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Regulation AB: The New MBS Landscape Servicers Path to Compliance

Regulation AB: The New MBS Landscape Servicers Path to Compliance. Panelists. Mike Seelig Lawanda Parks. Phillip J. Kardis, III. Moderator: Rita Ballesteros. Agenda. Regulation AB Background Regulation AB Requirements Section 1122 of Regulation AB Section 1122 vs. MBA USAP

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Regulation AB: The New MBS Landscape Servicers Path to Compliance

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  1. Regulation AB:The New MBS LandscapeServicers Path to Compliance

  2. Panelists Mike Seelig Lawanda Parks Phillip J. Kardis, III Moderator: Rita Ballesteros MBA’s National Mortgage Servicing Conference - 2006

  3. Agenda • Regulation AB Background • Regulation AB Requirements • Section 1122 of Regulation AB • Section 1122 vs. MBA USAP • Industry and Accounting Profession Questions • Management Readiness MBA’s National Mortgage Servicing Conference - 2006

  4. Regulation AB Background • The SEC adopted new and amended rules and forms to address comprehensively the registration, disclosure and reporting requirements for asset-backed securities under the Securities Act of 1933 and the Securities Exchange Act of 1934. • The heart of the new rules is “Regulation AB”, which consists of 24 items numbered 1110 through 1123. MBA’s National Mortgage Servicing Conference - 2006

  5. Regulation AB Background • Over the last 25 years, the market for asset-backed securities (“ABS”) has grown to be a significant part of the fixed income marketplace. In 2004, the total amount of ABS securities issued was greater than the total corporate debt issuance, a first for the ABS market. • The current regulatory framework for corporate debt issuance does not fit well with the needs of the participants of the ABS market. The current framework is a patchwork of SEC no-action letters and other interpretative guidance, leaving the ABS market with practices that are neither transparent nor efficient. MBA’s National Mortgage Servicing Conference - 2006

  6. Regulation AB Background • Where we have been - Registration • 1980’s shelf registration available for “mortgage related securities” • 1992 – ABS definition adopted, and non-mortgage asset classes benefited from shelf registration • Where we are going • Regulation AB – An expanded ABS definition allows for a broader inclusion of permitted asset classes • Only those transactions meeting the “ABS” Definition are permitted to register via Form S-1 or Form S-3 • ABS principles-based definition includes passivity, self-liquidating assets, fixed, identified pool at issuance and cash flows from pool assets MBA’s National Mortgage Servicing Conference - 2006

  7. Regulation AB Background • Where we have been - Reporting • Securitization reporting did not fit neatly into the financial reporting framework • Existing form (8-K and 10-K) modified by the SEC through a series of “no-action” letters • Where we are going • Principles-based reporting framework • New investor distribution oriented Form 10-D • Modified rules for Forms 8-K and 10-K • New minimum servicing criteria certifications and attestations, along with Sarbanes Oxley 302 Certification MBA’s National Mortgage Servicing Conference - 2006

  8. Regulation AB Background Servicer Concerns • "Am I a 'servicer’?" • New disclosures • Compliance considerations / SEC actions • Interim servicing requirements • Managing third-party requirements MBA’s National Mortgage Servicing Conference - 2006

  9. Regulation AB Requirements Final rules and forms intended to accomplish the following: • Update and clarify the Securities Act registration requirements for ABS offerings, including expanding the types of securities that may be offered in delayed primary offerings on Form S-3; • Consolidate existing positions that allow modified Exchange Act reporting that is more relevant to ABS; • Provide disclosure guidance and requirements for Securities Act and Exchange Act filings involving ABS; • Streamline existing positions that permit the use of written communications in a registered offering of ABS in addition to the statutory registration statement prospectus; and • Establish a consistent servicing standard that is used as the basis for measuring each Servicer’s performance. MBA’s National Mortgage Servicing Conference - 2006

  10. Regulation AB Requirements Which securities are within scope of Regulation AB? • Only those securities that meet the definition of “Asset-Backed Security” issued through the SEC registration process (S-1 and S-3) are covered by Regulation AB. • Privately issued securities are not subject to the regulation. • Expect 144A Market to follow Regulation AB requirements MBA’s National Mortgage Servicing Conference - 2006

  11. Regulation AB Requirements Definition of Asset Backed Securities • The definition is consistent with current practices. The SEC adopted a principles-based definition of ABS and this allows broad flexibility as to asset types and structures that are subjected to the regulatory regime. • Examples of affected asset classes include: • Manufactured housing • Credit card receivables • Auto loans • Student loans • Auto and equipment leases • Residential mortgages • Home equity and home equity lines of credit • Commercial mortgages MBA’s National Mortgage Servicing Conference - 2006

