majority-owned affiliates (other than an issuing entity).
    (b) Multiple sponsors. If there is more than one sponsor of a
securitization transaction, it shall be the responsibility of each
sponsor to ensure that at least one of the sponsors of the
securitization transaction (or at least one of their majority-owned or
wholly-owned affiliates, as applicable) retains an economic interest in
the credit risk of the securitized assets in accordance with any one of
Sec. Sec.  __.4, _.5, _.8, __.9, or _.10.

Sec.  _.4  Standard risk retention.

    (a) General requirement. Except as provided in Sec. Sec.  __.5
through __.10, the sponsor of a securitization transaction must retain
an eligible vertical interest or eligible horizontal residual interest,
or any combination thereof, in accordance with the requirements of this
section.
    (1) If the sponsor retains only an eligible vertical interest as
its required risk retention, the sponsor must retain an eligible
vertical interest in a percentage of not less than 5 percent.
    (2) If the sponsor retains only an eligible horizontal residual
interest as its required risk retention, the amount of the interest
must equal at least 5 percent of the fair value of all ABS interests in
the issuing entity issued as a part of the securitization transaction,
determined using a fair value measurement framework under GAAP.
    (3) If the sponsor retains both an eligible vertical interest and
an eligible horizontal residual interest as its required risk
retention, the percentage of the fair value of the eligible horizontal
residual interest and the percentage of the eligible vertical interest
must equal at least five.
    (4) The percentage of the eligible vertical interest, eligible
horizontal residual interest, or combination thereof retained by the
sponsor must be determined as of the closing date of the securitization
transaction.
    (b) Option to hold base amount in eligible horizontal cash reserve
account. In lieu of retaining all or any part of an eligible horizontal
residual interest under paragraph (a) of this section, the sponsor may,
at closing of the securitization transaction, cause to be established
and funded, in cash, an eligible horizontal cash reserve account in the
amount equal to the fair value of such eligible horizontal residual
interest or part thereof, provided that the account meets all of the
following conditions:
    (1) The account is held by the trustee (or person performing
similar functions) in the name and for the benefit of the issuing
entity;
    (2) Amounts in the account are invested only in cash and cash
equivalents; and
    (3) Until all ABS interests in the issuing entity are paid in full,
or the issuing entity is dissolved:
    (i) Amounts in the account shall be released only to:
    (A) Satisfy payments on ABS interests in the issuing entity on any
payment date on which the issuing entity has insufficient funds from
any source to satisfy an amount due on any ABS interest; or
    (B) Pay critical expenses of the trust unrelated to credit risk on
any payment date on which the issuing entity has insufficient funds
from any source to pay such expenses and:
    (1) Such expenses, in the absence of available funds in the
eligible horizontal cash reserve account, would be paid prior to any
payments to holders of ABS interests; and
    (2) Such payments are made to parties that are not affiliated with
the sponsor; and
    (ii) Interest (or other earnings) on investments made in accordance
with paragraph (b)(2) of this section may be released once received by
the account.
    (c) Disclosures. A sponsor relying on this section shall provide,
or cause to be provided, to potential investors, under the caption
``Credit Risk Retention'', a reasonable period of time prior to the
sale of the asset-backed securities in the securitization transaction
the following disclosures in written form and within the time frames
set forth in this paragraph (c):
    (1) Horizontal interest. With respect to any eligible horizontal
residual interest held under paragraph (a) of this section, a sponsor
must disclose:
    (i) A reasonable period of time prior to the sale of an asset-
backed security issued in the same offering of ABS interests,
    (A) The fair value (expressed as a percentage of the fair value of
all of the ABS interests issued in the securitization transaction and
dollar amount (or corresponding amount in the foreign currency in which
the ABS interests are issued, as applicable)) of the eligible
horizontal residual interest that the sponsor expects to retain at the
closing of the securitization transaction. If the specific prices,
sizes, or rates of interest of each tranche of the securitization are
not available, the sponsor must disclose a range of fair values
(expressed as a percentage of the fair value of all of the ABS
interests issued in the securitization transaction and dollar amount
(or corresponding

amount in the foreign currency in which the ABS interests are issued,
as applicable)) of the eligible horizontal residual interest that the
sponsor expects to retain at the close of the securitization
transaction based on a range of bona fide estimates or specified
prices, sizes, or rates of interest of each tranche of the
securitization. A sponsor disclosing a range of fair values based on a
range of bona fide estimates or specified prices, sizes or rates of
interest of each tranche of the securitization must also disclose the
method by which it determined any range of prices, tranche sizes, or
rates of interest.
    (B) A description of the material terms of the eligible horizontal
residual interest to be retained by the sponsor;
    (C) A description of the valuation methodology used to calculate
the fair values or range of fair values of all classes of ABS
interests, including any portion of the eligible horizontal residual
interest retained by the sponsor;
    (D) All key inputs and assumptions or a comprehensive description
of such key inputs and assumptions that were used in measuring the
estimated total fair value or range of fair values of all classes of
ABS interests, including the eligible horizontal residual interest to
be retained by the sponsor.
    (E) To the extent applicable to the valuation methodology used, the
disclosure required in paragraph (c)(1)(i)(D) of this section shall
include, but should not be limited to, quantitative information about
each of the following:
    (1) Discount rates;
    (2) Loss given default (recovery);
    (3) Prepayment rates;
    (4) Default rates;
    (5) Lag time between default and recovery; and
    (6) The basis of forward interest rates used.
    (F) The disclosure required in paragraphs (c)(1)(i)(C) and (D) of
this section shall include, at a minimum, descriptions of all inputs
and assumptions that either could have a material impact on the fair
value calculation or would be material to a prospective investor's
ability to evaluate the sponsor's fair value calculations. To the
extent the disclosure required in this paragraph (c)(1) includes a
description of a curve or curves, the description shall include a
description of the methodology that was used to derive each curve and a
description of any aspects or features of each curve that could
materially impact the fair value calculation or the ability of a
prospective investor to evaluate the sponsor's fair value calculation.
To the extent a sponsor uses information about the securitized assets
in its calculation of fair value, such information shall not be as of a
date more than 60 days prior to the date of first use with investors;
provided that for a subsequent issuance of ABS interests by the same
issuing entity with the same sponsor for which the securitization
transaction distributes amounts to investors on a quarterly or less
frequent basis, such information shall not be as of a date more than
135 days prior to the date of first use with investors; provided
further, that the balance or value (in accordance with the transaction
documents) of the securitized assets may be increased or decreased to
reflect anticipated additions or removals of assets the sponsor makes
or expects to make between the cut-off date or similar date for
establishing the composition of the asset pool collateralizing such
asset-backed security and the closing date of the securitization.
    (G) A summary description of the reference data set or other
historical information used to develop the key inputs and assumptions
referenced in paragraph (c)(1)(i)(D) of this section, including loss
given default and default rates;
    (ii) A reasonable time after the closing of the securitization
transaction:
    (A) The fair value (expressed as a percentage of the fair value of
all of the ABS interests issued in the securitization transaction and
dollar amount (or corresponding amount in the foreign currency in which
the ABS are issued, as applicable)) of the eligible horizontal residual
interest the sponsor retained at the closing of the securitization
transaction, based on actual sale prices and finalized tranche sizes;
    (B) The fair value (expressed as a percentage of the fair value of
all of the ABS interests issued in the securitization transaction and
dollar amount (or corresponding amount in the foreign currency in which
the ABS are issued, as applicable)) of the eligible horizontal residual
interest that the sponsor is required to retain under this section; and
    (C) To the extent the valuation methodology or any of the key
inputs and assumptions that were used in calculating the fair value or
range of fair values disclosed prior to sale and required under
paragraph (c)(1)(i) of this section materially differs from the
methodology or key inputs and assumptions used to calculate the fair
value at the time of closing, descriptions of those material
differences.
    (iii) If the sponsor retains risk through the funding of an
eligible horizontal cash reserve account:
    (A) The amount to be placed (or that is placed) by the sponsor in
the eligible horizontal cash reserve account at closing, and the fair
value (expressed as a percentage of the fair value of all of the ABS
interests issued in the securitization transaction and dollar amount
(or corresponding amount in the foreign currency in which the ABS
interests are issued, as applicable)) of the eligible horizontal
residual interest that the sponsor is required to fund through the
eligible horizontal cash reserve account in order for such account,
together with other retained interests, to satisfy the sponsor's risk
retention requirement;
    (B) A description of the material terms of the eligible horizontal
cash reserve account; and
    (C) The disclosures required in paragraphs (c)(1)(i) and (ii) of
this section.
    (2) Vertical interest. With respect to any eligible vertical
interest retained under paragraph (a) of this section, the sponsor must
disclose:
    (i) A reasonable period of time prior to the sale of an asset-
backed security issued in the same offering of ABS interests,
    (A) The form of the eligible vertical interest;
    (B) The percentage that the sponsor is required to retain as a
vertical interest under this section; and
    (C) A description of the material terms of the vertical interest
and the amount that the sponsor expects to retain at the closing of the
securitization transaction.
    (ii) A reasonable time after the closing of the securitization
transaction, the amount of the vertical interest the sponsor retained
at closing, if that amount is materially different from the amount
disclosed under paragraph (c)(2)(i) of this section.
    (d) Record maintenance. A sponsor must retain the certifications
and disclosures required in paragraphs (a) and (c) of this section in
its records and must provide the disclosure upon request to the
Commission and its appropriate Federal banking agency, if any, until
three years after all ABS interests are no longer outstanding.

Sec.  _.5  Revolving pool securitizations.

    (a) Definitions. For purposes of this section, the following
definitions apply:
    Revolving pool securitization means an issuing entity that is
established to issue on multiple issuance dates more than one series,
class, subclass, or tranche of asset-backed securities that are
collateralized by a common pool of

securitized assets that will change in composition over time, and that
does not monetize excess interest and fees from its securitized assets.
    Seller's interest means an ABS interest or ABS interests:
    (1) Collateralized by the securitized assets and servicing assets
owned or held by the issuing entity, other than the following that are
not considered a component of seller's interest:
    (i) Servicing assets that have been allocated as collateral only
for a specific series in connection with administering the revolving
pool securitization, such as a principal accumulation or interest
reserve account; and
    (ii) Assets that are not eligible under the terms of the
securitization transaction to be included when determining whether the
revolving pool securitization holds aggregate securitized assets in
specified proportions to aggregate outstanding investor ABS interests
issued; and
    (2) That is pari passu with each series of investor ABS interests
issued, or partially or fully subordinated to one or more series in
identical or varying amounts, with respect to the allocation of all
distributions and losses with respect to the securitized assets prior
to early amortization of the revolving securitization (as specified in
the securitization transaction documents); and
    (3) That adjusts for fluctuations in the outstanding principal
balance of the securitized assets in the pool.
    (b) General requirement. A sponsor satisfies the risk retention
requirements of Sec.  _.3 with respect to a securitization transaction
for which the issuing entity is a revolving pool securitization if the
sponsor maintains a seller's interest of not less than 5 percent of the
aggregate unpaid principal balance of all outstanding investor ABS
interests in the issuing entity.
    (c) Measuring the seller's interest. In measuring the seller's
interest for purposes of meeting the requirements of paragraph (b) of
this section:
    (1) The unpaid principal balance of the securitized assets for the
numerator of the 5 percent ratio shall not include assets of the types
excluded from the definition of seller's interest in paragraph (a) of
this section;
    (2) The aggregate unpaid principal balance of outstanding investor
ABS interests in the denominator of the 5 percent ratio may be reduced
by the amount of funds held in a segregated principal accumulation
account for the repayment of outstanding investor ABS interests, if:
    (i) The terms of the securitization transaction documents prevent
funds in the principal accumulation account from being applied for any
purpose other than the repayment of the unpaid principal of outstanding
investor ABS interests; and
    (ii) Funds in that account are invested only in the types of assets
in which funds held in an eligible horizontal cash reserve account
pursuant to Sec.  _.4 are permitted to be invested;
    (3) If the terms of the securitization transaction documents set
minimum required seller's interest as a proportion of the unpaid
principal balance of outstanding investor ABS interests for one or more
series issued, rather than as a proportion of the aggregate outstanding
investor ABS interests in all outstanding series combined, the
percentage of the seller's interest for each such series must, when
combined with the percentage of any minimum seller's interest set by
reference to the aggregate outstanding investor ABS interests, equal at
least 5 percent;
    (4) The 5 percent test must be determined and satisfied at the
closing of each issuance of ABS interests to investors by the issuing
entity, and
    (i) At least monthly at a seller's interest measurement date
specified under the securitization transaction documents, until no ABS
interest in the issuing entity is held by any person not a wholly-owned
affiliate of the sponsor; or
    (ii) If the revolving pool securitization fails to meet the 5
percent test as of any date described in paragraph (c)(4)(i) of this
section, and the securitization transaction documents specify a cure
period, the 5 percent test must be determined and satisfied within the
earlier of the cure period, or one month after the date described in
paragraph (c)(4)(i).
    (d) Measuring outstanding investor ABS interests. In measuring the
amount of outstanding investor ABS interests for purposes of this
section, ABS interests held for the life of such ABS interests by the
sponsor or its wholly-owned affiliates may be excluded.
    (e) Holding and retention of the seller's interest; legacy trusts.
    (1) Notwithstanding Sec.  _.12(a), the seller's interest, and any
offsetting horizontal retention interest retained pursuant to paragraph
(g) of this section, must be retained by the sponsor or by one or more
wholly-owned affiliates of the sponsor, including one or more
depositors of the revolving pool securitization.
    (2) If one revolving pool securitization issues collateral
certificates representing a beneficial interest in all or a portion of
the securitized assets held by that securitization to another revolving
pool securitization, which in turn issues ABS interests for which the
collateral certificates are all or a portion of the securitized assets,
a sponsor may satisfy the requirements of paragraphs (b) and (c) of
this section by retaining the seller's interest for the assets
represented by the collateral certificates through either of the
revolving pool securitizations, so long as both revolving pool
securitizations are retained at the direction of the same sponsor or
its wholly-owned affiliates.
    (3) If the sponsor retains the seller's interest associated with
the collateral certificates at the level of the revolving pool
securitization that issues those collateral certificates, the
proportion of the seller's interest required by paragraph (b) of this
section retained at that level must equal the proportion that the
principal balance of the securitized assets represented by the
collateral certificates bears to the principal balance of the
securitized assets in the revolving pool securitization that issues the
ABS interests, as of each measurement date required by paragraph (c) of
this section.
    (f) Offset for pool-level excess funding account. The 5 percent
seller's interest required on each measurement date by paragraph (c) of
this section may be reduced on a dollar-for-dollar basis by the
balance, as of such date, of an excess funding account in the form of a
segregated account that:
    (1) Is funded in the event of a failure to meet the minimum
seller's interest requirements or other requirement to maintain a
minimum balance of securitized assets under the securitization
transaction documents by distributions otherwise payable to the holder
of the seller's interest;
    (2) Is invested only in the types of assets in which funds held in
a horizontal cash reserve account pursuant to Sec.  _.4 are permitted
to be invested; and
    (3) In the event of an early amortization, makes payments of
amounts held in the account to holders of investor ABS interests in the
same manner as payments to holders of investor ABS interests of amounts
received on securitized assets.
    (g) Combined seller's interests and horizontal interest retention.
The 5 percent seller's interest required on each measurement date by
paragraph (c) of this section may be reduced to a percentage lower than
5 percent to the extent that, for all series of investor ABS interests
issued after the applicable effective date of this Sec.  _.5, the
sponsor, or notwithstanding Sec.  _.12(a) a wholly-owned affiliate of
the sponsor, retains, at a minimum, a corresponding

