Section 1313 of the Federal Housing Enterprises Financial Safety
and Soundness Act of 1992 requires the Director of FHFA, when
promulgating regulations relating to the Federal Home Loan Banks
(Banks), to consider the following differences between the Banks and
the Enterprises (Fannie Mae and Freddie Mac): cooperative ownership
structure; mission of providing liquidity to members; affordable
housing and community development mission; capital structure; and joint
and several

liability.\275\ The Director also may consider any other differences
that are deemed appropriate. In preparing the portions of this proposed
rule over which FHFA has joint rulemaking authority, the Director
considered the differences between the Banks and the Enterprises as
they relate to the above factors. FHFA requests comments from the
public about whether differences related to these factors should result
in any revisions to the proposal.
---------------------------------------------------------------------------

    \275\ See 12 U.S.C. 4513.
---------------------------------------------------------------------------

Text of the Proposed Common Rules

(All Agencies)

    The text of the proposed common rules appears below:

PART ------CREDIT RISK RETENTION

Subpart A--Authority, Purpose, Scope and Definitions
Sec.
----.1 [Reserved]
----.2 Definitions.
Subpart B--Credit Risk Retention
----.3 Base risk retention requirement.
----.4 Standard risk retention.
----.5 Revolving master trusts.
----.6 Eligible ABCP conduits.
----.7 Commercial mortgage-backed securities.
----.8 Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation ABS.
----.9 Open market CLOs.
----.10 Qualified tender option bonds.
Subpart C--Transfer of Risk Retention
----.11 Allocation of risk retention to an originator.
----.12 Hedging, transfer and financing prohibitions.
Subpart D--Exceptions and Exemptions
----.13 Exemption for qualified residential mortgages.
----.14 Definitions applicable to qualifying commercial loans,
commercial real estate loans, and automobile loans.
----.15 Exceptions for qualifying commercial loans, commercial real
estate loans, and automobile loans.
----.16 Underwriting standards for qualifying commercial loans.
----.17 Underwriting standards for qualifying CRE loans.
----.18 Underwriting standards for qualifying automobile loans.
----.19 General exemptions.
----.20 Safe harbor for certain foreign-related transactions.
----.21 Additional exemptions.

Subpart A--Authority, Purpose, Scope and Definitions

Sec.  ----.1  [Reserved]

Sec.  ----.2  Definitions.

    For purposes of this part, the following definitions apply:
    ABS interest means:
    (1) Any type of interest or obligation issued by an issuing entity,
whether or not in certificated form, including a security, obligation,
beneficial interest or residual interest, payments on which are
primarily dependent on the cash flows of the collateral owned or held
by the issuing entity; and
    (2) Does not include common or preferred stock, limited liability
interests, partnership interests, trust certificates, or similar
interests that:
    (i) Are issued primarily to evidence ownership of the issuing
entity; and
    (ii) The payments, if any, on which are not primarily dependent on
the cash flows of the collateral held by the issuing entity; and
    (3) Does not include the right to receive payments for services
provided by the holder of such right, including servicing, trustee
services and custodial services.
    An affiliate of, or a person affiliated with, a specified person
means a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, the person specified.
    Asset means a self-liquidating financial asset (including but not
limited to a loan, lease, mortgage, or receivable).
    Asset-backed security has the same meaning as in section 3(a)(79)
of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(79)).
    Appropriate Federal banking agency has the same meaning as in
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
    Collateral with respect to any issuance of ABS interests means the
assets or other property that provide the cash flow (including cash
flow from the foreclosure or sale of the assets or property) for the
ABS interests irrespective of the legal structure of issuance,
including security interests in assets or other property of the issuing
entity, fractional undivided property interests in the assets or other
property of the issuing entity, or any other property interest in such
assets or other property.
    Assets or other property collateralize an issuance of ABS interests
if the assets or property serve as collateral for such issuance.
    Commercial real estate loan has the same meaning as in Sec.  --
--.14.
    Commission means the Securities and Exchange Commission.
    Control including the terms ``controlling,'' ``controlled by'' and
``under common control with'':
    (1) Means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by
contract, or otherwise.
    (2) Without limiting the foregoing, a person shall be considered to
control another person if the first person:
    (i) Owns, controls or holds with power to vote 25 percent or more
of any class of voting securities of the other person; or
    (ii) Controls in any manner the election of a majority of the
directors, trustees or persons performing similar functions of the
other person.
    Credit risk means:
    (1) The risk of loss that could result from the failure of the
borrower in the case of a securitized asset, or the issuing entity in
the case of an ABS interest in the issuing entity, to make required
payments of principal or interest on the asset or ABS interest on a
timely basis;
    (2) The risk of loss that could result from bankruptcy, insolvency,
or a similar proceeding with respect to the borrower or issuing entity,
as appropriate; or
    (3) The effect that significant changes in the underlying credit
quality of the asset or ABS interest may have on the market value of
the asset or ABS interest.
    Creditor has the same meaning as in 15 U.S.C. 1602(g).
    Depositor means:
    (1) The person that receives or purchases and transfers or sells
the securitized assets to the issuing entity;
    (2) The sponsor, in the case of a securitization transaction where
there is not an intermediate transfer of the assets from the sponsor to
the issuing entity; or
    (3) The person that receives or purchases and transfers or sells
the securitized assets to the issuing entity in the case of a
securitization transaction where the person transferring or selling the
securitized assets directly to the issuing entity is itself a trust.
    Eligible horizontal residual interest means, with respect to any
securitization transaction, an ABS interest in the issuing entity:
    (1) That is an interest in a single class or multiple classes in
the issuing entity, provided that each interest meets, individually or
in the aggregate, all of the requirements of this definition;
    (2) With respect to which, on any payment date on which the issuing

