PRA OMB Supporting Statement Credit Risk Retention 5-12-2011

SUPPORTING STATEMENT FOR PROPOSED RULES UNDER THE SECURITIES
ACT OF 1934 AND DODD-FRANK WALL STREET REFORM AND CONSUMER
PROTECTION ACT
This supporting statement is part of a submission under the Paperwork Reduction Act of
1995, 44 U.S.C. §3501, et seq.
A.

JUSTIFICATION
1.

CIRCUMSTANCES MAKING THE COLLECTION OF INFORMATION
NECESSARY

In Release No. 34-64148,1 the Commission proposed a new rule, jointly with other
Federal Agencies,2 to implement section 15G of the Securities and Exchange Act of 1934 (15
U.S.C. § 78o-11), as added by section 941(b) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (Dodd-Frank Act).3 The proposed rule would be titled
“Regulation RR”.
The proposal would generally require a securitizer of any asset-backed security (ABS) to
retain an economic interest equal to not less than five percent of the credit risk of the assets
collateralizing the security that the securitizer transfers, sells, or conveys to a third party in a
transaction within the scope of section 15G. The proposal specifies the permissible types, forms,
and amounts of credit risk retention, and establishes certain exemptions for securitizations
collateralized by assets that meet specified underwriting standards or that otherwise qualify for
an exemption, including an exemption for ABSs that are collateralized exclusively by residential
mortgages that qualify as “qualified residential mortgages” (QRMs), as defined in the proposed
rule by the Agencies.
The information collection pursuant to Regulation RR is triggered by specific events.
There are no required reporting forms associated with Regulation RR.
2.

PURPOSE AND USE OF THE INFORMATION COLLECTION

The purpose of Regulation RR is to implement section 15G of the Exchange Act, as
added by Section 941(b) of the Dodd-Frank Act. Section 15G generally requires the securitizer
of asset-backed securities to retain not less than five percent of the credit risk of the assets
collateralizing the asset-backed securities. Section 15G includes a variety of exemptions from
these requirements, including an exemption for asset-backed securities that are collateralized

1

Credit Risk Retention, Release No. 34-64148 (March 30, 2011) [76 FR 24090].
The Agencies that are party to this rulemaking are the Office of the Comptroller of the Currency (OCC); Board of
Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); U.S. Securities
and Exchange Commission (Commission); Federal Housing Finance Agency (FHFA); and Department of Housing
and Urban Development (HUD) and are collectively referred to as the Agencies. For the purposes of this supporting
statement the OCC, Board, and FDIC are collectively referred to as the Federal banking agencies.
3
Pub. L. No. 111-203, 124 Stat. 1376 (2010).
2

exclusively by residential mortgages that qualify as “qualified residential mortgages,” as such
term is defined by the Agencies by rule.
The proposed rules include disclosure requirements that are an integral part of and
specifically tailored to each of the permissible forms of risk retention. The disclosure
requirements are integral to the proposed rules because they would provide investors with
material information concerning the sponsor’s retained interests in a securitization transaction,
such as the amount and form of interest retained by sponsors, and the assumptions used in
determining the aggregate value of ABS to be issued (which generally affects the amount of risk
required to be retained). Further, the disclosures would provide investors and the Agencies with
an efficient mechanism to monitor compliance with the risk retention requirements of the
proposed rules.
3.

CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY

The proposed rule does not contain any express requirement that the collection of
information be electronically filed with the Commission using the Commission’s Electronic Data
Gathering and Retrieval (EDGAR) system.
4.

DUPLICATION OF INFORMATION
We are not aware of any rules that conflict with or substantially duplicate the final rules.

5.

REDUCING THE BURDEN ON SMALL ENTITIES

The proposed rule implements the risk retention requirements of section 15G of the
Exchange Act, which, in general, requires the securitizer of an asset-backed securities (ABS) to
retain not less than five percent of the credit risk of the assets collateralizing the ABS. Under the
proposed rule, the risk retention requirements would apply to “sponsors”, as defined in the
proposed rule. As discussed in Release No. 34-64148, based on our data, we did not find a
significant number of sponsors that are small entities. As such, the Commission does not believe
that the final rules would have a significant economic impact on a substantial number of small
entities.
6.