  12. Regulation AB Requirements Categories of Disclosure • Disclosure requirements concerning the following transaction parties: sponsors, depositors, issuing entities, servicers, trustees, and originators. • Disclosure relevant to assessing the performance of the assets being securitized: static pool disclosure and pool asset disclosure. • Catch-all category that covers disclosure concerning significant obligors, providers of credit enhancement and other support, certain types of derivatives, and alternative third-party information presentation. MBA’s National Mortgage Servicing Conference - 2006

  13. Regulation AB Requirements “Principles-Based” Disclosure • The SEC opted for a “principles-based” approach to disclosure. • New rules provide principles that must be followed rather than specific guidance by asset class or transaction structure; and • “Material” is the word • Implementation of Regulation AB will evolve or time as the market grapples with judgment calls in the application of the “rules” to particular facts and circumstances. MBA’s National Mortgage Servicing Conference - 2006

  14. Regulation AB Requirements Who is a Servicer? • A “Servicer” means any person responsible for management or collection of pooled assets or making allocations or distributions to holders of ABS. The term “servicer” includes a securities or bond administrator, but does not include the trustee if the trustee receives the allocation or distribution information from the servicer. MBA’s National Mortgage Servicing Conference - 2006

  15. Regulation AB Requirements Servicer Disclosure • Item 1108 of Reg AB requires the disclosure must identify each: • master servicer, • affiliated servicer, • unaffiliated servicer servicing at least 10% of the pool assets, and • other material servicer managing a material aspect of servicing such as work-outs or foreclosures (generally the “special servicer”). • If multiple servicers are involved in the securitization, an introductory description of the roles, responsibilities, and oversight requirements for the entire servicing structure is required. MBA’s National Mortgage Servicing Conference - 2006

  16. Regulation AB Requirements Servicer Disclosure – continued • To the extent material, the following additional disclosure is required for each identified servicer (except unaffiliated servicers that service less than 20% of the pool assets): • Basic Information and Experience. A general discussion of the servicer’s overall experience in servicing assets and a more detailed discussion of the servicer’s experience with the assets to be serviced in the securitization. For servicers that perform only limited functions such as an administrator, disclosure is required only as to the servicer’s experience and procedures relevant to those limited disclosure. The more detailed discussion of the servicer’s experience should include: • size, growth, and composition of servicer’s portfolio of such assets; • procedures for servicing such assets and a material changes in the past three years in such procedures; • other relevant information such as defaults or performance triggering events relating to servicing on prior securitizations; • disclosed instances of material noncompliance with servicing criteria in other securitizations must be disclosed; • statistical information regarding past advance activity, but no express requirement to provide servicer portfolio loss and delinquency information in the format currently used; and • information on the servicer’s financial condition is required only to the extent that there is a material risk that the financial condition of the servicer could materially impact the performance of the ABS – e.g., inability to make advances. MBA’s National Mortgage Servicing Conference - 2006

  17. Regulation AB Requirements Other Disclosure • Litigation • Item 1117 of Regulation AB requires a brief description of any legal proceedings pending against the sponsor, trustee, any servicer (that meets the highest threshold disclosure category), 20% or more originator, or any property of the foregoing parties to the extent such disclosure is material • Affiliation • Item 1119 of Regulation AB requires a description of the affiliation, if any, that the sponsor, depositor or issuing entity has with any of the following: any servicer (that meets the highest threshold disclosure category), any originator (that meets the 10% threshold disclosure category), the trustee, any significant obligor or any enhancement or support provider (such party meets the 10% threshold disclosure category), and any other material parties related to the ABS as well as any affiliations between these parties. In addition, disclosure of transactions and relationships during the past two years between the sponsor, depositor or issuing entity on the one hand and the other above-referenced parties on the other that are not in the ordinary course or not arm’s length and are material to an investor’s understanding of the related ABS transaction. Disclosure of material transactions and relationships between the sponsor, depositor, and issuing entity is already ready required under Item 508 of Regulation S-K. MBA’s National Mortgage Servicing Conference - 2006