entity has insufficient funds to satisfy its obligation to pay all
contractual interest or principal due, any resulting shortfall will
reduce amounts paid to the eligible horizontal residual interest prior
to any reduction in the amounts paid to any other ABS interest, whether
through loss allocation, operation of the priority of payments, or any
other governing contractual provision (until the amount of such ABS
interest is reduced to zero); and
    (3) That has the most subordinated claim to payments of both
principal and interest by the issuing entity.
    Eligible vertical interest means, with respect to any
securitization transaction, a single vertical security or an interest
in each class of ABS interests in the issuing entity issued as part of
the securitization transaction that constitutes the same portion of the
fair value of each such class.
    Federal banking agencies means the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, and the
Federal Deposit Insurance Corporation.
    GAAP means generally accepted accounting principles as used in the
United States.
    Issuing entity means, with respect to a securitization transaction,
the trust or other entity:
    (1) That owns or holds the pool of assets to be securitized; and
    (2) In whose name the asset-backed securities are issued.
    Majority-owned affiliate of a sponsor means an entity that,
directly or indirectly, majority controls, is majority controlled by or
is under common majority control with, the sponsor. 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.
    Originator means a person who:
    (1) Through an extension of credit or otherwise, creates an asset
that collateralizes an asset-backed security; and
    (2) Sells the asset directly or indirectly to a securitizer or
issuing entity.
    Residential mortgage means a transaction that is a covered
transaction as defined in section 1026.43(b) of Regulation Z (12 CFR
1026.43(b)(1)) and any transaction that is exempt from the definition
of ``covered transaction'' under section 1026.43(a) of Regulation Z (12
CFR 1026.43(a)).
    Retaining sponsor means, with respect to a securitization
transaction, the sponsor that has retained or caused to be retained an
economic interest in the credit risk of the securitized assets pursuant
to subpart B of this part.
    Securitization transaction means a transaction involving the offer
and sale of asset-backed securities by an issuing entity.
    Securitized asset means an asset that:
    (1) Is transferred, sold, or conveyed to an issuing entity; and
    (2) Collateralizes the ABS interests issued by the issuing entity.
    Securitizer with respect to a securitization transaction shall mean
either:
    (1) The depositor of the asset-backed securities (if the depositor
is not the sponsor); or
    (2) The sponsor of the asset-backed securities.
    Servicer means any person responsible for the management or
collection of the securitized assets or making allocations or
distributions to holders of the ABS interests, but does not include a
trustee for the issuing entity or the asset-backed securities that
makes allocations or distributions to holders of the ABS interests if
the trustee receives such allocations or distributions from a servicer
and the trustee does not otherwise perform the functions of a servicer.
    Servicing assets means rights or other assets designed to assure
the timely distribution of proceeds to ABS interest holders and assets
that are related or incidental to purchasing or otherwise acquiring and
holding the issuing entity's securitized assets. Servicing assets
include amounts received by the issuing entity as proceeds of rights or
other assets, whether as remittances by obligors or as other
recoveries.
    Single vertical security means, with respect to any securitization
transaction, an ABS interest entitling the sponsor to specified
percentages of the principal and interest paid on each class of ABS
interests in the issuing entity (other than such single vertical
security), which specified percentages result in the fair value of each
interest in each such class being identical.
    Sponsor means a person who organizes and initiates a securitization
transaction by selling or transferring assets, either directly or
indirectly, including through an affiliate, to the issuing entity.
    State has the same meaning as in Section 3(a)(16) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(16)).
    United States means the United States of America, its territories
and possessions, any State of the United States, and the District of
Columbia.
    Wholly-owned affiliate means an entity (other than the issuing
entity) that, directly or indirectly, wholly controls, is wholly
controlled by, or is wholly under common control with, a sponsor. For
purposes of this definition, ``wholly controls'' means ownership of 100
percent of the equity of an entity.