percentage of the fair value of ABS interests issued in each series, in
the form of one or more of the horizontal residual interests meeting
the requirements of paragraphs (h) or (i).
    (h) Residual ABS interests in excess interest and fees. The sponsor
may take the offset described in paragraph (g) of this section for a
residual ABS interest in excess interest and fees, whether certificated
or uncertificated, in a single or multiple classes, subclasses, or
tranches, that meets, individually or in the aggregate, the
requirements of this paragraph (h);
    (1) Each series of the revolving pool securitization distinguishes
between the series' share of the interest and fee cash flows and the
series' share of the principal repayment cash flows from the
securitized assets collateralizing the revolving pool securitization,
which may according to the terms of the securitization transaction
documents, include not only the series' ratable share of such cash
flows but also excess cash flows available from other series;
    (2) The residual ABS interest's claim to any part of the series'
share of the interest and fee cash flows for any interest payment
period is subordinated to all accrued and payable interest due on the
payment date to more senior ABS interests in the series for that
period, and further reduced by the series' share of losses, including
defaults on principal of the securitized assets collateralizing the
revolving pool securitization (whether incurred in that period or
carried over from prior periods) to the extent that such payments would
have been included in amounts payable to more senior interests in the
series;
    (3) The revolving pool securitization continues to revolve, with
one or more series, classes, subclasses, or tranches of asset-backed
securities that are collateralized by a common pool of assets that
change in composition over time; and
    (4) For purposes of taking the offset described in paragraph (g) of
this section, the sponsor determines the fair value of the residual ABS
interest in excess interest and fees, and the fair value of the series
of outstanding investor ABS interests to which it is subordinated and
supports using the fair value measurement framework under GAAP, as of:
    (i) The closing of the securitization transaction issuing the
supported ABS interests; and
    (ii) The seller's interest measurement dates described in paragraph
(c)(4) of this section, except that for these periodic determinations
the sponsor must update the fair value of the residual ABS interest in
excess interest and fees for the numerator of the percentage ratio, but
may at the sponsor's option continue to use the fair values determined
in (h)(4)(i) for the outstanding investor ABS interests in the
denominator.
    (i) Offsetting eligible horizontal residual interest. The sponsor
may take the offset described in paragraph (g) of this section for ABS
interests that would meet the definition of eligible horizontal
residual interests in Sec.  _.2 but for the sponsor's simultaneous
holding of subordinated seller's interests, residual ABS interests in
excess interests and fees, or a combination of the two, if:
    (1) The sponsor complies with all requirements of paragraphs (b)
through (e) of this section for its holdings of subordinated seller's
interest, and paragraph (h) for its holdings of residual ABS interests
in excess interests and fees, as applicable;
    (2) For purposes of taking the offset described in paragraph (g) of
this section, the sponsor determines the fair value of the eligible
horizontal residual interest as a percentage of the fair value of the
outstanding investor ABS interests in the series supported by the
eligible horizontal residual interest, determined using the fair value
measurement framework under GAAP:
    (i) As of the closing of the securitization transaction issuing the
supported ABS interests; and
    (ii) Without including in the numerator of the percentage ratio any
fair value based on:
    (A) The subordinated seller's interest or residual ABS interest in
excess interest and fees;
    (B) the interest payable to the sponsor on the eligible horizontal
residual interest, if the sponsor is including the value of residual
ABS interest in excess interest and fees pursuant to paragraph (h) of
this section in taking the offset in paragraph (g) of this section;
and,
    (C) the principal payable to the sponsor on the eligible horizontal
residual interest, if the sponsor is including the value of the
seller's interest pursuant to paragraphs (b) through (f) of this
section and distributions on that seller's interest are available to
reduce charge-offs that would otherwise be allocated to reduce
principal payable to the offset eligible horizontal residual interest.
    (j) Specified dates. A sponsor using data about the revolving pool
securitization's collateral, or ABS interests previously issued, to
determine the closing-date percentage of a seller's interest, residual
ABS interest in excess interest and fees, or eligible horizontal
residual interest pursuant to this Sec.  __.5 may use such data
prepared as of specified dates if:
    (1) The sponsor describes the specified dates in the disclosures
required by paragraph (k) of this section; and
    (2) The dates are no more than 60 days prior to the date of first
use with investors of disclosures required for the interest by
paragraph (k) of this section, or for revolving pool securitizations
that make distributions to investors on a quarterly or less frequent
basis, no more than 135 days prior to the date of first use with
investors of such disclosures.
    (k) Disclosure and record maintenance. (1) Disclosure. A sponsor
relying on this section shall provide, or cause to be provided, to
potential investors, under the caption ``Credit Risk Retention'' the
following disclosure in written form and within the time frames set
forth in this paragraph (k):
    (i) A reasonable period of time prior to the sale of an asset-
backed security, a description of the material terms of the seller's
interest, and the percentage of the seller's interest that the sponsor
expects to retain at the closing of the securitization transaction,
measured in accordance with the requirements of this Sec.  __.5, as a
percentage of the aggregate unpaid principal balance of all outstanding
investor ABS interests issued, or as a percentage of the aggregate
unpaid principal balance of outstanding investor ABS interests for one
or more series issued, as required by the terms of the securitization
transaction;
    (ii) A reasonable time after the closing of the securitization
transaction, the amount of seller's interest the sponsor retained at
closing, if that amount is materially different from the amount
disclosed under paragraph (k)(1)(i) of this section; and
    (iii) A description of the material terms of any horizontal
residual interests offsetting the seller's interest in accordance with
paragraphs (g), (h), and (i) of this section; and
    (iv) Disclosure of the fair value of those horizontal residual
interests retained by the sponsor for the series being offered to
investors and described in the disclosures, as a percentage of the fair
value of the outstanding investor ABS interests issued, described in
the same manner and within the same timeframes required for disclosure
of the fair values of eligible horizontal residual interests specified
in Sec.  _.4(c).
    (2) Adjusted data. Disclosures required by this paragraph (k) to be
made a reasonable period of time prior to the sale of an asset-backed
security of the amount of seller's interest, residual ABS interest in
excess interest and fees,

or eligible horizontal residual interest may include adjustments to the
amount of securitized assets for additions or removals the sponsor
expects to make before the closing date and adjustments to the amount
of outstanding investor ABS interests for expected increases and
decreases of those interests under the control of the sponsor.
    (3) Record maintenance. A sponsor must retain the disclosures
required in paragraph (k)(1) of this section in its records and must
provide the disclosure upon request to the Commission and its
appropriate Federal banking agency, if any, until three years after all
ABS interests are no longer outstanding.
    (l) Early amortization of all outstanding series. A sponsor that
organizes a revolving pool securitization that relies on this Sec.
__.5 to satisfy the risk retention requirements of Sec.  __.3, does not
violate the requirements of this part if its seller's interest falls
below the level required by Sec.  __. 5 after the revolving pool
securitization commences early amortization, pursuant to the terms of
the securitization transaction documents, of all series of outstanding
investor ABS interests, if:
    (1) The sponsor was in full compliance with the requirements of
this section on all measurement dates specified in paragraph (c) of
this section prior to the commencement of early amortization;
    (2) The terms of the seller's interest continue to make it pari
passu with or subordinate in identical or varying amounts to each
series of outstanding investor ABS interests issued with respect to the
allocation of all distributions and losses with respect to the
securitized assets;
    (3) The terms of any horizontal interest relied upon by the sponsor
pursuant to paragraph (g) to offset the minimum seller's interest
amount continue to require the interests to absorb losses in accordance
with the terms of paragraph (h) or (i) of this section, as applicable;
and
    (4) The revolving pool securitization issues no additional ABS
interests after early amortization is initiated to any person not a
wholly-owned affiliate of the sponsor, either at the time of issuance
or during the amortization period.

Sec.  __.6  Eligible ABCP conduits.