  18. Regulation AB Requirements Static Pool Disclosure • On of the most important changes from the current disclosure practice is Item 1105 of Regulation AB, which requires the disclosure of static pool data of the sponsor. • Required Disclosure. Static pool information tracks the performance of a specific pool of loans or assets over time. While the Commission declined to prescribed specific disclosure by asset class or to offer guidance as to when static pool disclosure is material, Item 1105 provides general guidance on the “starting point” for disclosure based on the sponsor’s seasoning and whether the asset pool is amortizing or a revolving asset master trusts. MBA’s National Mortgage Servicing Conference - 2006

  19. Regulation AB Requirements Static Pool Disclosure – Amortizing Asset Pools To the extent the sponsor determines that such information is material: • Static pool information regarding delinquencies, cumulative losses and prepayments drawn from the sponsor’s prior securitized pools for that asset type should be provided. • If the sponsor has fewer than three years of securitization experience with the asset type, the sponsor must consider providing the data from purchases or originations by year – so-called “vintage year” – in lieu of information of the sponsor’s prior securitized pools. • The sponsor must provide five years of data, or, if shorter, the period for which the sponsor has been securitizing, originating, or purchasing assets of the same type. • The data must be presented in monthly or quarterly increments, with the most recent increment of data must be as of a date no later 135 days of the date of first use of the prospectus. • Summary information regarding the original characteristics of the securitized pools (such as those characteristics which are commonly found in the “strat” tables of current prospectus supplements) from which the data is drawn should also be disclosed. MBA’s National Mortgage Servicing Conference - 2006

  20. Regulation AB Requirements Revolving Asset Master Trusts The disclosure regime is very difference because the trust assets are a non-static portfolio. Therefore, to the extent the sponsor determines that such information is material: • Data regarding delinquencies, cumulative losses, prepayments, payment rate, yield and credit score of all assets in the master trust. • The data should be presented in separate increments based on the date of origination of the pool assets. While the increments may vary based on a materiality assessment, Item 1105(b) suggests that the data should be presented, at a minimum, in 12 month increments through the first five years of the account’s life. • For newer master trusts, presentation of data from the sponsor’s prior master trusts or other pools may be provided in lieu of information from the issuing master trust if such information from the issuing master trust is no material. MBA’s National Mortgage Servicing Conference - 2006

  21. Regulation AB Requirements • Alternative Information. Item 1105(c) provides that if the static pool data otherwise required as summarized above is not material, but alternative static pool information would provide material disclosure, the alternative information should be provided instead. In addition, Item 1105(c) further provides that if disclosure of static pool information regarding parties other than the sponsor is appropriate to provide material disclosure to investors, such information may be provided in lieu of, or in addition to, the static pool information of the sponsor. • Delivery of Static Pool Information. Static pool information may be “delivered” to investors (i) in the prospectus, (ii) on a CD-ROM delivered with the prospectus in accordance with current guidelines of CD-ROM delivery, or (iii) through December 31, 2009, by posting the information on a website. MBA’s National Mortgage Servicing Conference - 2006

  22. Regulation AB Requirements Allowance for Transition to Static Pool Information. The Final Rules make a special allowance for certain “pre-January 1, 2006” static pool information. • Static pool disclosure may be omitted if that information is unknown and unavailable to the registrant without unreasonable effort or expense, and the prospectus includes a statement showing that unreasonable effort would be involved in obtaining the information with respect to the following: • Information on the sponsor’s prior securitized pools that were established before January 1, 2006; and • Information on the currently offered pools for periods before January 1, 2006. • If, however, the pre-January 1, 2006 information is included in the static pool disclosure, that information is not deemed to be part of the registration statement or prospectus and thus the registrant does not have Section 11 or Section 12 liability under the Securities Act for such information. The information, however, is still subject to the general anti-fraud provisions of the Securities Act and the Securities Exchange Act. MBA’s National Mortgage Servicing Conference - 2006

  23. Regulation AB Requirements Key ABS Characteristics: • The SEC recognizes Asset Backed Securities as Securities that are backed by a discrete pool of self-liquidating financial assets. • In a basic structure, an entity, often a institution known as a “sponsor,” originates a pool of financial assets, such as mortgage loans, either directly or through an affiliate. It then sells the financial assets, again either directly or through an affiliate, to a specially created investment vehicle that issues securities “backed” or supported by those financial assets, which securities are “asset-backed securities.” • Payment on the asset-backed securities depends primarily on the cash flows generated by the assets in the underlying pool. • The structure of asset-backed securities is intended, among other things, to insulate ABS investors from the corporate credit risk of the sponsor that originated or acquired the financial assets. MBA’s National Mortgage Servicing Conference - 2006

