Speaking of Securitization

Accounting, tax, regulatory, and other developments affecting transfers and servicing of financial assets

The RE-REMIC phenomenon:

• Is it a regulatory capital play?
• Is it a defensive play against further ratings downgrades?
• Is it a tax-advantaged transaction?
• Is it a cost-efficient funding strategy for the new AAA securities?
• Is there an economic trading arbitrage?
• Does it make AAA bonds more saleable?

Sometimes the impetus for a RE-REMIC1 is one or more of the factors listed above, and in rare circumstances, all of the above. Given the paucity of any new primary issuances in the mortgage securitization market and the yet-to-develop traction in government strategies to revive mortgage securitization, just about the only non-agency game in town are RE-REMIC transactions, and there is no shortage of supply.

This paper will summarize technical accounting, regulatory, and tax issues that apply to these transactions. The paper does not address the credit re-rating analysis or any economic valuation of the sum of the parts in relation to the whole. Because the technical accounting and regulatory developments outlined herein are very fast-moving, readers should be aware that this paper might not represent the up-to-date status of these matters as of the date of their reading.

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Document ATTACHED

[Federal Register Volume 75, Number 84 (Monday, May 3, 2010)]
[Proposed Rules]
[Pages 23327-23514]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-8282]

 \456\ 17 CFR 230.144A.
    \457\ See the Rule 144A Adopting Release.
    \458\ For example, a vast majority of resecuritizations of real 
estate mortgage conduits, known as ``Re-Remics,'' are offered 
through resales made in reliance on Rule 144A safe harbor. See 
Deloitte's Speaking of Securitization, ``The Re-Remic Phenomenon'' 
(June 2009), at 2.
    \459\ Many CDOs do not meet the ``discrete pool of assets'' 
component of the Regulation AB definition of an asset-backed 
security because CDOs permit the active management of the assets for 
a period of time (e.g., five years), a component which is 
inconsistent with the principle set forth in Item 1101(c). Also, 
other structured products like synthetic securities do not meet the 
definition of an asset-backed security under Regulation AB. See 
Section III.A.2.a. of the 2004 ABS Adopting Release. In addition, 
actively-managed CDOs and issuers that offer synthetic securities 
generally do not meet the requirements of Rule 3a-7 under the 
Investment Company Act and typically rely on one of the private 
investment company exclusions under that Act. See fn. 39 above.