Subpart B--Credit Risk Retention

Sec.  ----.3  Base risk retention requirement.

    (a) Base risk retention requirement. Except as otherwise provided
in this part, the sponsor of a securitization transaction (or majority-
owned affiliate of the sponsor) shall retain an economic interest in
the credit risk of the securitized assets in accordance with any one of
Sec. Sec.  ----.4 through ----.10.
    (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
affiliates) retains an economic interest in the credit risk of the
securitized assets in accordance with any one of Sec. Sec.  ----.4
through ----.10.

Sec.  ----.4  Standard risk retention.

    (a) Definitions. For the purposes of this section, the following
definitions apply:
    Closing Date Projected Cash Flow Rate for any payment date shall
mean the percentage obtained by dividing:
    (1) The fair value of all cash flow projected, as of the
securitization closing date, to be paid to the holder of the eligible
horizontal residual interest (or, if a horizontal cash reserve account
is established pursuant to this section, released to the sponsor or
other holder of such account), through such payment date (including
cash flow projected to be paid to such holder on such payment date) by
    (2) The fair value of all cash flow projected, as of the
securitization closing date, to be paid to the holder the eligible
horizontal residual interest (or, with respect to any horizontal cash
reserve account, released to the sponsor or other holder of such
account), through the maturity of the eligible horizontal residual
interest (or the termination of the horizontal cash reserve account).
In calculating the fair value of cash flows and the amount of cash flow
so projected to be paid, the issuing entity shall use the same
assumptions and discount rates as were used in determining the fair
value of the eligible horizontal residual interest (or the amount that
must be placed in an eligible horizontal cash reserve account, equal to
the fair value of an eligible horizontal residual interest).