  24. Regulation AB Requirements Timeline for Compliance • August 31, 2005 – Shelf Registration (S-3) requirements change • January 1, 2006 – All new Registrations (S-1 and S-3) must be Reg AB compliant • February 2006 – First form 10-D’s due to SEC • March 31, 2006 – some Prospectus Supplement changes • March 2007 – New Form 10-K with Servicer assertion and accountant’s attestation report required for full fiscal year period (1/1/2006 through 12/31/2006). MBA’s National Mortgage Servicing Conference - 2006

  25. Section 1122 & 1123 Compliance Reporting MBA’s National Mortgage Servicing Conference - 2006

  26. SSAE No. 10 Terms • Assessment • To determine the value, significance, or extent of subject matter • Assertion • Any declaration or set of declarations about whether the subject matter is based on or in conformity with the criteria selected • Attestation • Services in which a certified public accountant in the practice of public accounting (“practitioner”) is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter, or an assertion about the subject matter, that is the responsibility of another party MBA’s National Mortgage Servicing Conference - 2006

  27. Section 1122 Reporting Report to Cover the Entire Servicing Function • Each party participating in the servicing function is to provide a separate report regarding its compliance with the servicing criteria covering the entire servicing function. Reports will be required by any “party participating in the servicing function,” which is defined as any entity that performs activities that address the servicing criteria, unless such entity’s activities relate only to 5% or less of the pool assets. • The final regulations are not “role-based,” as any party participating in the servicing function (including trustees) may be required to provide an assessment and related attestation report if the assets covered by their activities relate to more than 5% of the pool assets. MBA’s National Mortgage Servicing Conference - 2006

  28. Section 1122 Reporting Components Each Section 1122 report must include the following: • A statement of the party’s responsibility for assessing compliance with the servicing criteria applicable to it. • A statement that the party used the servicing criteria to assess compliance with the applicable servicing criteria. • The party’s assessment of compliance with the applicable servicing criteria as of and for the period ending the end of the fiscal year covered by the Form 10-K report. The report must include disclosure of any material instance of noncompliance identified by the party. • A statement that a registered public accounting firm has issued an attestation report on the party’s assessment of compliance with the applicable servicing criteria as of and for the period ending the end of the fiscal year covered by the report on Form 10-K. MBA’s National Mortgage Servicing Conference - 2006

  29. Section 1122 ReportingPeriods and Levels • Period to be Covered by Report • The report is to include an assessment of the servicing function as of the end of, and for a full fiscal period (or the applicable partial period in the case of the initial report), rather than at a single point in time. Compliance began January 1, 2006. • Level of Reporting • Servicing compliance is to be determined at a “platform” level, rather than at a transaction-specific level. This platform level reporting approach assumes that the asserting party will assess compliance with respect to all ABS transactions involving such party that are backed by assets of the type backing the ABS covered by the Form 10-K report. MBA’s National Mortgage Servicing Conference - 2006

  30. Section 1122 ReportingDe-listing • What if I de-list? Is there a continuing compliance reporting requirement? • Servicers should evaluate their transaction legal documents to determine their annual compliance reporting requirements. MBA’s National Mortgage Servicing Conference - 2006

  31. Section 1122 ReportingPlatform Level Platform Example MBA’s National Mortgage Servicing Conference - 2006

  32. Section 1122 Servicing Criteria • Section 1122 disclosure-based servicing criteria to be used by each party providing an assertion regarding servicing compliance and an attestation report by registered public accounting firms in assessing servicing compliance. • The minimum servicing criteria are separated into four categories: • General Servicing Considerations • Cash Collection and Administration • Investor Remittances and Reporting • Pool Asset Administration MBA’s National Mortgage Servicing Conference - 2006

  33. General Servicing Considerations Intended to provide disclosure regarding whether the servicer or other relevant party has instituted polices or procedures for structural monitoring of the ABS and performed other general administrative tasks during the period covered by the report. The criteria included in the final regulations are an expansion of those currently included in the USAP. Cash Collection and Administration Criteria are designed to provide disclosure regarding whether the servicer or other relevant party has administered the collection of cash from obligors, segregated (as applicable) and reconciled such cash for investors and maintained transaction accounts pursuant to the transaction agreements. The criteria in the final regulations regarding cash collection and administration are comparable to the corresponding USAP criteria. Section 1122 Servicing Criteria MBA’s National Mortgage Servicing Conference - 2006