    (a) Definitions. For purposes of this section, the following
additional definitions apply:
    100 percent liquidity coverage means an amount equal to the
outstanding balance of all ABCP issued by the conduit plus any accrued
and unpaid interest without regard to the performance of the ABS
interests held by the ABCP conduit and without regard to any credit
enhancement.
    ABCP means asset-backed commercial paper that has a maturity at the
time of issuance not exceeding 397 days, exclusive of days of grace, or
any renewal thereof the maturity of which is likewise limited.
    ABCP conduit means an issuing entity with respect to ABCP.
    Eligible ABCP conduit means an ABCP conduit, provided that:
    (1) The ABCP conduit is bankruptcy remote or otherwise isolated for
insolvency purposes from the sponsor of the ABCP conduit and from any
intermediate SPV;
    (2) The ABS interests acquired by the ABCP conduit are:
    (i) ABS interests collateralized solely by assets originated by an
originator-seller and by servicing assets;
    (ii) Special units of beneficial interest (or similar ABS
interests) in a trust or special purpose vehicle that retains legal
title to leased property underlying leases originated by an originator-
seller that were transferred to an intermediate SPV in connection with
a securitization collateralized solely by such leases and by servicing
assets;
    (iii) ABS interests in a revolving pool securitization
collateralized solely by assets originated by an originator-seller and
by servicing assets; or
    (iv) ABS interests described in paragraph (2)(i), (ii), or (iii) of
this definition that are collateralized, in whole or in part, by assets
acquired by an originator-seller in a business combination that
qualifies for business combination accounting under GAAP, and, if
collateralized in part, the remainder of such assets are assets
described in paragraph (2)(i), (ii), or (iii) of this definition; and
    (v) Acquired by the ABCP conduit in an initial issuance by or on
behalf of an intermediate SPV:
    (A) Directly from the intermediate SPV,
    (B) From an underwriter of the ABS interests issued by the
intermediate SPV, or
    (C) From another person who acquired the ABS interests directly
from the intermediate SPV;
    (3) The ABCP conduit is collateralized solely by ABS interests
acquired from intermediate SPVs as described in paragraph (2) of this
definition and servicing assets; and
    (4) A regulated liquidity provider has entered into a legally
binding commitment to provide 100 percent liquidity coverage (in the
form of a lending facility, an asset purchase agreement, a repurchase
agreement, or other similar arrangement) to all the ABCP issued by the
ABCP conduit by lending to, purchasing ABCP issued by, or purchasing
assets from, the ABCP conduit in the event that funds are required to
repay maturing ABCP issued by the ABCP conduit. With respect to the 100
percent liquidity coverage, in the event that the ABCP conduit is
unable for any reason to repay maturing ABCP issued by the issuing
entity, the liquidity provider shall be obligated to pay an amount
equal to any shortfall, and the total amount that may be due pursuant
to the 100 percent liquidity coverage shall be equal to 100 percent of
the amount of the ABCP outstanding at any time plus accrued and unpaid
interest (amounts due pursuant to the required liquidity coverage may
not be subject to credit performance of the ABS interests held by the
ABCP conduit or reduced by the amount of credit support provided to the
ABCP conduit and liquidity support that only funds performing loans or
receivables or performing ABS interests does not meet the requirements
of this section).
    Intermediate SPV means a special purpose vehicle that:
    (1) (i) Is a direct or indirect wholly-owned affiliate of the
originator-seller; or
    (ii) Has nominal equity owned by a trust or corporate service
provider that specializes in providing independent ownership of special
purpose vehicles, and such trust or corporate service provider is not
affiliated with any other transaction parties;
    (2) Is bankruptcy remote or otherwise isolated for insolvency
purposes from the eligible ABCP conduit and from each originator-seller
and each majority-owned affiliate in each case that, directly or
indirectly, sells or transfers assets to such intermediate SPV;
    (3) Acquires assets from the originator-seller that are originated
by the originator-seller or acquired by the originator-seller in the
acquisition of a business that qualifies for business combination
accounting under GAAP or acquires ABS interests issued by another
intermediate SPV of the originator-seller that are collateralized
solely by such assets; and
    (4) Issues ABS interests collateralized solely by such assets, as
applicable.
    Originator-seller means an entity that originates assets and sells
or transfers those assets, directly or through a majority-owned
affiliate, to an intermediate SPV, and includes (except for the
purposes of identifying the sponsorship and affiliation of an
intermediate SPV pursuant to this Sec.  __.6) any affiliate of the
originator-

seller that, directly or indirectly, majority controls, is majority
controlled by or is under common majority control with, the originator-
seller. For purposes of this definition, majority control means
ownership of more than 50 percent of the equity of an entity, or
ownership of any other controlling financial interest in the entity, as
determined under GAAP.
    Regulated liquidity provider means:
    (1) A depository institution (as defined in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813));
    (2) A bank holding company (as defined in 12 U.S.C. 1841), or a
subsidiary thereof;
    (3) A savings and loan holding company (as defined in 12 U.S.C.
1467a), provided all or substantially all of the holding company's
activities are permissible for a financial holding company under 12
U.S.C. 1843(k), or a subsidiary thereof; or
    (4) A foreign bank whose home country supervisor (as defined in
Sec.  211.21 of the Federal Reserve Board's Regulation K (12 CFR
211.21)) has adopted capital standards consistent with the Capital
Accord of the Basel Committee on Banking Supervision, as amended, and
that is subject to such standards, or a subsidiary thereof.
    (b) In general. An ABCP conduit sponsor satisfies the risk
retention requirement of Sec.  _.3 with respect to the issuance of ABCP
by an eligible ABCP conduit in a securitization transaction if, for
each ABS interest the ABCP conduit acquires from an intermediate SPV:
    (1) An originator-seller of the intermediate SPV retains an
economic interest in the credit risk of the assets collateralizing the
ABS interest acquired by the eligible ABCP conduit in the amount and
manner required under Sec.  _.4 or Sec.  _.5; and
    (2) The ABCP conduit sponsor:
    (i) Approves each originator-seller permitted to sell or transfer
assets, directly or indirectly, to an intermediate SPV from which an
eligible ABCP conduit acquires ABS interests;
    (ii) Approves each intermediate SPV from which an eligible ABCP
conduit is permitted to acquire ABS interests;
    (iii) Establishes criteria governing the ABS interests, and the
securitized assets underlying the ABS interests, acquired by the ABCP
conduit;
    (iv) Administers the ABCP conduit by monitoring the ABS interests
acquired by the ABCP conduit and the assets supporting those ABS
interests, arranging for debt placement, compiling monthly reports, and
ensuring compliance with the ABCP conduit documents and with the ABCP
conduit's credit and investment policy; and
    (v) Maintains and adheres to policies and procedures for ensuring
that the requirements in this paragraph (b) of this section have been
met.
    (c) Originator-seller compliance with risk retention. The use of
the risk retention option provided in this section by an ABCP conduit
sponsor does not relieve the originator-seller that sponsors ABS
interests acquired by an eligible ABCP conduit from such originator-
seller's obligation to comply with its own risk retention obligations
under this part.
    (d) Disclosures--(1) Periodic disclosures to investors. An ABCP
conduit sponsor relying upon this section shall provide, or cause to be
provided, to each purchaser of ABCP, before or contemporaneously with
the first sale of ABCP to such purchaser and at least monthly
thereafter, to each holder of commercial paper issued by the ABCP
conduit, in writing, each of the following items of information, which
shall be as of a date not more than 60 days prior to date of first use
with investors:
    (i) The name and form of organization of the regulated liquidity
provider that provides liquidity coverage to the eligible ABCP conduit,
including a description of the material terms of such liquidity
coverage, and notice of any failure to fund.
    (ii) With respect to each ABS interest held by the ABCP conduit:
    (A) The asset class or brief description of the underlying
securitized assets;
    (B) The standard industrial category code (SIC Code) for the
originator-seller that will retain (or has retained) pursuant to this
section an interest in the securitization transaction; and
    (C) A description of the percentage amount of risk retention
pursuant to the rule by the originator-seller, and whether it is in the
form of an eligible horizontal residual interest, vertical interest, or
revolving pool securitization seller's interest, as applicable.
    (2) Disclosures to regulators regarding originator-sellers. An ABCP
conduit sponsor relying upon this section shall provide, or cause to be
provided, upon request, to the Commission and its appropriate Federal
banking agency, if any, in writing, all of the information required to
be provided to investors in paragraph (d)(1) of this section, and the
name and form of organization of each originator-seller that will
retain (or has retained) pursuant to this section an interest in the
securitization transaction.
    (e) Sale or transfer of ABS interests between eligible ABCP
conduits. At any time, an eligible ABCP conduit that acquired an ABS
interest in accordance with the requirements set forth in this section
may transfer, and another eligible ABCP conduit may acquire, such ABS
interest, if the following conditions are satisfied:
    (1) The sponsors of both eligible ABCP conduits are in compliance
with this section; and
    (2) The same regulated liquidity provider has entered into one or
more legally binding commitments to provide 100 percent liquidity
coverage to all the ABCP issued by both eligible ABCP conduits.
    (f) Duty to comply. (1) The ABCP conduit sponsor shall be
responsible for compliance with this section.
    (2) An ABCP conduit sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures that are
reasonably designed to monitor compliance by each originator-seller
which is satisfying a risk retention obligation in respect of ABS
interests acquired by an eligible ABCP conduit with the requirements of
paragraph (b)(1) of this section; and
    (ii) In the event that the ABCP conduit sponsor determines that an
originator-seller no longer complies with the requirements of paragraph
(b)(1) of this section, shall:
    (A) Promptly notify the holders of the ABCP, and upon request, the
Commission and its appropriate Federal banking agency, if any, in
writing of:
    (1) The name and form of organization of any originator-seller that
fails to retain risk in accordance with paragraph (b)(1) of this
section and the amount of ABS interests issued by an intermediate SPV
of such originator-seller and held by the ABCP conduit;
    (2) The name and form of organization of any originator-seller that
hedges, directly or indirectly through an intermediate SPV, its risk
retention in violation of paragraph (b)(1) of this section and the
amount of ABS interests issued by an intermediate SPV of such
originator-seller and held by the ABCP conduit; and
    (3) Any remedial actions taken by the ABCP conduit sponsor or other
party with respect to such ABS interests; and
    (B) Take other appropriate steps pursuant to the requirements of
paragraphs (b)(2)(iv) and (v) of this section which may include, as
appropriate, curing any breach of the requirements in this section, or
removing from the eligible ABCP conduit any ABS interest that does not
comply with the requirements in this section.

Sec.  _.7  Commercial mortgage-backed securities.

    (a) Definitions. For purposes of this section, the following
definition shall apply:
    Special servicer means, with respect to any securitization of
commercial real estate loans, any servicer that, upon the occurrence of
one or more specified conditions in the servicing agreement, has the
right to service one or more assets in the transaction.
    (b) Third-party purchaser. A sponsor may satisfy some or all of its
risk retention requirements under Sec.  __.3 with respect to a
securitization transaction if a third party (or any majority-owned
affiliate thereof) purchases and holds for its own account an eligible
horizontal residual interest in the issuing entity in the same form,
amount, and manner as would be held by the sponsor under Sec.  __.4 and
all of the following conditions are met:
    (1) Number of third-party purchasers. At any time, there are no
more than two third-party purchasers of an eligible horizontal residual
interest. If there are two third-party purchasers, each third-party
purchaser's interest must be pari passu with the other third-party
purchaser's interest.
    (2) Composition of collateral. The securitization transaction is
collateralized solely by commercial real estate loans and servicing
assets.
    (3) Source of funds. (i) Each third-party purchaser pays for the
eligible horizontal residual interest in cash at the closing of the
securitization transaction.
    (ii) No third-party purchaser obtains financing, directly or
indirectly, for the purchase of such interest from any other person
that is a party to, or an affiliate of a party to, the securitization
transaction (including, but not limited to, the sponsor, depositor, or
servicer other than a special servicer affiliated with the third-party
purchaser), other than a person that is a party to the transaction
solely by reason of being an investor.
    (4) Third-party review. Each third-party purchaser conducts an
independent review of the credit risk of each securitized asset prior
to the sale of the asset-backed securities in the securitization
transaction that includes, at a minimum, a review of the underwriting
standards, collateral, and expected cash flows of each commercial real
estate loan that is collateral for the asset-backed securities.
    (5) Affiliation and control rights. (i) Except as provided in
paragraph (b)(5)(ii) of this section, no third-party purchaser is
affiliated with any party to the securitization transaction (including,
but not limited to, the sponsor, depositor, or servicer) other than
investors in the securitization transaction.
    (ii) Notwithstanding paragraph (b)(5)(i) of this section, a third-
party purchaser may be affiliated with:
    (A) The special servicer for the securitization transaction; or
    (B) One or more originators of the securitized assets, as long as
the assets originated by the affiliated originator or originators
collectively comprise less than 10 percent of the unpaid principal
balance of the securitized assets included in the securitization
transaction at the cut-off date or similar date for establishing the
composition of the securitized assets collateralizing the asset-backed
securities issued pursuant to the securitization transaction.
    (6) Operating Advisor. The underlying securitization transaction
documents shall provide for the following:
    (i) The appointment of an operating advisor (the Operating Advisor)
that:
    (A) Is not affiliated with other parties to the securitization
transaction;
    (B) Does not directly or indirectly have any financial interest in
the securitization transaction other than in fees from its role as
Operating Advisor; and
    (C) Is required to act in the best interest of, and for the benefit
of, investors as a collective whole;
    (ii) Standards with respect to the Operating Advisor's experience,
expertise and financial strength to fulfill its duties and
responsibilities under the applicable transaction documents over the
life of the securitization transaction;
    (iii) The terms of the Operating Advisor's compensation with
respect to the securitization transaction;
    (iv) When the eligible horizontal residual interest has been
reduced by principal payments, realized losses, and appraisal reduction
amounts (which reduction amounts are determined in accordance with the
applicable transaction documents) to a principal balance of 25 percent
or less of its initial principal balance, the special servicer for the
securitized assets must consult with the Operating Advisor in
connection with, and prior to, any material decision in connection with
its servicing of the securitized assets, including, without limitation:
    (A) Any material modification of, or waiver with respect to, any
provision of a loan agreement (including a mortgage, deed of trust, or
other security agreement);
    (B) Foreclosure upon or comparable conversion of the ownership of a
property; or
    (C) Any acquisition of a property.
    (v) The Operating Advisor shall have adequate and timely access to
information and reports necessary to fulfill its duties under the
transaction documents, including all reports made available to holders
of ABS interests and third-party purchasers, and shall be responsible
for:
    (A) Reviewing the actions of the special servicer;
    (B) Reviewing all reports provided by the special servicer to the
issuing entity or any holder of ABS interests;
    (C) Reviewing for accuracy and consistency with the transaction
documents calculations made by the special servicer; and
    (D) Issuing a report to investors (including any third-party
purchasers) and the issuing entity on a periodic basis concerning:.
    (1) Whether the Operating Advisor believes, in its sole discretion
exercised in good faith, that the special servicer is operating in
compliance with any standard required of the special servicer in the
applicable transaction documents; and
    (2) Which, if any, standards the Operating Advisor believes, in its
sole discretion exercised in good faith, the special servicer has
failed to comply.
    (vi)(A) The Operating Advisor shall have the authority to recommend
that the special servicer be replaced by a successor special servicer
if the Operating Advisor determines, in its sole discretion exercised
in good faith, that:
    (1) The special servicer has failed to comply with a standard
required of the special servicer in the applicable transaction
documents; and
    (2) Such replacement would be in the best interest of the investors
as a collective whole; and
    (B) If a recommendation described in paragraph (b)(6)(vi)(A) of
this section is made, the special servicer shall be replaced upon the
affirmative vote of a majority of the outstanding principal balance of
all ABS interests voting on the matter, with a minimum of a quorum of
ABS interests voting on the matter. For purposes of such vote, the
applicable transaction documents shall specify the quorum and may not
specify a quorum of more than the holders of 20 percent of the
outstanding principal balance of all ABS interests in the issuing
entity, with such quorum including at least three ABS interest holders
that are not affiliated with each other.
    (7) Disclosures. The sponsor provides, or causes to be provided, to
potential investors a reasonable period of time prior to the sale of
the asset-backed securities as part of the securitization