    Closing Date Projected Principal Repayment Rate for any payment
date shall mean the percentage obtained by dividing:
    (1) The amount of principal projected, as of the securitization
closing date, to be paid on all ABS interests through such payment date
(or released from the horizontal cash reserve account to the sponsor or
other holder of such account), including principal payments projected
to be paid on such payment date by
    (2) The aggregate principal amount of all ABS interests issued in
the transaction. In calculating the projected principal repayments, the
issuing entity shall use the same assumptions as were used in
determining the fair value of the ABS interests in the transaction (or
the amount that must be placed in an eligible horizontal cash reserve
account, equal to the fair value of an eligible horizontal residual
interest).
    (b) General requirement. (1) 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. The fair value of the amount retained by
the sponsor under this section must equal at least 5 percent of the
fair value of all ABS interests in the issuing entity issued as part of
the securitization transaction, determined in accordance with GAAP. The
fair value of the ABS interests in the issuing entity (including any
interests required to be retained in accordance with this part) must be
determined as of the day on which the price of the ABS interests to be
sold to third parties is determined.
    (2) A sponsor retaining any eligible horizontal residual interest
(or funding a horizontal cash reserve account) pursuant to this section
must prior to the issuance of the eligible horizontal residual interest
(or funding of a horizontal cash reserve account), or at the time of
any subsequent issuance of ABS interests, as applicable:
    (i) Calculate the Closing Date Projected Cash Flow Rate and Closing
Date Projected Principal Repayment Rate for each payment date;
    (ii) Certify to investors that it has performed the calculations
required by paragraph (b)(2)(i) of this section and that the Closing
Date Projected Cash Flow Rate for each payment date does not exceed the
Closing Date Projected Principal Repayment Rate for such payment date;
and
    (iii) Maintain record of the calculations and certification
required under this paragraph (b)(2) in accordance with paragraph (e)
of this section.
    (c) Option to hold base amount in horizontal cash reserve account.
In lieu of retaining all or any part of an eligible horizontal residual
interest under paragraph (b) of this section, the sponsor may, at
closing of the securitization transaction, cause to be established and
funded, in cash, a 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:
    (i) (A) United States Treasury securities with maturities of one
year or less;
    (B) Deposits in one or more insured depository institutions (as
defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C.
1813)) that are fully insured by federal deposit insurance; or
    (ii) With respect to securitization transactions in which the ABS
interests or the securitized assets are denominated in a currency other
than U.S. dollars:
    (A) Sovereign bonds denominated in such other currency with
maturities of one year or less; or
    (B) Fully insured deposit accounts denominated, in such other
foreign currency and held in 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
    (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 to 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;
    (ii) No other amounts may be withdrawn or distributed from the
account unless the sponsor has complied with paragraphs (b)(2)(i) and
(ii) of this section and the amounts released to the sponsor or other
holder of the horizontal cash reserve account do not exceed, on any
release date, the Closing Date Principal Repayment Rate as of that
release date; and
    (iii) Interest on investments made in accordance with paragraph
(c)(2) of this section may be released once received by the account.
    (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 the disclosures in written form set forth in
this paragraph (d) under the caption ``Credit Risk Retention'':
    (1) Horizontal interest. With respect to any eligible horizontal
residual interest held under paragraph (a) of this section, a sponsor
must disclose:
    (i) 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 will retain (or did retain) at the closing of the
securitization transaction, 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 are issued, as applicable)) of
the eligible horizontal residual interest that the sponsor is required
to retain under this section;
    (ii) A description of the material terms of the eligible horizontal
residual interest to be retained by the sponsor;
    (iii) A description of the methodology used to calculate the fair
value of all classes of ABS interests, including any portion of the
eligible horizontal residual interest retained by the sponsor;
    (iv) The key inputs and assumptions used in measuring the total
fair value of all classes of ABS interests, and the fair value of the
eligible horizontal residual interest retained by the sponsor,
including but not limited to quantitative information about each of the
following, as applicable:
    (A) Discount rates;
    (B) Loss given default (recovery);
    (C) Prepayment rates;
    (D) Defaults;
    (E) Lag time between default and recovery; and
    (F) The basis of forward interest rates used.
    (v) The reference data set or other historical information used to
develop the key inputs and assumptions referenced in paragraph
(d)(1)(iv) of this section, including loss given default and actual
defaults.
    (vi) As of a disclosed date which is no more than sixty days prior
to the closing

date of the securitization transaction, the number of securitization
transactions securitized by the sponsor during the previous five-year
period in which the sponsor retained an eligible horizontal residual
interest pursuant to this section, and the number (if any) of payment
dates in each such securitization on which actual payments to the
sponsor with respect to the eligible horizontal residual interest
exceeded the cash flow projected to be paid to the sponsor on such
payment date in determining the Closing Date Projected Cash Flow Rate.
    (vii) If the sponsor retains risk through the funding of a
horizontal cash reserve account:
    (A) The amount to be placed (or that is placed) by the sponsor in
the 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 are
issued, as applicable)) of the eligible horizontal residual interest
that the sponsor is required to fund through the cash account under
this section; and
    (B) A description of the material terms of the horizontal cash
reserve account; and
    (C) The disclosures required in paragraphs (d)(1)(iii) through (vi)
of this section.
    (2) Vertical interest. With respect to any eligible vertical
interest retained under paragraph (a) of this section:
    (i) Whether the sponsor will retain (or did retain) the eligible
vertical interest as a single vertical security or as a separate
proportional interest in each class of ABS interests in the issuing
entity issued as part of the securitization transaction;
    (ii) With respect to an eligible vertical interest retained as a
single vertical security:
    (A) The fair value amount of the single vertical security that the
sponsor will retain (or did retain) at the closing of the
securitization transaction and the fair value amount of the single
vertical security that the sponsor is required to retain under this
section; and
    (B) Each class of ABS interests in the issuing entity underlying
the single vertical security at the closing of the securitization
transaction and the percentage of each class of ABS interests in the
issuing entity that the sponsor would have been required to retain
under this section if the sponsor held the eligible vertical interest
as a separate proportional interest in each class of ABS interest in
the issuing entity; and
    (iii) With respect to an eligible vertical interest retained as a
separate proportional interest in each class of ABS interests in the
issuing entity, the percentage of each class of ABS interests in the
issuing entity that the sponsor will retain (or did retain) at the
closing of the securitization transaction and the percentage of each
class of ABS interests in the issuing entity that the sponsor is
required to retain under this section; and
    (iv) The information required under paragraphs (d)(1)(iii), (iv)
and (v) of this section with respect to the measurement of the fair
value of the ABS interests in the issuing entity, to the extent the
sponsor is not already required to disclose the information pursuant to
paragraph (d)(1) of this section.
    (e) Record maintenance. A sponsor must retain the certifications
and disclosures required in paragraphs (b) and (d) of this section in
written form 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 master trusts.