  34. Investor Remittances and Reporting Criteria are designed to provide disclosure regarding whether the servicer or other relevant party is calculating amounts due to investors and reporting such amounts to investors in accordance with the flow of funds and has allocated and remitted distributions to investors in accordance with the transaction documents and filed reports with the SEC as required. The USAP does not include an explicit assessment of compliance with the flow of funds calculations. In the SEC’s view, such an assessment may be critical for proper distributions to investors. Pool Asset Administration Criteria are designed to provide disclosure regarding whether the servicer or other relevant party is maintaining pool assets pursuant to the transaction agreements, including: maintaining specified collateral; administering changes to the asset pool; posting payments and other changes regarding pool assets; instituting loss mitigation or recovery actions; administering funds held in trust for an obligor, if required for the pool assets; and maintaining external credit enhancement or other support. The criteria regarding pool asset administration are an incremental enhancement of USAP. Section 1122 Servicing Criteria MBA’s National Mortgage Servicing Conference - 2006

  35. Section 1122 Reporting Exclusions • A party may exclude in its assessment report those specific servicing criteria that are not applicable to the asserting party based on the activities it performs with respect to ABS transactions, taken as a whole, that are backed by assets of the type backing the subject ABS. A party does not, however, have discretion to exclude from its report specific servicing criteria if such criteria are otherwise applicable to that party. • If servicing criteria are excluded, the inapplicability of the excluded criteria must be disclosed in the asserting party’s assertion and the related registered public accounting firm’s report. MBA’s National Mortgage Servicing Conference - 2006

  36. Section 1122 ReportingNon-Compliance Penalties What are the penalties for noncompliance? • The final regulations do not include a specific line item requirement to disclose any material impact or effects as a result of material instances of noncompliance. The SEC has, however, adopted a requirement that material instances of noncompliance during the reporting period, even if such noncompliance was subsequently corrected during the reporting period, must be disclosed. MBA’s National Mortgage Servicing Conference - 2006

  37. Section 1122 Reporting Considerations • What happens if I am willing to take responsibility for servicing functions which I have outsourced to third parties? • The servicer will be required to provide documentation to evidence compliance with all servicing criteria included in management’s assertion. • Will I need to obtain copies of other servicers Reg AB compliance report to cover areas I determine to be “inapplicable criteria”? • The servicer is required to obtain an independent audit opinion on management’s assertion with respect to compliance with the applicable servicing criteria. MBA’s National Mortgage Servicing Conference - 2006

  38. Section 1122 vs. USAP What will change? • The servicing criteria in Section 1122 are more numerous and extensive than the minimum servicing standards in the USAP and are relevant to servicing of all ABS, not just RMBS. • Significantly more parties will be subject to reporting under Section 1122 than under the USAP. • Unlike the USAP, Section 1122 places significant emphasis on servicers’ asset management responsibilities. • Section 1122 reports will be required of parties that perform periodic cash flow calculations and distributions. • Likely most practitioners will apply a set of illustrative procedures while conducting their audits. • We believe that many practitioners will likely apply a quasi - 404 framework with respect to testing controls over compliance. MBA’s National Mortgage Servicing Conference - 2006

  39. Section 1122 vs. USAP • Should servicers provide a Section 1122 Report to investors in lieu of a USAP Report? • Servicers should evaluate their reporting responsibilities pursuant to the transaction documents (i.e. Pooling & Servicing Agreements). • Investors may begin to request compliance reporting pursuant to the Regulation AB criteria for non-public transactions as the higher industry standard. MBA’s National Mortgage Servicing Conference - 2006

  40. Section 1122 vs. USAP What is the future of USAP? • The investor community is expected increasingly to require Section 1122 Reports rather than USAP Reports as the SEC engagement is much more comprehensive than the USAP engagement. • MBA anticipates discontinuing publication of the USAP if Section 1122 Reports become the reports of choice by most investors in the future. • MBA has drafted a letter to members to advise them that a Section 1122 engagement satisfies the requirements of a USAP engagement. MBA’s National Mortgage Servicing Conference - 2006

  41. Accountants’ Attestation Report • Under the final rules, each party providing an assessment of compliance is responsible for ensuring an attestation engagement is performed by a registered public accounting firm. Each attestation report is to be filed as an exhibit to the report on Form 10-K, and must be made in accordance with the standards for attestation engagements issued or adopted by the Public Company Accounting Oversight Board. (AT § 601) MBA’s National Mortgage Servicing Conference - 2006