CONSEQUENCES OF NOT CONDUCTING COLLECTION

The disclosure requirements provide investors with material information concerning the
sponsor’s retained interests in a securitization transaction, as well as provide investors and the
Agencies with an efficient mechanism to monitor compliance with the risk retention requirements
of the proposed rules. Less frequent collection would frustrate the statutory intent of Section 15G
of the Exchange Act because investors in ABS would have less information on which to base an
investment decision.
7.

SPECIAL CIRCUMSTANCES
None
2

8.

CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY
On April 29, 2011, a joint noticed of proposed rulemaking was published in the
Federal Register (76 FR 24090) requesting comment on the implementation of the
recordkeeping and disclosure requirements for the Credit Risk Retention rules. The
comment period expires on June 20, 2011.

9.

PAYMENT OR GIFT TO RESPONDENTS
Not applicable.

10.

CONFIDENTIALITY
Not applicable.

11.

SENSITIVE QUESTIONS
Not applicable.

12/13. ESTIMATES OF HOUR AND COST BURDENS
The estimated total annual burden for the recordkeeping and disclosure requirements of
this information collection by the Commission is 37,166 hours, as shown in the table below. The
table provides the estimated annual burden for the 1,500 creditors and 104 sponsors assigned to
the Commission to which Regulation RR applies.
To determine the number of respondents (or offerings per year) for the requirements
contained in §§__.4, __.5, __.6, __.7, __.8, __.9, and __.10 of this proposed rule the Federal
banking agencies and the Commission first estimated the universe of sponsors that would be
required to comply with the proposed disclosure and recordkeeping requirements. Based on
2010 data reported on the commercial bank Call Report (FFIEC 031 and 041) and from the ABS
database, AB Alert, approximately 243 unique sponsors conduct ABS offerings per year. Of the
243 sponsors, 43 percent (91) of these sponsors were assigned to the Commission.4
To determine the number of respondents (or offerings per year) for the requirements
contained in §§__.12, __.13, __.15, __.18, __.19, and __.20 the Federal banking agencies and the
Commission estimated the proportionate amount of offerings per year for each agency. In
making this determination, the estimate was based on the average number of ABS offerings from
2004 through 2009 (1,700 total annual offerings per year).5 The following additional estimates
were made:

4

The remaining 12 percent were assigned to the OCC, 37 percent were assigned to the FDIC, and 8 percent were
assigned to the Board.
5
We use the ABS issuance data from Asset-Backed Alert on the initial terms of offerings, and we supplement that
data with information from Securities Data Corporation (SDC). This estimate includes registered offerings and

3

12 offerings per year would be subject to disclosure and recordkeeping requirements
under sections §__.12 and §__.13, which are divided equally among the four agencies
(i.e., 3 offering per year per agency);
100 offerings per year would be subject to disclosure and recordkeeping requirements
under section §__.15, which are divided proportionately among the agencies based on the
entity percentages described above (i.e., 8 offerings per year for the Board; 12 offerings
per year for the OCC; 37 offerings per year for the FDIC; and 43 offerings per year for
the Commission); and
40 offerings per year will be subject to disclosure and recordkeeping requirements under
§__.18, §__.19, and §__.20, respectively, which are divided proportionately among the
agencies based on the entity percentages described above (i.e., 3 offerings per year
subject to each section for the Board, 5 offerings per year subject to each section for the
OCC; 15 offerings per year subject to each section for the FDIC, and 17 offerings per
year subject to each section for the Commission).
To obtain the estimated number of responses (equal to the number of offerings) for each
option in Part B of the proposed rule (Sections _.3 through _.12), the Agencies multiplied the
number of offerings estimated to be subject to the base risk retention requirements (i.e., 1,480)6
by the sponsor percentages described above. The result was the number of base risk retention
offerings per year per agency. For the Commission, this was calculated by multiplying 1,480
offerings per year by 43 percent, which equals 636 offerings per year. This number was then
divided by the number of base risk retention options (7) to arrive at the estimate of the number of
offerings per year per agency per base risk retention option. For the Commission, this was
calculated by dividing 636 offerings per year by 7 options, resulting in 91 offerings per year per
base risk retention option.
The total estimated annual burden for each Agency was then calculated by multiplying
the number of offerings per year per section for such Agency (except with respect to the
recordkeeping burden hours under §__.8 and §_.15(d)(13) as described below) by the number of
burden hours estimated for the respective section, then adding these subtotals together. For
example, under §__.4, the Commission multiplied the estimated number of offerings per year per
§__.4 (i.e., 91 offerings per year) by the disclosure burden hour estimate for §__.4 of 2.0 hours.
Thus, the estimated annual burden hours for respondents to which the Commission accounts for
the burden hours under §__.4 is 182 hours (91 * 2.0 hours = 182 hours). For the recordkeeping
burden estimate under §§__.8(c) and__.8(d)(2), instead of using the number of offerings per year
per base risk retention option, the Agencies multiplied the number of recordkeeping burden
hours by the number of unique sponsors assigned to such Agency per year (i.e., 104 in the case
of the Commission).7 The reason for this is that the Agencies considered it possible that
sponsors may establish these policies and procedures during the year independent on whether an
offering was conducted, with a corresponding agreed upon procedures report obtained from a
public accounting firm each time such policies and procedures are established.
offerings made under Securities Act Rule 144A. We also note that this estimate is for offerings that are not
exempted under §§ _.21 and _.22 of the proposed rule.
6
Estimate of 1,700 offerings per year minus the estimate of the number of offerings qualifying for an exemption
under §__.15, §__.18, §__.19, and §__.20 (220 total).
7
243 * 43% = 104.