    (a) Definitions. For purposes of this section, the following
definitions apply:
    Revolving master trust means an issuing entity that is:
    (1) A master trust; and
    (2) Established to issue on multiple issuance dates one or more
series, classes, subclasses, or tranches of asset-backed securities all
of which are collateralized by a common pool of securitized assets that
will change in composition over time.
    Seller's interest means an ABS interest or ABS interests:
    (1) Collateralized by all of the securitized assets and servicing
assets owned or held by the issuing entity other than assets that have
been allocated as collateral only for a specific series;
    (2) That is pari passu to each series of investors' ABS interests
issued by the issuing entity with respect to the allocation of all
distributions and losses with respect to the securitized assets prior
to an early amortization event (as defined 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 master trust if
the sponsor retains a seller's interest of not less than 5 percent of
the unpaid principal balance of all outstanding investors' ABS
interests issued by the issuing entity.
    (c) Measuring and retaining the seller's interest. The retention
interest required pursuant to paragraph (b) of this section:
    (1) Must meet the 5 percent test at the closing of each issuance of
ABS interests by the issuing entity, and at every seller's interest
measurement date specified under the securitization transaction
documents, but no less than monthly, until no ABS interest in the
issuing entity is held by any person not affiliated with the sponsor;
    (2) May be retained by one or more wholly-owned affiliates of the
sponsor, including one or more depositors of the revolving master
trust.
    (d) Multi-level trusts. (1) If one revolving master trust issues
collateral certificates representing a beneficial interest in all or a
portion of the securitized assets held by that trust to another
revolving trust, 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 revolving
master trust, so long as both revolving master trusts are maintained at
the direction of the same sponsor or its wholly-owned affiliates; and
    (2) If the sponsor retains the seller's interest associated with
the collateral certificates at the level of the revolving trust that
issues those collateral certificates, the proportion of the seller's
interest required by paragraph (b) of this section that shall be
retained at that level shall equal no less than the proportion that the
securitized assets represented by the collateral certificates bears to
the total securitized assets in the revolving master trust that issues
the ABS interests, as of each measurement date required by paragraph
(c) of this section.
    (e) 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 under the securitization transaction
documents by distributions otherwise payable to the holder of the
seller's interest;

    (2) Is pari passu to each series of investors' ABS interests issued
by the issuing entity with respect to the allocation of losses with
respect to the securitized assets prior to an early amortization event;
and
    (3) In the event of an early amortization, makes payments of
amounts held in the account to holders of investors' ABS interests in
the same manner as distributions on securitized assets.
    (f) Combined retention at trust and series level. 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 ABS interests issued by the revolving
master trust, the sponsor or wholly-owned affiliate of the sponsor
retains, at a minimum, a corresponding percentage of the fair value of
all ABS interests issued in each series, in the form of an eligible
horizontal residual interest that meets the requirements of Sec.  --
--.4, or, for so long as the revolving master trust continues to
operate by issuing, on multiple issuance dates, one or more series,
classes, subclasses, or tranches of asset-backed securities, all of
which are collateralized by pooled securitized assets that change in
composition over time, a horizontal interest meeting the following
requirements:
    (1) Whether certificated or uncertificated, in a single or multiple
classes, subclasses, or tranches, the horizontal interest meets,
individually or in the aggregate, the requirements of this paragraph
(f);
    (2) Each series of the revolving master trust 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 master trust, 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;
    (3) The horizontal 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 and
principal 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 master trust for that period, to the
extent that such payments would have been included in amounts payable
to more senior interests in the series;
    (4) The horizontal interest has the most subordinated claim to any
part of the series' share of the principal repayment cash flows.
    (g) Disclosure and record maintenance--(1) Disclosure. 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, 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 value (expressed as a percentage of the unpaid principal
balance of all of the investors' 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 seller's interest that the sponsor will retain (or did retain) at
the closing of the securitization transaction, the fair value
(expressed as a percentage of the fair value of all of the investors'
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 any horizontal risk retention
described in paragraph (f) of this section that the sponsor will retain
(or did retain) at the closing of the securitization transaction, and
the unpaid principal balance or fair value, as applicable (expressed as
percentages of the values of all of the ABS interests issued in the
securitization transaction and dollar amounts (or corresponding amounts
in the foreign currency in which the ABS are issued, as applicable))
that the sponsor is required to retain pursuant to this section;
    (ii) A description of the material terms of the seller's interest
and of any horizontal risk retention described in paragraph (f) of this
section; and
    (iii) If the sponsor will retain (or did retain) any horizontal
risk retention described in paragraph (f) of this section, the same
information as is required to be disclosed by sponsors retaining
horizontal interests pursuant to Sec.  --.4(d)(i).
    (2) Record maintenance. A sponsor must retain the disclosures
required in paragraph (g)(1) of this section in written form 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.
    (h) Early amortization of all outstanding series. A sponsor that
organizes a revolving master trust for which all securitized assets
collateralizing the trust are revolving assets, and 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 an event of
default triggers early amortization, as specified in the securitization
transaction documents, of all series of ABS interests issued by the
trust to persons not affiliated with the sponsor, 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 event of default that triggered early
amortization;
    (2) The terms of the seller's interest continue to make it pari
passu or subordinate to each series of investors' ABS interests issued
by the issuing entity with respect to the allocation of all losses with
respect to the securitized assets;
    (3) The terms of any horizontal interest relied upon by the sponsor
pursuant to paragraph (f) to offset the minimum seller's interest
amount continue to require the interests to absorb losses in accordance
with the terms of paragraph (f) of this section; and
    (4) The revolving master trust issues no additional ABS interests
after early amortization is initiated to any person not affiliated with
the sponsor, either during the amortization period or at any time
thereafter.

