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Tom Deutsch Testimony

Tom Deutsch Testimony

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Published by Michael Smith
Written testimony of Tom Deutsch, Executive Director of American Securitization Forum to the Senate Banking Committee.
Written testimony of Tom Deutsch, Executive Director of American Securitization Forum to the Senate Banking Committee.

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Published by: Michael Smith on Jan 20, 2011
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01/20/2011

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Statement of:Tom DeutschExecutive DirectorAmerican Securitization ForumTestimony before the:United States Senate Committee onBanking, Housing and Urban AffairsHearing on:Problems in Mortgage Servicing fromModification to Foreclosure,Part IIDecember 1, 2010
 
ASF Senate Banking TestimonyDecember 1, 2010Page 2Chairman Dodd, Ranking Member Shelby, Members of the Committee, my name is TomDeutsch and as the Executive Director of the American Securitization Forum, I appreciate theopportunity to testify here today on behalf of the 330 ASF member institutions who originate thecollateral, structure the transactions, serve as trustees, trade the bonds, service the loans andinvest the capital in the preponderance of residential mortgage- and asset-backed securities(“RMBS”) and (“ABS”) in the United States, including those backed entirely by private capitalas well as those guaranteed by Ginnie Mae and the government sponsored enterprises (“GSEsIn this testimony, we seek first to highlight some of the key aspects of securitization aswell as its importance to the U.S. and global economy. Subsequently, we seek to address theconcerns raised by a few commentators that the banking and housing markets may be subject toadditional systemic risk because securitization trusts may not actually own the trillions of dollarsof mortgages that are supposed to be contained within those trusts. In addition to introducing thewhite paper that ASF issued two weeks ago, we also examine a number of the new concerns thathave been raised since the introduction of that white paper. In particular, we discuss and providedetailed background for four key components of valid loan transfers, including:”)such as Fannie Mae and Freddie Mac.A.
 
PSAs meet the requirement for a “complete” or “unbroken” chain of indorsement
1
B.
 
securitization trusts comply with New York trust law;;C.
 
RMBS trusts effectively achieve REMIC status; andD.
 
mistakes do not affect validity of transfer.
1
Note that the Uniform Commercial Code replaces the more common U.S. spelling of “endorsement” for the lesscommon “indorsement.” The UCC spelling is used throughout this testimony for consistency.
 
ASF Senate Banking TestimonyDecember 1, 2010Page 3Ultimately, we find that the conventional process for loan transfers embodied in standardlegal documentation for mortgage securitizations has been adequate and appropriate to transferownership of mortgage loans to the securitization trusts in accordance with applicable law andcontract. Since loan transfers have generally been effective, all of the dire consequences that afew commentators have speculated on fade away, given the faulty premise that they start from.Moreover, a number of the concerns that have been raised that securitization professionals haveuniformly opted out of use of laws such as the Uniform Commercial Code (“UCC
I.
 
”) to set ahigher bar for transfers, but then subsequently and systematically failed to meet that higher bar,appear on their face to be illogical assertions and patently false.
Role and Importance of Securitization to the Financial System and U.S.Economy
Securitization—generally speaking, the process of pooling and financing consumer andbusiness assets in the capital markets by issuing securities, the payment on which dependsprimarily on the performance of those underlying assets—plays an essential role in the financialsystem and the broader U.S. economy. Over the past 40 years, securitization has grown from arelatively small and unknown segment of the financial markets to a mainstream source of creditand financing for individuals and businesses alike.In recent years, the role that securitization has assumed in providing both consumers andbusinesses with credit is striking: currently, there is over $12 trillion of outstanding securitizedassets, including RMBS, ABS and asset-backed commercial paper (“ABCP”). This represents amarket nearly double the normal size of all outstanding marketable U.S. Treasury securities—

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