  42. Accountants’ Attestation Report • A new “attestation report on assessment of compliance with servicing criteria for asset-backed securities” is defined as a report in which a registered public accounting firm expresses an opinion, or states that an opinion cannot be expressed, concerning an asserting party’s assessment of compliance with servicing criteria, as required under the revised approach, in accordance with standards on attestation engagements. • When an overall opinion cannot be expressed, the registered public accounting firm must state why it was unable to express such an opinion. As proposed, the report must be dated, signed manually, identify the period covered by the report and clearly state the opinion of the accountant as to whether the party’s assessment of compliance with the servicing criteria was fairly stated in all material respects, or must include an opinion to the effect that an overall opinion cannot be expressed. MBA’s National Mortgage Servicing Conference - 2006

  43. Accountants’ Attestation Report • The report issued by the registered public accounting firm must be available for general use and not contain restricted use language. The SEC believes that the servicing criteria adopted as part of Item 1122 of Regulation AB are suitable criteria, as that term is defined in the SSAE No. 10, and are available to enable a registered public accounting firm to issue a report on a party’s assertion without restricted use language. • There remain some open questions that both the industry and accounting profession have as to the criteria definitions and interpretations in application. MBA’s National Mortgage Servicing Conference - 2006

  44. Open Issues – Static Pool Information • How are Sellers who sell mortgage loans “servicing released” going to comply with the contractual obligation to deliver static pool information? • Will Servicers be required to track loan loss, delinquencies, and prepayment information by each originator in a securitized pool? • Who will determine who are the originators in each securitized pool? • Will Servicers have to make representations with respect to the accuracy of such information? • Who will pay for such additional information tracking? MBA’s National Mortgage Servicing Conference - 2006

  45. Open Issues – Servicer Disclosure • If you service more than 20% of the pool assets as of the cut-off date, Regulation AB disclosure may conflict with your compliance with the Exchange Act? • Regulation AB may require disclosure of litigation that you are not otherwise required to disclose. • Regulation AB disclosure requirements may trip you up on your Regulation FD compliance. MBA’s National Mortgage Servicing Conference - 2006

  46. Open Issues – Interim Servicing • Interim Servicing Transfer Date occurs after the securitization date • Is the interim servicer “participating in a servicing function”? • If so, how will such “interim servicers” without a true servicing platform comply with the Item 1122 certification and attestation requirements? MBA’s National Mortgage Servicing Conference - 2006

  47. Open Issues – Platform decision • SEC rules requires “an assessment of compliance with respect to allasset-backed securities transactions involving the asserting party that are backed by assets of the type backing the asset-backed securities covered by the Form 10-k report.” • Can management modify the word “all,” so as to define their platform in different ways? • Industry has proposed several different modifications to “all” including: time of issuance, reporting status, registration, asset type sub-groups, geography, and technology platform. • This answer will impact auditor’s testing approach. Should only current deals be isolated? MBA’s National Mortgage Servicing Conference - 2006

  48. Open Issues – Are all SEC reports subject to the criteria? • Criteria item 1122(d)(3)(i) states: “Reports to investors, including those filed with the Commission, are maintained in accordance with the transaction agreements and applicable Commission requirements….” • This criteria could be interpreted to require auditors to perform attestation procedures over an issuers compliance with laws and regulations of the Commission for all exchange act reports related to all of the issuing entities covered under the platform. MBA’s National Mortgage Servicing Conference - 2006

  49. Open Issues - What other reports are subject to criteria? • “Reports to investors” and the related investor reporting functions have different meanings for different asset classes in the ABS market. Should such reports only include the periodic reports sent to investors (Form 10D) and exchange-act filings (Forms 10K, 8K)? • “Reports to investors” can also be interpreted to include data or reports for the entire chain of information passing from a servicer, to master servicer, to calculation agent, to trustee. Presumably, each party participating in the servicing function would only assert to the data or reports that they produce. MBA’s National Mortgage Servicing Conference - 2006

  50. Open Issues – Reperformance of cash flow modeling • Criteria item 1122 (d) (3) (i) (b) states “Specifically, such reports provide information calculated in accordance with the terms specified in the transaction agreements.” • Issue – This criteria implies that management (in making its assertion) and the auditor (in attesting to management’s assertion) perform procedures to ensure the accuracy, presentation and disclosure of data contained in the investor report (and subsequently filed with Form 10-D). This will likely require some level of re-performance or remodeling of transactions given complexity of cash flows calculations - a significant time investment by management and by attesting auditors. MBA’s National Mortgage Servicing Conference - 2006

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