transaction and, upon request, to the Commission and its appropriate
Federal banking agency, if any, the following disclosure in written
form under the caption ``Credit Risk Retention'':
    (i) The name and form of organization of each initial third-party
purchaser that acquired an eligible horizontal residual interest at the
closing of a securitization transaction;
    (ii) A description of each initial third-party purchaser's
experience in investing in commercial mortgage-backed securities;
    (iii) Any other information regarding each initial third-party
purchaser or each initial third-party purchaser's retention of the
eligible horizontal residual interest that is material to investors in
light of the circumstances of the particular securitization
transaction;
    (iv) The fair value (expressed as a percentage of the fair value of
all of the ABS interests issued in the securitization transaction and
dollar amount (or corresponding amount in the foreign currency in which
the ABS interests are issued, as applicable)) of the eligible
horizontal residual interest that will be retained (or was retained) by
each initial third-party purchaser, as well as the amount of the
purchase price paid by each initial third-party purchaser for such
interest;
    (v) The fair value (expressed as a percentage of the fair value of
all of the ABS interests issued in the securitization transaction and
dollar amount (or corresponding amount in the foreign currency in which
the ABS interests are issued, as applicable)) of the eligible
horizontal residual interest in the securitization transaction that the
sponsor would have retained pursuant to Sec.  _.4 if the sponsor had
relied on retaining an eligible horizontal residual interest in that
section to meet the requirements of Sec.  _.3 with respect to the
transaction;
    (vi) A description of the material terms of the eligible horizontal
residual interest retained by each initial third-party purchaser,
including the same information as is required to be disclosed by
sponsors retaining horizontal interests pursuant to Sec.  _.4;
    (vii) The material terms of the applicable transaction documents
with respect to the Operating Advisor, including without limitation:
    (A) The name and form of organization of the Operating Advisor;
    (B) A description of any material conflict of interest or material
potential conflict of interest between the Operating Advisor and any
other party to the transaction;
    (C) The standards required by paragraph (b)(6)(ii) of this section
and a description of how the Operating Advisor satisfies each of the
standards; and
    (D) The terms of the Operating Advisor's compensation under
paragraph (b)(6)(iii) of this section; and
    (viii) The representations and warranties concerning the
securitized assets, a schedule of any securitized assets that are
determined not to comply with such representations and warranties, and
what factors were used to make the determination that such securitized
assets should be included in the pool notwithstanding that the
securitized assets did not comply with such representations and
warranties, such as compensating factors or a determination that the
exceptions were not material.
    (8) Hedging, transfer and pledging--(i) General rule. Except as set
forth in paragraph (b)(8)(ii) of this section, each third-party
purchaser and its affiliates must comply with the hedging and other
restrictions in Sec.  _.12 as if it were the retaining sponsor with
respect to the securitization transaction and had acquired the eligible
horizontal residual interest pursuant to Sec.  _.4; provided that, the
hedging and other restrictions in Sec.  _.12 shall not apply on or
after the date that each CRE loan (as defined in Sec.  _.14) that
serves as collateral for outstanding ABS interests has been defeased.
For purposes of this section, a loan is deemed to be defeased if:
    (A) cash or cash equivalents of the types permitted for an eligible
horizontal cash reserve account pursuant to Sec.  _.4 whose maturity
corresponds to the remaining debt service obligations, have been
pledged to the issuing entity as collateral for the loan and are in
such amounts and payable at such times as necessary to timely generate
cash sufficient to make all remaining debt service payments due on such
loan; and
    (B) the issuing entity has an obligation to release its lien on the
loan.
    (ii) Exceptions--(A) Transfer by initial third-party purchaser or
sponsor. An initial third-party purchaser that acquired an eligible
horizontal residual interest at the closing of a securitization
transaction in accordance with this section, or a sponsor that acquired
an eligible horizontal residual interest at the closing of a
securitization transaction in accordance with this section, may, on or
after the date that is five years after the date of the closing of the
securitization transaction, transfer that interest to a subsequent
third-party purchaser that complies with paragraph (b)(8)(ii)(C) of
this section. The initial third-party purchaser shall provide the
sponsor with complete identifying information for the subsequent third-
party purchaser.
    (B) Transfer by subsequent third-party purchaser. At any time, a
subsequent third-party purchaser that acquired an eligible horizontal
residual interest pursuant to this section may transfer its interest to
a different third-party purchaser that complies with paragraph
(b)(8)(ii)(C) of this section. The transferring third-party purchaser
shall provide the sponsor with complete identifying information for the
acquiring third-party purchaser.
    (C) Requirements applicable to subsequent third-party purchasers. A
subsequent third-party purchaser is subject to all of the requirements
of paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section
applicable to third-party purchasers, provided that obligations under
paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section that
apply to initial third-party purchasers at or before the time of
closing of the securitization transaction shall apply to successor
third-party purchasers at or before the time of the transfer of the
eligible horizontal residual interest to the successor third-party
purchaser.
    (c) Duty to comply. (1) The retaining sponsor shall be responsible
for compliance with this section by itself and for compliance by each
initial or subsequent third-party purchaser that acquired an eligible
horizontal residual interest in the securitization transaction.
    (2) A sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures to monitor
each third-party purchaser's compliance with the requirements of
paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section; and
    (ii) In the event that the sponsor determines that a third-party
purchaser no longer complies with one or more of the requirements of
paragraphs (b)(1), (b)(3) through (5), or (b)(8) of this section, shall
promptly notify, or cause to be notified, the holders of the ABS
interests issued in the securitization transaction of such
noncompliance by such third-party purchaser.

Sec.  _.8  Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation ABS.

    (a) In general. A sponsor satisfies its risk retention requirement
under this part if the sponsor fully guarantees the timely payment of
principal and interest on all ABS interests issued by the issuing
entity in the securitization transaction and is:
    (1) The Federal National Mortgage Association or the Federal Home
Loan Mortgage Corporation operating under

the conservatorship or receivership of the Federal Housing Finance
Agency pursuant to section 1367 of the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617) with
capital support from the United States; or
    (2) Any limited-life regulated entity succeeding to the charter of
either the Federal National Mortgage Association or the Federal Home
Loan Mortgage Corporation pursuant to section 1367(i) of the Federal
Housing Enterprises Financial Safety and Soundness Act of 1992 (12
U.S.C. 4617(i)), provided that the entity is operating with capital
support from the United States.
    (b) Certain provisions not applicable. The provisions of Sec.
_.12(b), (c), and (d) shall not apply to a sponsor described in
paragraph (a)(1) or (2) of this section, its affiliates, or the issuing
entity with respect to a securitization transaction for which the
sponsor has retained credit risk in accordance with the requirements of
this section.
    (c) Disclosure. A sponsor relying on this section shall provide to
investors, in written form under the caption ``Credit Risk Retention''
and, upon request, to the Federal Housing Finance Agency and the
Commission, a description of the manner in which it has met the credit
risk retention requirements of this part.

Sec.  _.9  Open market CLOs.

    (a) Definitions. For purposes of this section, the following
definitions shall apply:
    CLO means a special purpose entity that:
    (i) Issues debt and equity interests, and
    (ii) Whose assets consist primarily of loans that are securitized
assets and servicing assets.
    CLO-eligible loan tranche means a term loan of a syndicated
facility that meets the criteria set forth in paragraph (c) of this
section.
    CLO manager means an entity that manages a CLO, which entity is
registered as an investment adviser under the Investment Advisers Act
of 1940, as amended (15 U.S.C. 80b-1 et seq.), or is an affiliate of
such a registered investment adviser and itself is managed by such
registered investment adviser.
    Commercial borrower means an obligor under a corporate credit
obligation (including a loan).
    Initial loan syndication transaction means a transaction in which a
loan is syndicated to a group of lenders.
    Lead arranger means, with respect to a CLO-eligible loan tranche,
an institution that:
    (i) Is active in the origination, structuring and syndication of
commercial loan transactions (as defined in Sec.  _.14) and has played
a primary role in the structuring, underwriting and distribution on the
primary market of the CLO-eligible loan tranche.
    (ii) Has taken an allocation of the funded portion of the
syndicated credit facility under the terms of the transaction that
includes the CLO-eligible loan tranche of at least 20 percent of the
aggregate principal balance at origination, and no other member (or
members affiliated with each other) of the syndication group that
funded at origination has taken a greater allocation; and
    (iii) Is identified in the applicable agreement governing the CLO-
eligible loan tranche; represents therein to the holders of the CLO-
eligible loan tranche and to any holders of participation interests in
such CLO-eligible loan tranche that such lead arranger satisfies the
requirements of paragraph (i) of this definition and, at the time of
initial funding of the CLO-eligible tranche, will satisfy the
requirements of paragraph (ii) of this definition; further represents
therein (solely for the purpose of assisting such holders to determine
the eligibility of such CLO-eligible loan tranche to be held by an open
market CLO) that in the reasonable judgment of such lead arranger, the
terms of such CLO-eligible loan tranche are consistent with the
requirements of paragraphs (c)(2) and (3) of this section; and
covenants therein to such holders that such lead arranger will fulfill
the requirements of paragraph (c)(1) of this section.
    Open market CLO means a CLO:
    (i) Whose assets consist of senior, secured syndicated loans
acquired by such CLO directly from the sellers thereof in open market
transactions and of servicing assets,
    (ii) That is managed by a CLO manager, and
    (iii) That holds less than 50 percent of its assets, by aggregate
outstanding principal amount, in loans syndicated by lead arrangers
that are affiliates of the CLO or the CLO manager or originated by
originators that are affiliates of the CLO or the CLO manager.
    Open market transaction means:
    (i) Either an initial loan syndication transaction or a secondary
market transaction in which a seller offers senior, secured syndicated
loans to prospective purchasers in the loan market on market terms on
an arm's length basis, which prospective purchasers include, but are
not limited to, entities that are not affiliated with the seller, or
    (ii) A reverse inquiry from a prospective purchaser of a senior,
secured syndicated loan through a dealer in the loan market to purchase
a senior, secured syndicated loan to be sourced by the dealer in the
loan market.
    Secondary market transaction means a purchase of a senior, secured
syndicated loan not in connection with an initial loan syndication
transaction but in the secondary market.
    Senior, secured syndicated loan means a loan made to a commercial
borrower that:
    (i) Is not subordinate in right of payment to any other obligation
for borrowed money of the commercial borrower,
    (ii) Is secured by a valid first priority security interest or lien
in or on specified collateral securing the commercial borrower's
obligations under the loan, and
    (iii) The value of the collateral subject to such first priority
security interest or lien, together with other attributes of the
obligor (including, without limitation, its general financial
condition, ability to generate cash flow available for debt service and
other demands for that cash flow), is adequate (in the commercially
reasonable judgment of the CLO manager exercised at the time of
investment) to repay the loan and to repay all other indebtedness of
equal seniority secured by such first priority security interest or
lien in or on the same collateral, and the CLO manager certifies, on or
prior to each date that it acquires a loan constituting part of a new
CLO-eligible tranche, that it has policies and procedures to evaluate
the likelihood of repayment of loans acquired by the CLO and it has
followed such policies and procedures in evaluating each CLO-eligible
loan tranche.
    (b) In general. A sponsor satisfies the risk retention requirements
of Sec.  _.3 with respect to an open market CLO transaction if:
    (1) The open market CLO does not acquire or hold any assets other
than CLO-eligible loan tranches that meet the requirements of paragraph
(c) of this section and servicing assets;
    (2) The governing documents of such open market CLO require that,
at all times, the assets of the open market CLO consist of senior,
secured syndicated loans that are CLO-eligible loan tranches and
servicing assets;
    (3) The open market CLO does not invest in ABS interests or in
credit derivatives other than hedging