4

To obtain an estimate for the number of burden hours required by § _.15(d)(13), the
Agencies multiplied the estimate of the number of creditors assigned to such Agency for
purposes of this risk retention rule by an estimate of the number of hours that it will take
creditors to perform a one-time update to their systems to account for the requirements of this
section, which we estimate to be 8 hours.8 This estimate was added to the other disclosure and
recordkeeping burden estimates as described above to achieve a total estimated annual burden
for respondents assigned to the Commission.
a) Detailed table of proposed changes to annual burden compliance in Collection of
Information.
Number of
respondents

§__.4, Vertical Risk
Disclosures
§__.5, Horizontal Risk
Disclosures
§__.6, L-Shaped Risk
Disclosures
§__.7, Revolving Master Trust
Disclosures
§__.8, Rep Sample
Disclosures
Recordkeeping
§__.9, Eligible ABCP Conduits
Disclosures
Recordkeeping
§__.10, CMBSs
Disclosures
Recordkeeping
§__.12, Premium Capture Cash
Reserve Account
Disclosures
§__.13, Allocation of Risk
Disclosures
Recordkeeping
§__.15, Exemption for QRMs
Disclosures
Recordkeeping
One-time Disclosure
§§__.18, .19, .20, Exemption for
Qualified CREs, Commercial
Mortgages, and Auto Loans
Disclosures
Recordkeeping

Estimated
annual
frequency

Estimated average
hours per response

91

1

2.0

182

91

1

2.5

227.5

91

1

3.0

273

91

1

2.5

227.5

91
104

1
1

23.25
120

91
91

1
1

3.0
20

91
91

1
1

19.75
20

1,797.25
1,820

3

1

1.75

5.25

3
3

1
1

2.5
20

7.5
60

43
43
1,500

1
1
1

1.25
40
8.0

53.75
1,720
12,000

51
51

1
1

1.25
40

63.75
2,040

2115.75
12,480
273
1,820

37,166

Total

8

Estimated
annual burden
hours

1,500 creditors * 8 hours = 12,000 hours

5

We estimate the proposed new Regulation RR will result in a total annual estimated cost
burden of $2,994,075 in professional costs.
14.

COSTS TO FEDERAL GOVERNMENT

We estimate that the cost to the Commission for preparing the rules will be
approximately $100,000.
15.

REASON FOR CHANGE IN BURDEN
This is a new collection of information.

16.

INFORMATION COLLECTION PLANNED FOR STATISTICAL PURPOSES
Not applicable.

17.

DISPLAY OF OMB APPROVAL DATE
Not applicable.

18.

EXCEPTIONS TO CERTIFICATION FOR PAPERWORK REDUCTION ACT
SUBMISSIONS
Not applicable.

B.

STATISTICAL METHODS
Not applicable.

6