Due Diligence, Reporting Standards and
ABS East 2010
October 5th, 2010
CapitalFusion Partners, LLC
John Joshi: Firm: CapitalFusion Partners
This confidential presentation has been prepared for informational purposes only and is not an offer to buy or sell any
security or instrument or to participate in any particular trading strategy. This presentation is based on information that
is believed to be reliable. No representation is made that it is accurate or complete. Certain assumptions have been made
arriving at any returns detailed herein. No representation is made that any of the returns indicated will be achieved.
Changes to the assumptions may have a material impact on any returns detailed. Past performance is not necessarily
indicative of future returns. Price and availability are subject to change without notice. CapitalFusion Partners, (“CFP”),
will provide additional information if available on request.
Why do we need regulation?
…the best and the brightest go to Wall Street
What Joe the Plumber thinks of the ABS Sector?
Matt Wueker, Politico.com
Can we out run the regulators?
Need to change our standards?
Who should make the rules?
No really … we know we do create value!
I was only trying to help….
Failure of Regulation – The Shadow Banking System
The New Normal?
Financial Regulatory Reform Terms Set by Conference Committee
S&P Warns on Europe’s mortgage market
• Withdrawal of backing by government programs set to be cut for securitization
• Costs could rise and loans become scare
ICP Asset Management Sued By SEC Over $11 Billion CDO Deal
Goldman Sued by SEC for Subprime Mortgage Bond Fraud
Ambac Assurance struck a deal to wipe out insurance contracts – called credit default swaps – on
$16.4bn of CDOs as the insurer hovered on the brink of bankruptcy
Demand for structured finance – the type of securities that fuelled hundreds of billions of dollars of
losses and a global financial crisis – is also hampered by uncertainty about regulation and capital
Sec Proposes New Securitization Rules
SEC proposes risk retention in securitization transactions
• Income Verification Clarity
• proposal would require new securitization deals to disclose how borrowers' incomes were
confirmed for the loans being sold
• Standardized Loan-Level Data Provided
• The new proposal would require computerized loan-level data provided initially and on
an on-going basis
• Additional Time for Analysis
• The SEC proposes investors have more time to ponder the information about the loans in
the securitization pool before purchase
• Issuer CEO Certification
• 5% Skin in the Game
• The assertion is that if the bank creating these assets had some skin in the game, then they
would care more about the quality of the bonds they sell to investors
• SEC Computer Model for Analyzing Securities
SEC Timetable – con’t
Key Changes for Securitization Markets
Improved Transparency - Alignment of economic interests between originators and investors, we think a
mandatory minimum retention of risk in respect of securitized assets must address a number of important issues in
order to be practical and beneficial.
Standardized Disclosure - Certain high-risk practices, such as “no doc” loans, should be prohibited outright.
Moreover, we believe the current disclosure regime and underwriting practices can be improved. Specifically, we
would increase loan-level disclosures, and encourage regulators to study ways of improving the standardized
public disclosure package.
Rating Agency Reform - Reforms relating to credit rating agencies (CRAs) is vital to reinvigorating the securitized
Reps & Warranty - Originators, whether banks or brokers, need stronger incentives to originate loans that are in
conformity with what they have promised
Effective Regulation - The financial reform bill is a good 1st step in introducing regulation in some previously
Stakeholder Alignment - Compensation structure for all stake-holders needs better alignment
Transparency on Leverage - Stronger capital requirements and better reporting of leverage. Improve Netting
Capabilities across markets and exchanges
How do we go from here ….
Here … Role of Securitization and Finance
CapitalFusion Partners LLC