transactions that are servicing assets to hedge risks of the open
market CLO;
    (4) All purchases of CLO-eligible loan tranches and other assets by
the open market CLO issuing entity or through a warehouse facility used
to accumulate the loans prior to the issuance of the CLO's ABS
interests are made in open market transactions on an arms-length basis;
    (5) The CLO manager of the open market CLO is not entitled to
receive any management fee or gain on sale at the time the open market
CLO issues its ABS interests.
    (c) CLO-eligible loan tranche. To qualify as a CLO-eligible loan
tranche, a term loan of a syndicated credit facility to a commercial
borrower must have the following features:
    (1) A minimum of 5 percent of the face amount of the CLO-eligible
loan tranche is retained by the lead arranger thereof until the
earliest of the repayment, maturity, involuntary and unscheduled
acceleration, payment default, or bankruptcy default of such CLO-
eligible loan tranche, provided that such lead arranger complies with
limitations on hedging, transferring and pledging in Sec.  _.12 with
respect to the interest retained by the lead arranger.
    (2) Lender voting rights within the credit agreement and any
intercreditor or other applicable agreements governing such CLO-
eligible loan tranche are defined so as to give holders of the CLO-
eligible loan tranche consent rights with respect to, at minimum, any
material waivers and amendments of such applicable documents, including
but not limited to, adverse changes to the calculation or payments of
amounts due to the holders of the CLO-eligible tranche, alterations to
pro rata provisions, changes to voting provisions, and waivers of
conditions precedent; and
    (3) The pro rata provisions, voting provisions, and similar
provisions applicable to the security associated with such CLO-eligible
loan tranches under the CLO credit agreement and any intercreditor or
other applicable agreements governing such CLO-eligible loan tranches
are not materially less advantageous to the holder(s) of such CLO-
eligible tranche than the terms of other tranches of comparable
seniority in the broader syndicated credit facility.
    (d) Disclosures. A sponsor relying on this section shall provide,
or cause to be provided, to potential investors a reasonable period of
time prior to the sale of the asset-backed securities in the
securitization transaction and at least annually with respect to the
information required by paragraph (d)(1) of this section and, upon
request, to the Commission and its appropriate Federal banking agency,
if any, the following disclosure in written form under the caption
``Credit Risk Retention'':
    (1) Open market CLOs. A complete list of every asset held by an
open market CLO (or before the CLO's closing, in a warehouse facility
in anticipation of transfer into the CLO at closing), including the
following information:
    (i) The full legal name, Standard Industrial Classification (SIC)
category code, and legal entity identifier (LEI) issued by a utility
endorsed or otherwise governed by the Global LEI Regulatory Oversight
Committee or the Global LEI Foundation (if an LEI has been obtained by
the obligor) of the obligor of the loan or asset;
    (ii) The full name of the specific loan tranche held by the CLO;
    (iii) The face amount of the entire loan tranche held by the CLO,
and the face amount of the portion thereof held by the CLO;
    (iv) The price at which the loan tranche was acquired by the CLO;
and
    (v) For each loan tranche, the full legal name of the lead arranger
subject to the sales and hedging restrictions of Sec.  _.12; and
    (2) CLO manager. The full legal name and form of organization of
the CLO manager.

Sec.  _.10  Qualified tender option bonds.

    (a) Definitions. For purposes of this section, the following
definitions shall apply:
    Municipal security or municipal securities shall have the same
meaning as the term ``municipal securities'' in Section 3(a)(29) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29)) and any rules
promulgated pursuant to such section.
    Qualified tender option bond entity means an issuing entity with
respect to tender option bonds for which each of the following applies:
    (i) Such entity is collateralized solely by servicing assets and by
municipal securities that have the same municipal issuer and the same
underlying obligor or source of payment (determined without regard to
any third-party credit enhancement), and such municipal securities are
not subject to substitution.
    (ii) Such entity issues no securities other than:
    (A) A single class of tender option bonds with a preferred variable
return payable out of capital that meets the requirements of paragraph
(b) of this section, and
    (B) One or more residual equity interests that, in the aggregate,
are entitled to all remaining income of the issuing entity.
    (C) The types of securities referred to in paragraphs (ii)(A) and
(B) of this definition must constitute asset-backed securities.
    (iii) The municipal securities held as assets by such entity are
issued in compliance with Section 103 of the Internal Revenue Code of
1986, as amended (the ``IRS Code'', 26 U.S.C. 103), such that the
interest payments made on those securities are excludable from the
gross income of the owners under Section 103 of the IRS Code.
    (iv) The terms of all of the securities issued by the entity are
structured so that all holders of such securities who are eligible to
exclude interest received on such securities will be able to exclude
that interest from gross income pursuant to Section 103 of the IRS Code
or as ``exempt-interest dividends'' pursuant to Section 852(b)(5) of
the IRS Code (26 U.S.C. 852(b)(5)) in the case of regulated investment
companies under the Investment Company Act of 1940, as amended.
    (v) Such entity has a legally binding commitment from a regulated
liquidity provider as defined in Sec.  _.6(a), to provide a 100 percent
guarantee or liquidity coverage with respect to all of the issuing
entity's outstanding tender option bonds.
    (vi) Such entity qualifies for monthly closing elections pursuant
to IRS Revenue Procedure 2003-84, as amended or supplemented from time
to time.
    Tender option bond means a security which has features which
entitle the holders to tender such bonds to the issuing entity for
purchase at any time upon no more than 397 days' notice, for a purchase
price equal to the approximate amortized cost of the security, plus
accrued interest, if any, at the time of tender.
    (b) Risk retention options. Notwithstanding anything in this
section, the sponsor with respect to an issuance of tender option bonds
may retain an eligible vertical interest or eligible horizontal
residual interest, or any combination thereof, in accordance with the
requirements of Sec.  _.4. In order to satisfy its risk retention
requirements under this section, the sponsor with respect to an
issuance of tender option bonds by a qualified tender option bond
entity may retain:
    (1) An eligible vertical interest or an eligible horizontal
residual interest, or any combination thereof, in accordance with the
requirements of Sec.  _.4; or
    (2) An interest that meets the requirements set forth in paragraph
(c) of this section; or

    (3) A municipal security that meets the requirements set forth in
paragraph (d) of this section; or
    (4) Any combination of interests and securities described in
paragraphs (b)(1) through (b)(3) of this section such that the sum of
the percentages held in each form equals at least five.
    (c) Tender option termination event. The sponsor with respect to an
issuance of tender option bonds by a qualified tender option bond
entity may retain an interest that upon issuance meets the requirements
of an eligible horizontal residual interest but that upon the
occurrence of a ``tender option termination event'' as defined in
Section 4.01(5) of IRS Revenue Procedure 2003-84, as amended or
supplemented from time to time will meet the requirements of an
eligible vertical interest.
    (d) Retention of a municipal security outside of the qualified
tender option bond entity. The sponsor with respect to an issuance of
tender option bonds by a qualified tender option bond entity may
satisfy its risk retention requirements under this Section by holding
municipal securities from the same issuance of municipal securities
deposited in the qualified tender option bond entity, the face value of
which retained municipal securities is equal to 5 percent of the face
value of the municipal securities deposited in the qualified tender
option bond entity.
    (e) Disclosures. The sponsor shall provide, or cause to be
provided, to potential investors a reasonable period of time prior to
the sale of the asset-backed securities as part of the securitization
transaction and, upon request, to the Commission and its appropriate
Federal banking agency, if any, the following disclosure in written
form under the caption ``Credit Risk Retention'':
    (1) The name and form of organization of the qualified tender
option bond entity;
    (2) A description of the form and subordination features of such
retained interest in accordance with the disclosure obligations in
Sec.  _.4(c);
    (3) To the extent any portion of the retained interest is claimed
by the sponsor as an eligible horizontal residual interest (including
any interest held in compliance with Sec.  _.10(c)), the fair value of
that interest (expressed as a percentage of the fair value of all of
the ABS interests issued in the securitization transaction and as a
dollar amount);
    (4) To the extent any portion of the retained interest is claimed
by the sponsor as an eligible vertical interest (including any interest
held in compliance with Sec.  _.10(c)), the percentage of ABS interests
issued represented by the eligible vertical interest; and
    (5) To the extent any portion of the retained interest claimed by
the sponsor is a municipal security held outside of the qualified
tender option bond entity, the name and form of organization of the
qualified tender option bond entity, the identity of the issuer of the
municipal securities, the face value of the municipal securities
deposited into the qualified tender option bond entity, and the face
value of the municipal securities retained by the sponsor or its
majority-owned affiliates and subject to the transfer and hedging
prohibition.
    (f) Prohibitions on Hedging and Transfer. The prohibitions on
transfer and hedging set forth in Sec.  _.12, apply to any interests or
municipal securities retained by the sponsor with respect to an
issuance of tender option bonds by a qualified tender option bond
entity pursuant to of this section.

Subpart C--Transfer of Risk Retention

Sec.  _.11  Allocation of risk retention to an originator.

    (a) In general. A sponsor choosing to retain an eligible vertical
interest or an eligible horizontal residual interest (including an
eligible horizontal cash reserve account), or combination thereof under
Sec.  _.4, with respect to a securitization transaction may offset the
amount of its risk retention requirements under Sec.  _.4 by the amount
of the eligible interests, respectively, acquired by an originator of
one or more of the securitized assets if:
    (1) At the closing of the securitization transaction:
    (i) The originator acquires the eligible interest from the sponsor
and retains such interest in the same manner and proportion (as between
horizontal and vertical interests) as the sponsor under Sec.  _.4, as
such interest was held prior to the acquisition by the originator;
    (ii) The ratio of the percentage of eligible interests acquired and
retained by the originator to the percentage of eligible interests
otherwise required to be retained by the sponsor pursuant to Sec.  _.4,
does not exceed the ratio of:
    (A) The unpaid principal balance of all the securitized assets
originated by the originator; to
    (B) The unpaid principal balance of all the securitized assets in
the securitization transaction;
    (iii) The originator acquires and retains at least 20 percent of
the aggregate risk retention amount otherwise required to be retained
by the sponsor pursuant to Sec.  _.4; and
    (iv) The originator purchases the eligible interests from the
sponsor at a price that is equal, on a dollar-for-dollar basis, to the
amount by which the sponsor's required risk retention is reduced in
accordance with this section, by payment to the sponsor in the form of:
    (A) Cash; or
    (B) A reduction in the price received by the originator from the
sponsor or depositor for the assets sold by the originator to the
sponsor or depositor for inclusion in the pool of securitized assets.
    (2) Disclosures. In addition to the disclosures required pursuant
to Sec.  _.4(c), the sponsor provides, or causes to be provided, to
potential investors a reasonable period of time prior to the sale of
the asset-backed securities as part of the securitization transaction
and, upon request, to the Commission and its appropriate Federal
banking agency, if any, in written form under the caption ``Credit Risk
Retention'', the name and form of organization of any originator that
will acquire and retain (or has acquired and retained) an interest in
the transaction pursuant to this section, including a description of
the form and amount (expressed as a percentage and dollar amount (or
corresponding amount in the foreign currency in which the ABS interests
are issued, as applicable)) and nature (e.g., senior or subordinated)
of the interest, as well as the method of payment for such interest
under paragraph (a)(1)(iv) of this section.
    (3) Hedging, transferring and pledging. The originator and each of
its affiliates complies with the hedging and other restrictions in
Sec.  _.12 with respect to the interests retained by the originator
pursuant to this section as if it were the retaining sponsor and was
required to retain the interest under subpart B of this part.
    (b) Duty to comply. (1) The retaining sponsor shall be responsible
for compliance with this section.
    (2) A retaining sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures that are
reasonably designed to monitor the compliance by each originator that
is allocated a portion of the sponsor's risk retention obligations with
the requirements in paragraphs (a)(1) and (3) of this section; and
    (ii) In the event the sponsor determines that any such originator
no longer complies with any of the requirements in paragraphs (a)(1)
and (3) of this section, shall promptly notify, or cause to be
notified, the holders of the ABS interests issued in the

securitization transaction of such noncompliance by such originator.

Sec.  _.12  Hedging, transfer and financing prohibitions.

