” are within the meaning of
EU Directive 2010/31 ?
Par. 89: For residential loans, additional sources are currently under development in several European initiatives.
Par. 90: In this context we would like to mention our general concerns about the lack of clarity to whom (who qualifies as “potential investor” ?), where (Documentation, Prospectus, Investor Report, (password protected) website) and with what frequency information has to be disclosed.
Please see also our comments on Q6, Q10, Q15, Q19 and Q30.
For this specific question, we wonder how to interpret providing information “upon request” (what procedure will apply for a request ?) to “potential investors” (again, how to identify them ?) as required by Article 7(1).
It would also help if you could clarify the meaning of making the Loan Level Data and Investor Report available “simultaneously each quarter”.