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 nine months, 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 asset-backed securities acquired by the ABCP conduit are:
    (i) Collateralized solely by the following:
    (A) Asset-backed securities collateralized solely by assets
originated by an originator-seller or one or more majority-owned OS
affiliates of the originator seller, and by servicing assets;
    (B) Special units of beneficial interest or similar interests in a
trust or special purpose vehicle that retains legal title to leased
property underlying leases that were transferred to an intermediate SPV
in connection with a securitization collateralized solely by such
leases originated by an originator-seller or majority-owned OS
affiliate, and by servicing assets; or
    (C) Interests in a revolving master trust collateralized solely by
assets originated by an originator-seller or majority-owned OS
affiliate and by servicing assets; and
    (ii) Not collateralized by asset-backed securities (other than
those described in paragraphs (2)(i)(A) through (C) of this
definition), otherwise purchased or acquired by the intermediate SPV,
the intermediate SPV's originator-seller, or a majority-owned OS
affiliate of the originator seller; and
    (iii) 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 securities issued by the intermediate
SPV, or (C) from another person who acquired the securities directly
from the intermediate SPV;
    (3) The ABCP conduit is collateralized solely by asset-backed
securities 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 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 receivables or
performing ABS interests does not meet the requirements of this
section).
    Intermediate SPV means a special purpose vehicle that:
    (1) Is a direct or indirect wholly-owned affiliate of the
originator-seller;
    (2) Is bankruptcy remote or otherwise isolated for insolvency
purposes from the eligible ABCP conduit, the originator-seller, and any
majority-owned OS affiliate that, directly or indirectly, sells or
transfers assets to such intermediate SPV;
    (3) Acquires assets that are originated by the originator-seller or
its majority-owned OS affiliate from the originator-seller or majority-
owned OS affiliate, or acquires asset-backed securities issued by
another intermediate SPV or the original seller that are collateralized
solely by such assets; and
    (4) Issues asset-backed securities collateralized solely by such
assets, as applicable.
    Majority-owned OS affiliate means an entity that, directly or
indirectly, majority controls, is majority controlled by or is under
common majority control with, an originator-seller participating in an
eligible ABCP conduit. 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.
    Originator-seller means an entity that originates assets and sells
or transfers those assets directly, or through a majority-owned OS
affiliate, to an intermediate SPV.
    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) The intermediate SPV's originator-seller retains an economic
interest in the credit risk of the assets collateralizing the ABS
interest acquired by the eligible ABCP conduit in accordance with
paragraph (b)(2) of this section, in the same form, amount, and manner
as would be required under Sec. Sec.  ----.4 or ----.5; and
    (2) The ABCP conduit sponsor:
    (i) Approves each originator-seller and any majority-owned OS
affiliate 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
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 conditions in this paragraph (b) 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, if any, to comply with its own risk retention
obligations under this part.
    (d) 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:

    (1) 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 form, amount, and nature of such
liquidity coverage, and notice of any failure to fund.
    (2) With respect to each ABS interest held by the ABCP conduit:
    (A) The asset class or brief description of the underlying
receivables;
    (B) The standard industrial category code (SIC Code) for the
originator-seller or majority-owned OS affiliate that will retain (or
has retained) pursuant to this section an interest in the
securitization transaction; and
    (C) A description of the form, fair value (expressed as a
percentage of the fair value of all of the ABS interests issued in the
securitization transaction and as a dollar amount (or corresponding
amount in the foreign currency in which the ABS are issued, as
applicable)), as applicable, and nature of such interest in accordance
with the disclosure obligations in Sec.  ----.4(d).
    (e) Disclosures to regulators regarding originator-sellers and
majority-owned OS affiliates. 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) of this section, and the name and form of organization of
each originator-seller or majority-owned OS affiliate that will retain
(or has retained) pursuant to this section an interest in the
securitization transaction.
    (f) Duty to comply. (1) The ABCP conduit retaining sponsor shall be
responsible for compliance with this section.
    (2) An ABCP conduit retaining 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 and
any majority-owned OS affiliate which sells assets to the 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 or majority-owned OS affiliate no longer complies
with the requirements of paragraph (b)(1) of this section, shall:
    (A) Promptly notify the holders of the ABCP, 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)(2)(i) of this
section and the amount of asset-backed securities 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 or
majority-owned OS affiliate 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 asset-backed securities issued
by an intermediate SPV of such originator-seller or majority-owned OS
affiliate and held by the ABCP conduit; and
    (3) Any remedial actions taken by the ABCP conduit sponsor or other
party with respect to such asset-backed securities; and
    (B) Take other appropriate steps pursuant to the requirements of
paragraphs (b)(2)(iv) and (b)(2)(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 asset-backed security
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 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 closing of 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 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 and shall be responsible for:
    (A) Reviewing the actions of the special servicer;
    (B) Reviewing all reports made by the special servicer to the
issuing entity;
    (C) Reviewing for accuracy and consistency calculations made by the
special servicer with the transaction documents; and
    (D) Issuing a report to investors 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 as
provided in the applicable transaction documents; and
    (2) With 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 as provided 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
holders of 5 percent of the outstanding principal balance of all ABS
interests in the issuing entity shall constitute a quorum.
    (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) A description of 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 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 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) 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
    (C) 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 do not 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 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.
    (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 a
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 paragraph (b)(8)(ii)(B) 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 (b)(5), and (b)(8) of this section
applicable to third-party purchasers, provided that obligations under
paragraphs (b)(1), (b)(3) through (b)(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 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:
    (A) 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 (b)(5), and (b)(8) of this section;
and
    (B) In the event that the sponsor determines that a third-party
purchaser no longer complies with any of the requirements of paragraphs
(b)(1), (b)(3) through (b)(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:
    (1) Issues debt and equity interests, and
    (2) 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:
    (1) 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.
    (2) Has taken an allocation 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 at origination has taken a greater
allocation; and
    (3) Is identified at the time of origination in the credit
agreement and any intercreditor or other applicable agreements
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 and the CLO-eligible loan tranche satisfy the
requirements of this section; and covenants therein to such holders
that such lead arranger will fulfill the requirements of clause (i) of
the definition of CLO-eligible loan tranche.
    Open market CLO means a CLO:
    (1) 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,
    (2) That is managed by a CLO manager, and
    (3) 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 originated by originators that are
affiliates of the CLO.
    Open market transaction means:
    (1) 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
    (2) 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:
    (1) Is not subordinate in right of payment to any other obligation
for borrowed money of the commercial borrower,
    (2) 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
    (3) 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 in accordance with its terms 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 as to the adequacy of the collateral and
attributes of the borrower under this paragraph in regular periodic
disclosures to investors.
    (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 money terms, 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 documents such CLO-eligible loan
tranches are not materially less advantageous to the obligor 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 and Standard Industrial Classification
(SIC) category code 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 loan tranche 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 the;
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 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:
    (1) Such entity is collateralized solely by servicing assets and
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.
    (2) Such entity issues no securities other than:
    (i) 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
    (ii) a single residual equity interest that is entitled to all
remaining income of the TOB issuing entity. Both of these types of
securities must constitute ``asset-backed securities'' as defined in
Section 3(a)(79) of the Exchange Act (15 U.S.C. 78c(a)(79)).
    (3) 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.
    (4) The holders of all of the securities issued by such entity are
eligible to receive interest that is excludable from gross income
pursuant to Section 103 of the IRS Code or ``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.
    (5) 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.
    (6) 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:
    (1) Has features which entitle the holders to tender such bonds to
the TOB issuing entity for purchase at any time upon no more than 30
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; and
    (2) Has all necessary features so such security qualifies for
purchase by money market funds under Rule 2a-7 under the Investment
Company Act of 1940, as amended.
    (b) Standard risk retention. Notwithstanding anything in this
section, the sponsor with respect to an issuance of tender option bonds
by a qualified tender option bond entity may retain an eligible
vertical interest or eligible horizontal residual interest, or any
combination thereof, in accordance with the requirements of Sec.  --
--.4.
    (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 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 their 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 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'' the name and form of organization
of the qualified tender option bond entity, and a description of the
form, fair value (expressed as a percentage of the fair value of all of
the ABS interests issued in the securitization transaction and as a
dollar amount), and nature of such interest in accordance with the
disclosure obligations in Sec.  ----.4(d).
    (f) Prohibitions on Hedging and Transfer. The prohibitions on
transfer and hedging set forth in Sec.  ----.12, apply to any municipal
securities retained by the sponsor with respect to an issuance of
tender option bonds by a qualified tender option bond entity pursuant
to paragraph (d) 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 as the sponsor under Sec.
----.4, as such interest was held prior to the acquisition by the
originator;
    (ii) The ratio of the fair value of eligible interests acquired and
retained by the originator to the total fair value 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(d), 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, amount (expressed as a percentage and dollar amount (or
corresponding amount in the foreign currency in which the ABS are
issued, as applicable)), and nature 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 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:
    (A) 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 (a)(3) of this section; and
    (B) In the event the sponsor determines that any such originator no
longer complies with any of the requirements in paragraphs (a)(1) and
(a)(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. 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.
    (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 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 to the
credit risk of one or more of the particular ABS interests that the
retaining sponsor 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 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 to the credit risk of one or more of the particular ABS
interests that the sponsor 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 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 is 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 was 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 is
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 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 closing of 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 closing of 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.