    (a) Transfer. Except as permitted by Sec.  _.7(b)(8), and subject
to Sec.  _.5, a retaining sponsor may not sell or otherwise transfer
any interest or assets that the sponsor is required to retain pursuant
to subpart B of this part to any person other than an entity that is
and remains a majority-owned affiliate of the sponsor and each such
majority-owned affiliate shall be subject to the same restrictions.
    (b) Prohibited hedging by sponsor and affiliates. A retaining
sponsor and its affiliates may not purchase or sell a security, or
other financial instrument, or enter into an agreement, derivative or
other position, with any other person if:
    (1) Payments on the security or other financial instrument or under
the agreement, derivative, or position are materially related to the
credit risk of one or more particular ABS interests that the retaining
sponsor (or any of its majority-owned affiliates) is required to retain
with respect to a securitization transaction pursuant to subpart B of
this part or one or more of the particular securitized assets that
collateralize the asset-backed securities issued in the securitization
transaction; and
    (2) The security, instrument, agreement, derivative, or position in
any way reduces or limits the financial exposure of the sponsor (or any
of its majority-owned affiliates) to the credit risk of one or more of
the particular ABS interests that the retaining sponsor (or any of its
majority-owned affiliates) is required to retain with respect to a
securitization transaction pursuant to subpart B of this part or one or
more of the particular securitized assets that collateralize the asset-
backed securities issued in the securitization transaction.
    (c) Prohibited hedging by issuing entity. The issuing entity in a
securitization transaction may not purchase or sell a security or other
financial instrument, or enter into an agreement, derivative or
position, with any other person if:
    (1) Payments on the security or other financial instrument or under
the agreement, derivative or position are materially related to the
credit risk of one or more particular ABS interests that the retaining
sponsor for the transaction (or any of its majority-owned affiliates)
is required to retain with respect to the securitization transaction
pursuant to subpart B of this part; and
    (2) The security, instrument, agreement, derivative, or position in
any way reduces or limits the financial exposure of the retaining
sponsor (or any of its majority-owned affiliates) to the credit risk of
one or more of the particular ABS interests that the sponsor (or any of
its majority-owned affiliates) is required to retain pursuant to
subpart B of this part.
    (d) Permitted hedging activities. The following activities shall
not be considered prohibited hedging activities under paragraph (b) or
(c) of this section:
    (1) Hedging the interest rate risk (which does not include the
specific interest rate risk, known as spread risk, associated with the
ABS interest that is otherwise considered part of the credit risk) or
foreign exchange risk arising from one or more of the particular ABS
interests required to be retained by the sponsor (or any of its
majority-owned affiliates) under subpart B of this part or one or more
of the particular securitized assets that underlie the asset-backed
securities issued in the securitization transaction; or
    (2) Purchasing or selling a security or other financial instrument
or entering into an agreement, derivative, or other position with any
third party where payments on the security or other financial
instrument or under the agreement, derivative, or position are based,
directly or indirectly, on an index of instruments that includes asset-
backed securities if:
    (i) Any class of ABS interests in the issuing entity that were
issued in connection with the securitization transaction and that are
included in the index represents no more than 10 percent of the dollar-
weighted average (or corresponding weighted average in the currency in
which the ABS interests are issued, as applicable) of all instruments
included in the index; and
    (ii) All classes of ABS interests in all issuing entities that were
issued in connection with any securitization transaction in which the
sponsor (or any of its majority-owned affiliates) is required to retain
an interest pursuant to subpart B of this part and that are included in
the index represent, in the aggregate, no more than 20 percent of the
dollar-weighted average (or corresponding weighted average in the
currency in which the ABS interests are issued, as applicable) of all
instruments included in the index.
    (e) Prohibited non-recourse financing. Neither a retaining sponsor
nor any of its affiliates may pledge as collateral for any obligation
(including a loan, repurchase agreement, or other financing
transaction) any ABS interest that the sponsor is required to retain
with respect to a securitization transaction pursuant to subpart B of
this part unless such obligation is with full recourse to the sponsor
or affiliate, respectively.
    (f) Duration of the hedging and transfer restrictions--(1) General
rule. Except as provided in paragraph (f)(2) of this section, the
prohibitions on sale and hedging pursuant to paragraphs (a) and (b) of
this section shall expire on or after the date that is the latest of:
    (i) The date on which the total unpaid principal balance (if
applicable) of the securitized assets that collateralize the
securitization transaction has been reduced to 33 percent of the total
unpaid principal balance of the securitized assets as of the cut-off
date or similar date for establishing the composition of the
securitized assets collateralizing the asset-backed securities issued
pursuant to the securitization transaction;
    (ii) The date on which the total unpaid principal obligations under
the ABS interests issued in the securitization transaction has been
reduced to 33 percent of the total unpaid principal obligations of the
ABS interests at closing of the securitization transaction; or
    (iii) Two years after the date of the closing of the securitization
transaction.
    (2) Securitizations of residential mortgages. (i) If all of the
assets that collateralize a securitization transaction subject to risk
retention under this part are residential mortgages, the prohibitions
on sale and hedging pursuant to paragraphs (a) and (b) of this section
shall expire on or after the date that is the later of:
    (A) Five years after the date of the closing of the securitization
transaction; or
    (B) The date on which the total unpaid principal balance of the
residential mortgages that collateralize the securitization transaction
has been reduced to 25 percent of the total unpaid principal balance of
such residential mortgages at the cut-off date or similar date for
establishing the composition of the securitized assets collateralizing
the asset-backed securities issued pursuant to the securitization
transaction.
    (ii) Notwithstanding paragraph (f)(2)(i) of this section, the
prohibitions on sale and hedging pursuant to paragraphs (a) and (b) of
this section shall expire with respect to the sponsor of a
securitization transaction described in paragraph (f)(2)(i) of this
section on or after the date that is seven years after the date of the
closing of the securitization transaction.
    (3) Conservatorship or receivership of sponsor. A conservator or
receiver of the

sponsor (or any other person holding risk retention pursuant to this
part) of a securitization transaction is permitted to sell or hedge any
economic interest in the securitization transaction if the conservator
or receiver has been appointed pursuant to any provision of federal or
State law (or regulation promulgated thereunder) that provides for the
appointment of the Federal Deposit Insurance Corporation, or an agency
or instrumentality of the United States or of a State as conservator or
receiver, including without limitation any of the following
authorities:
    (i) 12 U.S.C. 1811;
    (ii) 12 U.S.C. 1787;
    (iii) 12 U.S.C. 4617; or
    (iv) 12 U.S.C. 5382.
    (4) Revolving pool securitizations. The provisions of paragraphs
(f)(1) and (2) are not available to sponsors of revolving pool
securitizations with respect to the forms of risk retention specified
in Sec.  _.5.

Subpart D--Exceptions and Exemptions

Sec.  _.13  Exemption for qualified residential mortgages.

    (a) Definitions. For purposes of this section, the following
definitions shall apply:
    Currently performing means the borrower in the mortgage transaction
is not currently thirty (30) days or more past due, in whole or in
part, on the mortgage transaction.
    Qualified residential mortgage means a ``qualified mortgage'' as
defined in section 129C of the Truth in Lending Act (15 U.S.C.1639c)
and regulations issued thereunder, as amended from time to time.
    (b) Exemption. A sponsor shall be exempt from the risk retention
requirements in subpart B of this part with respect to any
securitization transaction, if:
    (1) All of the assets that collateralize the asset-backed
securities are qualified residential mortgages or servicing assets;
    (2) None of the assets that collateralize the asset-backed
securities are asset-backed securities;
    (3) As of the cut-off date or similar date for establishing the
composition of the securitized assets collateralizing the asset-backed
securities issued pursuant to the securitization transaction, each
qualified residential mortgage collateralizing the asset-backed
securities is currently performing; and
    (4)(i) The depositor with respect to the securitization transaction
certifies that it has evaluated the effectiveness of its internal
supervisory controls with respect to the process for ensuring that all
assets that collateralize the asset-backed security are qualified
residential mortgages or servicing assets and has concluded that its
internal supervisory controls are effective; and
    (ii) The evaluation of the effectiveness of the depositor's
internal supervisory controls must be performed, for each issuance of
an asset-backed security in reliance on this section, as of a date
within 60 days of the cut-off date or similar date for establishing the
composition of the asset pool collateralizing such asset-backed
security; and
    (iii) The sponsor provides, or causes to be provided, a copy of the
certification described in paragraph (b)(4)(i) of this section to
potential investors a reasonable period of time prior to the sale of
asset-backed securities in the issuing entity, and, upon request, to
the Commission and its appropriate Federal banking agency, if any.
    (c) Repurchase of loans subsequently determined to be non-qualified
after closing. A sponsor that has relied on the exemption provided in
paragraph (b) of this section with respect to a securitization
transaction shall not lose such exemption with respect to such
transaction if, after closing of the securitization transaction, it is
determined that one or more of the residential mortgage loans
collateralizing the asset-backed securities does not meet all of the
criteria to be a qualified residential mortgage provided that:
    (1) The depositor complied with the certification requirement set
forth in paragraph (b)(4) of this section;
    (2) The sponsor repurchases the loan(s) from the issuing entity at
a price at least equal to the remaining aggregate unpaid principal
balance and accrued interest on the loan(s) no later than 90 days after
the determination that the loans do not satisfy the requirements to be
a qualified residential mortgage; and
    (3) The sponsor promptly notifies, or causes to be notified, the
holders of the asset-backed securities issued in the securitization
transaction of any loan(s) included in such securitization transaction
that is (or are) required to be repurchased by the sponsor pursuant to
paragraph (c)(2) of this section, including the amount of such
repurchased loan(s) and the cause for such repurchase.

Sec.  _.14  Definitions applicable to qualifying commercial loans,
qualifying commercial real estate loans, and qualifying automobile
loans.

    The following definitions apply for purposes of Sec. Sec.  _.15
through _.18:
    Appraisal Standards Board means the board of the Appraisal
Foundation that develops, interprets, and amends the Uniform Standards
of Professional Appraisal Practice (USPAP), establishing generally
accepted standards for the appraisal profession.
    Automobile loan:
    (1) Means any loan to an individual to finance the purchase of, and
that is secured by a first lien on, a passenger car or other passenger
vehicle, such as a minivan, van, sport-utility vehicle, pickup truck,
or similar light truck for personal, family, or household use; and
    (2) Does not include any:
    (i) Loan to finance fleet sales;
    (ii) Personal cash loan secured by a previously purchased
automobile;
    (iii) Loan to finance the purchase of a commercial vehicle or farm
equipment that is not used for personal, family, or household purposes;
    (iv) Lease financing;
    (v) Loan to finance the purchase of a vehicle with a salvage title;
or
    (vi) Loan to finance the purchase of a vehicle intended to be used
for scrap or parts.
    Combined loan-to-value (CLTV) ratio means, at the time of
origination, the sum of the principal balance of a first-lien mortgage
loan on the property, plus the principal balance of any junior-lien
mortgage loan that, to the creditor's knowledge, would exist at the
closing of the transaction and that is secured by the same property,
divided by:
    (1) For acquisition funding, the lesser of the purchase price or
the estimated market value of the real property based on an appraisal
that meets the requirements set forth in Sec.  _.17(a)(2)(ii); or
    (2) For refinancing, the estimated market value of the real
property based on an appraisal that meets the requirements set forth in
Sec.  _.17(a)(2)(ii).
    Commercial loan means a secured or unsecured loan to a company or
an individual for business purposes, other than any:
    (1) Loan to purchase or refinance a one-to-four family residential
property;
    (2) Commercial real estate loan.
    Commercial real estate (CRE) loan means:
    (1) A loan secured by a property with five or more single family
units, or by nonfarm nonresidential real property, the primary source
(50 percent or more) of repayment for which is expected to be:
    (i) The proceeds of the sale, refinancing, or permanent financing
of the property; or
    (ii) Rental income associated with the property;

    (2) Loans secured by improved land if the obligor owns the fee
interest in the land and the land is leased to a third party who owns
all improvements on the land, and the improvements are nonresidential
or residential with five or more single family units; and
    (3) Does not include:
    (i) A land development and construction loan (including 1- to 4-
family residential or commercial construction loans);
    (ii) Any other land loan; or
    (iii) An unsecured loan to a developer.
    Debt service coverage (DSC) ratio means:
    (1) For qualifying leased CRE loans, qualifying multi-family loans,
and other CRE loans:
    (i) The annual NOI less the annual replacement reserve of the CRE
property at the time of origination of the CRE loan(s) divided by
    (ii) The sum of the borrower's annual payments for principal and
interest (calculated at the fully-indexed rate) on any debt obligation.
    (2) For commercial loans:
    (i) The borrower's EBITDA as of the most recently completed fiscal
year divided by
    (ii) The sum of the borrower's annual payments for principal and
interest on all debt obligations.
    Debt to income (DTI) ratio means the borrower's total debt,
including the monthly amount due on the automobile loan, divided by the
borrower's monthly income.
    Earnings before interest, taxes, depreciation, and amortization
(EBITDA) means the annual income of a business before expenses for
interest, taxes, depreciation and amortization are deducted, as
determined in accordance with GAAP.
    Environmental risk assessment means a process for determining
whether a property is contaminated or exposed to any condition or
substance that could result in contamination that has an adverse effect
on the market value of the property or the realization of the
collateral value.
    First lien means a lien or encumbrance on property that has
priority over all other liens or encumbrances on the property.
    Junior lien means a lien or encumbrance on property that is lower
in priority relative to other liens or encumbrances on the property.
    Leverage ratio means the borrower's total debt divided by the
borrower's EBITDA.
    Loan-to-value (LTV) ratio means, at the time of origination, the
principal balance of a first-lien mortgage loan on the property divided
by:
    (1) For acquisition funding, the lesser of the purchase price or
the estimated market value of the real property based on an appraisal
that meets the requirements set forth in Sec.  __.17(a)(2)(ii); or
    (2) For refinancing, the estimated market value of the real
property based on an appraisal that meets the requirements set forth in
Sec.  __.17(a)(2)(ii).
    Model year means the year determined by the manufacturer and
reflected on the vehicle's Motor Vehicle Title as part of the vehicle
description.
    Net operating income (NOI) refers to the income a CRE property
generates for the owner after all expenses have been deducted for
federal income tax purposes, except for depreciation, debt service
expenses, and federal and state income taxes, and excluding any unusual
and nonrecurring items of income.
    Operating affiliate means an affiliate of a borrower that is a
lessor or similar party with respect to the commercial real estate
securing the loan.
    Payments-in-kind means payments of accrued interest that are not
paid in cash when due, and instead are paid by increasing the principal
balance of the loan or by providing equity in the borrowing company.
    Purchase money security interest means a security interest in
property that secures the obligation of the obligor incurred as all or
part of the price of the property.
    Purchase price means the amount paid by the borrower for the
vehicle net of any incentive payments or manufacturer cash rebates.
    Qualified tenant means:
    (1) A tenant with a lease who has satisfied all obligations with
respect to the property in a timely manner; or
    (2) A tenant who originally had a lease that subsequently expired
and currently is leasing the property on a month-to-month basis, has
occupied the property for at least three years prior to the date of
origination, and has satisfied all obligations with respect to the
property in a timely manner.
    Qualifying leased CRE loan means a CRE loan secured by commercial
nonfarm real property, other than a multi-family property or a hotel,
inn, or similar property:
    (1) That is occupied by one or more qualified tenants pursuant to a
lease agreement with a term of no less than one (1) month; and
    (2) Where no more than 20 percent of the aggregate gross revenue of
the property is payable from one or more tenants who:
    (i) Are subject to a lease that will terminate within six months
following the date of origination; or
    (ii) Are not qualified tenants.
    Qualifying multi-family loan means a CRE loan secured by any
residential property (excluding a hotel, motel, inn, hospital, nursing
home, or other similar facility where dwellings are not leased to
residents):
    (1) That consists of five or more dwelling units (including
apartment buildings, condominiums, cooperatives and other similar
structures) primarily for residential use; and
    (2) Where at least 75 percent of the NOI is derived from
residential rents and tenant amenities (including income from parking
garages, health or swim clubs, and dry cleaning), and not from other
commercial uses.
    Rental income means:
    (1) Income derived from a lease or other occupancy agreement
between the borrower or an operating affiliate of the borrower and a
party which is not an affiliate of the borrower for the use of real
property or improvements serving as collateral for the applicable loan;
and
    (2) Other income derived from hotel, motel, dormitory, nursing
home, assisted living, mini-storage warehouse or similar properties
that are used primarily by parties that are not affiliates or employees
of the borrower or its affiliates.
    Replacement reserve means the monthly capital replacement or
maintenance amount based on the property type, age, construction and
condition of the property that is adequate to maintain the physical
condition and NOI of the property.
    Salvage title means a form of vehicle title branding, which notes
that the vehicle has been severely damaged and/or deemed a total loss
and uneconomical to repair by an insurance company that paid a claim on
the vehicle.
    Total debt, with respect to a borrower, means:
    (1) In the case of an automobile loan, the sum of:
    (i) All monthly housing payments (rent- or mortgage-related,
including property taxes, insurance and home owners association fees);
and
    (ii) Any of the following that is dependent upon the borrower's
income for payment:
    (A) Monthly payments on other debt and lease obligations, such as
credit card loans or installment loans, including the monthly amount
due on the automobile loan;
    (B) Estimated monthly amortizing payments for any term debt, debts
with other than monthly payments and debts

not in repayment (such as deferred student loans, interest-only loans);
and
    (C) Any required monthly alimony, child support or court-ordered
payments; and
    (2) In the case of a commercial loan, the outstanding balance of
all long-term debt (obligations that have a remaining maturity of more
than one year) and the current portion of all debt that matures in one
year or less.
    Total liabilities ratio means the borrower's total liabilities
divided by the sum of the borrower's total liabilities and equity, less
the borrower's intangible assets, with each component determined in
accordance with GAAP.
    Trade-in allowance means the amount a vehicle purchaser is given as
a credit at the purchase of a vehicle for the fair exchange of the
borrower's existing vehicle to compensate the dealer for some portion
of the vehicle purchase price, not to exceed the highest trade-in value
of the existing vehicle, as determined by a nationally recognized
automobile pricing agency and based on the manufacturer, year, model,
features, mileage, and condition of the vehicle, less the payoff
balance of any outstanding debt collateralized by the existing vehicle.
    Uniform Standards of Professional Appraisal Practice (USPAP) means
generally accepted standards for professional appraisal practice issued
by the Appraisal Standards Board of the Appraisal Foundation.

Sec.  _.15  Qualifying commercial loans, commercial real estate loans,
and automobile loans.

    (a) General exception for qualifying assets. Commercial loans,
commercial real estate loans, and automobile loans that are securitized
through a securitization transaction shall be subject to a 0 percent
risk retention requirement under subpart B, provided that the following
conditions are met:
    (1) The assets meet the underwriting standards set forth in
Sec. Sec.  _.16 (qualifying commercial loans), _.17 (qualifying CRE
loans), or _.18 (qualifying automobile loans) of this part, as
applicable;
    (2) The securitization transaction is collateralized solely by
loans of the same asset class and by servicing assets;
    (3) The securitization transaction does not permit reinvestment
periods; and
    (4) The sponsor provides, or causes to be provided, to potential
investors a reasonable period of time prior to the sale of asset-backed
securities of the issuing entity, and, upon request, to the Commission,
and to its appropriate Federal banking agency, if any, in written form
under the caption ``Credit Risk Retention'', a description of the
manner in which the sponsor determined the aggregate risk retention
requirement for the securitization transaction after including
qualifying commercial loans, qualifying CRE loans, or qualifying
automobile loans with 0 percent risk retention.
    (b) Risk retention requirement. For any securitization transaction
described in paragraph (a) of this section, the percentage of risk
retention required under Sec.  _.3(a) is reduced by the percentage
evidenced by the ratio of the unpaid principal balance of the
qualifying commercial loans, qualifying CRE loans, or qualifying
automobile loans (as applicable) to the total unpaid principal balance
of commercial loans, CRE loans, or automobile loans (as applicable)
that are included in the pool of assets collateralizing the asset-
backed securities issued pursuant to the securitization transaction
(the qualifying asset ratio); provided that:
    (1) The qualifying asset ratio is measured as of the cut-off date
or similar date for establishing the composition of the securitized
assets collateralizing the asset-backed securities issued pursuant to
the securitization transaction;
    (2) If the qualifying asset ratio would exceed 50 percent, the
qualifying asset ratio shall be deemed to be 50 percent; and
    (3) The disclosure required by paragraph (a)(4) of this section
also includes descriptions of the qualifying commercial loans,
qualifying CRE loans, and qualifying automobile loans (qualifying
assets) and descriptions of the assets that are not qualifying assets,
and the material differences between the group of qualifying assets and
the group of assets that are not qualifying assets with respect to the
composition of each group's loan balances, loan terms, interest rates,
borrower credit information, and characteristics of any loan
collateral.
    (c) Exception for securitizations of qualifying assets only.
Notwithstanding other provisions of this section, the risk retention
requirements of subpart B of this part shall not apply to
securitization transactions where the transaction is collateralized
solely by servicing assets and either qualifying commercial loans,
qualifying CRE loans, or qualifying automobile loans.
    (d) Record maintenance. A sponsor must retain the disclosures
required in paragraphs (a) and (b) of this section and the
certifications required in Sec. Sec.  _.16(a)(8), _.17(a)(10), and
_.18(a)(8), as applicable, in its records until three years after all
ABS interests issued in the securitization are no longer outstanding.
The sponsor must provide the disclosures and certifications upon
request to the Commission and the sponsor's appropriate Federal banking
agency, if any.

Sec.  _.16  Underwriting standards for qualifying commercial loans.

    (a) Underwriting, product and other standards. (1) Prior to
origination of the commercial loan, the originator:
    (i) Verified and documented the financial condition of the
borrower:
    (A) As of the end of the borrower's two most recently completed
fiscal years; and
    (B) During the period, if any, since the end of its most recently
completed fiscal year;
    (ii) Conducted an analysis of the borrower's ability to service its
overall debt obligations during the next two years, based on reasonable
projections;
    (iii) Determined that, based on the previous two years' actual
performance, the borrower had:
    (A) A total liabilities ratio of 50 percent or less;
    (B) A leverage ratio of 3.0 or less; and
    (C) A DSC ratio of 1.5 or greater;
    (iv) Determined that, based on the two years of projections, which
include the new debt obligation, following the closing date of the
loan, the borrower will have:
    (A) A total liabilities ratio of 50 percent or less;
    (B) A leverage ratio of 3.0 or less; and
    (C) A DSC ratio of 1.5 or greater.
    (2) Prior to, upon or promptly following the inception of the loan,
the originator:
    (i) If the loan is originated on a secured basis, obtains a
perfected security interest (by filing, title notation or otherwise)
or, in the case of real property, a recorded lien, on all of the
property pledged to collateralize the loan; and
    (ii) If the loan documents indicate the purpose of the loan is to
finance the purchase of tangible or intangible property, or to
refinance such a loan, obtains a first lien on the property.
    (3) The loan documentation for the commercial loan includes
covenants that:
    (i) Require the borrower to provide to the servicer of the
commercial loan the borrower's financial statements and supporting
schedules on an ongoing basis, but not less frequently than quarterly;
    (ii) Prohibit the borrower from retaining or entering into a debt
arrangement that permits payments-in-kind;
    (iii) Impose limits on:

    (A) The creation or existence of any other security interest or
lien with respect to any of the borrower's property that serves as
collateral for the loan;
    (B) The transfer of any of the borrower's assets that serve as
collateral for the loan; and
    (C) Any change to the name, location or organizational structure of
the borrower, or any other party that pledges collateral for the loan;
    (iv) Require the borrower and any other party that pledges
collateral for the loan to:
    (A) Maintain insurance that protects against loss on the collateral
for the commercial loan at least up to the amount of the loan, and that
names the originator or any subsequent holder of the loan as an
additional insured or loss payee;
    (B) Pay taxes, charges, fees, and claims, where non-payment might
give rise to a lien on any collateral;
    (C) Take any action required to perfect or protect the security
interest and first lien (as applicable) of the originator or any
subsequent holder of the loan in any collateral for the commercial loan
or the priority thereof, and to defend any collateral against claims
adverse to the lender's interest;
    (D) Permit the originator or any subsequent holder of the loan, and
the servicer of the loan, to inspect any collateral for the commercial
loan and the books and records of the borrower; and
    (E) Maintain the physical condition of any collateral for the
commercial loan.
    (4) Loan payments required under the loan agreement are:
    (i) Based on level monthly payments of principal and interest (at
the fully indexed rate) that fully amortize the debt over a term that
does not exceed five years from the date of origination; and
    (ii) To be made no less frequently than quarterly over a term that
does not exceed five years.
    (5) The primary source of repayment for the loan is revenue from
the business operations of the borrower.
    (6) The loan was funded within the six (6) months prior to the cut-
off date or similar date for establishing the composition of the
securitized assets collateralizing the asset-backed securities issued
pursuant to the securitization transaction.
    (7) At the cut-off date or similar date for establishing the
composition of the securitized assets collateralizing the asset-backed
securities issued pursuant to the securitization transaction, all
payments due on the loan are contractually current.
    (8)(i) The depositor of the asset-backed security certifies that it
has evaluated the effectiveness of its internal supervisory controls
with respect to the process for ensuring that all qualifying commercial
loans that collateralize the asset-backed security and that reduce the
sponsor's risk retention requirement under Sec.  _.15 meet all of the
requirements set forth in paragraphs (a)(1) through (7) of this section
and has concluded that its internal supervisory controls are effective;
    (ii) The evaluation of the effectiveness of the depositor's
internal supervisory controls referenced in paragraph (a)(8)(i) of this
section shall be performed, for each issuance of an asset-backed
security, as of a date within 60 days of the cut-off date or similar
date for establishing the composition of the asset pool collateralizing
such asset-backed security; and
    (iii) The sponsor provides, or causes to be provided, a copy of the
certification described in paragraph (a)(8)(i) of this section to
potential investors a reasonable period of time prior to the sale of
asset-backed securities in the issuing entity, and, upon request, to
its appropriate Federal banking agency, if any.
    (b) Cure or buy-back requirement. If a sponsor has relied on the
exception provided in Sec.  _.15 with respect to a qualifying
commercial loan and it is subsequently determined that the loan did not
meet all of the requirements set forth in paragraphs (a)(1) through (7)
of this section, the sponsor shall not lose the benefit of the
exception with respect to the commercial loan if the depositor complied
with the certification requirement set forth in paragraph (a)(8) of
this section and:
    (1) The failure of the loan to meet any of the requirements set
forth in paragraphs (a)(1) through (7) of this section is not material;
or
    (2) No later than 90 days after the determination that the loan
does not meet one or more of the requirements of paragraphs (a)(1)
through (7) of this section, the sponsor:
    (i) Effectuates cure, establishing conformity of the loan to the
unmet requirements as of the date of cure; or
    (ii) Repurchases the loan(s) from the issuing entity at a price at
least equal to the remaining principal balance and accrued interest on
the loan(s) as of the date of repurchase.
    (3) If the sponsor cures or repurchases pursuant to paragraph
(b)(2) of this section, the sponsor must promptly notify, or cause to
be notified, the holders of the asset-backed securities issued in the
securitization transaction of any loan(s) included in such
securitization transaction that is required to be cured or repurchased
by the sponsor pursuant to paragraph (b)(2) of this section, including
the principal amount of such loan(s) and the cause for such cure or
repurchase.

Sec.  _.17  Underwriting standards for qualifying CRE loans.

    (a) Underwriting, product and other standards. (1) The CRE loan
must be secured by the following:
    (i) An enforceable first lien, documented and recorded
appropriately pursuant to applicable law, on the commercial real estate
and improvements;
    (ii)(A) An assignment of:
    (1) Leases and rents and other occupancy agreements related to the
commercial real estate or improvements or the operation thereof for
which the borrower or an operating affiliate is a lessor or similar
party and all payments under such leases and occupancy agreements; and
    (2) All franchise, license and concession agreements related to the
commercial real estate or improvements or the operation thereof for
which the borrower or an operating affiliate is a lessor, licensor,
concession granter or similar party and all payments under such other
agreements, whether the assignments described in this paragraph
(a)(1)(ii)(A)(2) are absolute or are stated to be made to the extent
permitted by the agreements governing the applicable franchise, license
or concession agreements;
    (B) An assignment of all other payments due to the borrower or due
to any operating affiliate in connection with the operation of the
property described in paragraph (a)(1)(i) of this section; and
    (C) The right to enforce the agreements described in paragraph
(a)(1)(ii)(A) of this section and the agreements under which payments
under paragraph (a)(1)(ii)(B) of this section are due against, and
collect amounts due from, each lessee, occupant or other obligor whose
payments were assigned pursuant to paragraphs (a)(1)(ii)(A) or (B) of
this section upon a breach by the borrower of any of the terms of, or
the occurrence of any other event of default (however denominated)
under, the loan documents relating to such CRE loan; and
    (iii) A security interest:
    (A) In all interests of the borrower and any applicable operating
affiliate in all tangible and intangible personal property of any kind,
in or used in the operation of or in connection with,

pertaining to, arising from, or constituting, any of the collateral
described in paragraphs (a)(1)(i) or (ii) of this section; and
    (B) In the form of a perfected security interest if the security
interest in such property can be perfected by the filing of a financing
statement, fixture filing, or similar document pursuant to the law
governing the perfection of such security interest;
    (2) Prior to origination of the CRE loan, the originator:
    (i) Verified and documented the current financial condition of the
borrower and each operating affiliate;
    (ii) Obtained a written appraisal of the real property securing the
loan that:
    (A) Had an effective date not more than six months prior to the
origination date of the loan by a competent and appropriately State-
certified or State-licensed appraiser;
    (B) Conforms to generally accepted appraisal standards as evidenced
by the USPAP and the appraisal requirements \1\ of the Federal banking
agencies; and
---------------------------------------------------------------------------

    \1\ 12 CFR part 34, subpart C (OCC); 12 CFR part 208, subpart E,
and 12 CFR part 225, subpart G (Board); and 12 CFR part 323 (FDIC).
---------------------------------------------------------------------------

    (C) Provides an ``as is'' opinion of the market value of the real
property, which includes an income approach; \2\
---------------------------------------------------------------------------

    \2\ See USPAP, Standard 1.
---------------------------------------------------------------------------

    (iii) Qualified the borrower for the CRE loan based on a monthly
payment amount derived from level monthly payments consisting of both
principal and interest (at the fully-indexed rate) over the term of the
loan, not exceeding 25 years, or 30 years for a qualifying multi-family
property;
    (iv) Conducted an environmental risk assessment to gain
environmental information about the property securing the loan and took
appropriate steps to mitigate any environmental liability determined to
exist based on this assessment;
    (v) Conducted an analysis of the borrower's ability to service its
overall debt obligations during the next two years, based on reasonable
projections (including operating income projections for the property);
    (vi)(A) Determined that based on the two years' actual performance
immediately preceding the origination of the loan, the borrower would
have had:
    (1) A DSC ratio of 1.5 or greater, if the loan is a qualifying
leased CRE loan, net of any income derived from a tenant(s) who is not
a qualified tenant(s);
    (2) A DSC ratio of 1.25 or greater, if the loan is a qualifying
multi-family property loan; or
    (3) A DSC ratio of 1.7 or greater, if the loan is any other type of
CRE loan;
    (B) If the borrower did not own the property for any part of the
last two years prior to origination, the calculation of the DSC ratio,
for purposes of paragraph (a)(2)(vi)(A) of this section, shall include
the property's operating income for any portion of the two-year period
during which the borrower did not own the property;
    (vii) Determined that, based on two years of projections, which
include the new debt obligation, following the origination date of the
loan, the borrower will have:
    (A) A DSC ratio of 1.5 or greater, if the loan is a qualifying
leased CRE loan, net of any income derived from a tenant(s) who is not
a qualified tenant(s);
    (B) A DSC ratio of 1.25 or greater, if the loan is a qualifying
multi-family property loan; or
    (C) A DSC ratio of 1.7 or greater, if the loan is any other type of
CRE loan.
    (3) The loan documentation for the CRE loan includes covenants
that:
    (i) Require the borrower to provide the borrower's financial
statements and supporting schedules to the servicer on an ongoing
basis, but not less frequently than quarterly, including information on
existing, maturing and new leasing or rent-roll activity for the
property securing the loan, as appropriate; and
    (ii) Impose prohibitions on:
    (A) The creation or existence of any other security interest with
respect to the collateral for the CRE loan described in paragraphs
(a)(1)(i) and (a)(1)(ii)(A) of this section, except as provided in
paragraph (a)(4) of this section;
    (B) The transfer of any collateral for the CRE loan described in
paragraph (a)(1)(i) or (a)(1)(ii)(A) of this section or of any other
collateral consisting of fixtures, furniture, furnishings, machinery or
equipment other than any such fixture, furniture, furnishings,
machinery or equipment that is obsolete or surplus; and
    (C) Any change to the name, location or organizational structure of
any borrower, operating affiliate or other pledgor unless such
borrower, operating affiliate or other pledgor shall have given the
holder of the loan at least 30 days advance notice and, pursuant to
applicable law governing perfection and priority, the holder of the
loan is able to take all steps necessary to continue its perfection and
priority during such 30-day period.
    (iii) Require each borrower and each operating affiliate to:
    (A) Maintain insurance that protects against loss on collateral for
the CRE loan described in paragraph (a)(1)(i) of this section for an
amount no less than the replacement cost of the property improvements,
and names the originator or any subsequent holder of the loan as an
additional insured or lender loss payee;
    (B) Pay taxes, charges, fees, and claims, where non-payment might
give rise to a lien on collateral for the CRE loan described in
paragraphs (a)(1)(i) and (ii) of this section;
    (C) Take any action required to:
    (1) Protect the security interest and the enforceability and
priority thereof in the collateral described in paragraphs (a)(1)(i)
and (a)(1)(ii)(A) of this section and defend such collateral against
claims adverse to the originator's or any subsequent holder's interest;
and
    (2) Perfect the security interest of the originator or any
subsequent holder of the loan in any other collateral for the CRE loan
to the extent that such security interest is required by this section
to be perfected;
    (D) Permit the originator or any subsequent holder of the loan, and
the servicer, to inspect any collateral for the CRE loan and the books
and records of the borrower or other party relating to any collateral
for the CRE loan;
    (E) Maintain the physical condition of collateral for the CRE loan
described in paragraph (a)(1)(i) of this section;
    (F) Comply with all environmental, zoning, building code, licensing
and other laws, regulations, agreements, covenants, use restrictions,
and proffers applicable to collateral for the CRE loan described in
paragraph (a)(1)(i) of this section;
    (G) Comply with leases, franchise agreements, condominium
declarations, and other documents and agreements relating to the
operation of collateral for the CRE loan described in paragraph
(a)(1)(i) of this section, and to not modify any material terms and
conditions of such agreements over the term of the loan without the
consent of the originator or any subsequent holder of the loan, or the
servicer; and
    (H) Not materially alter collateral for the CRE loan described in
paragraph (a)(1)(i) of this section without the consent of the
originator or any subsequent holder of the loan, or the servicer.
    (4) The loan documentation for the CRE loan prohibits the borrower
and each operating affiliate from obtaining a loan secured by a junior
lien on collateral for the CRE loan described in paragraph (a)(1)(i) or
(a)(1)(ii)(A) of this section, unless:
    (i) The sum of the principal amount of such junior lien loan, plus
the principal amount of all other loans secured by collateral described
in paragraph (a)(1)(i) or (a)(1)(ii)(A) of this section, does not
exceed the applicable CLTV ratio in paragraph (a)(5) of this

section, based on the appraisal at origination of such junior lien
loan; or
    (ii) Such loan is a purchase money obligation that financed the
acquisition of machinery or equipment and the borrower or operating
affiliate (as applicable) pledges such machinery and equipment as
additional collateral for the CRE loan.
    (5) At origination, the applicable loan-to-value ratios for the
loan are:
    (i) LTV less than or equal to 65 percent and CLTV less than or
equal to 70 percent; or
    (ii) LTV less than or equal to 60 percent and CLTV less than or
equal to 65 percent, if an appraisal used to meet the requirements set
forth in paragraph (a)(2)(ii) of this section used a direct
capitalization rate, and that rate is less than or equal to the sum of:
    (A) The 10-year swap rate, as reported in the Federal Reserve's
H.15 Report (or any successor report) as of the date concurrent with
the effective date of such appraisal; and
    (B) 300 basis points.
    (iii) If the appraisal required under paragraph (a)(2)(ii) of this
section included a direct capitalization method using an overall
capitalization rate, that rate must be disclosed to potential investors
in the securitization.
    (6) All loan payments required to be made under the loan agreement
are:
    (i) Based on level monthly payments of principal and interest (at
the fully indexed rate) to fully amortize the debt over a term that
does not exceed 25 years, or 30 years for a qualifying multifamily
loan; and
    (ii) To be made no less frequently than monthly over a term of at
least ten years.
    (7) Under the terms of the loan agreement:
    (i) Any maturity of the note occurs no earlier than ten years
following the date of origination;
    (ii) The borrower is not permitted to defer repayment of principal
or payment of interest; and
    (iii) The interest rate on the loan is:
    (A) A fixed interest rate;
    (B) An adjustable interest rate and the borrower, prior to or
concurrently with origination of the CRE loan, obtained a derivative
that effectively results in a fixed interest rate; or
    (C) An adjustable interest rate and the borrower, prior to or
concurrently with origination of the CRE loan, obtained a derivative
that established a cap on the interest rate for the term of the loan,
and the loan meets the underwriting criteria in paragraphs (a)(2)(vi)
and (vii) of this section using the maximum interest rate allowable