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 past due, in whole or in part, on the
mortgage transaction.
    Qualified residential mortgage means a ``qualified mortgage'' as
defined in section 129 C of the Truth in Lending Act (15 U.S.C. 1639c)
and regulations issued thereunder.
    (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 other asset-backed securities;
    (3) At the closing of the securitization transaction, each
qualified residential mortgage collateralizing the asset-backed
securities is currently performing; and
    (4)(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 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 establishes 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: (1) Means 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; and
    (2) 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 loans divided by
    (ii) The sum of the borrower's annual payments for principal and
interest 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 borrower 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 principal or 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 (other than 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 are 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,
determined in accordance with GAAP 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 means the
standards issued by the Appraisal Standards Board for the performance
of an appraisal, an appraisal review, or an appraisal consulting
assignment.

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'':
    (i) 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; and
    (ii) 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.
    (b) Risk retention requirement. For any securitization transaction
described in paragraph (a) of this section, the amount of risk
retention required under Sec.  ----.3(b)(1) is reduced by the same
amount as 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 pool assets
collateralizing the asset-backed securities issued pursuant to the
securitization transaction; and
    (2) The qualifying asset ratio does not exceed 50 percent.
    (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.

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 straight-line amortization of principal and interest
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
closing of the securitization transaction.
    (7) At the closing of 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 (a)(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
(a)(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 (a)(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 (a)(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
(a)(1)(ii)(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 (a)(1)(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) Was performed not more than six months from the origination
date of the loan by an appropriately State-certified or State-licensed
appraiser;
    (B) Conforms to generally accepted appraisal standards as evidenced
by the Uniform Standards of Professional Appraisal Practice promulgated
by the Appraisal Standards Board 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 valuation approach that uses a
discounted cash flow analysis;
    (iii) Qualified the borrower for the CRE loan based on a monthly
payment amount derived from a straight-line amortization of principal
and interest 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;
    (vi) Determined that, based on the previous two years' actual
performance, the borrower had:
    (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;
    (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 (b)(1)(i) or (b)(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 at least
up to the amount of the loan, and 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 collateral for the CRE loan described in
paragraphs (a)(1)(i) and (a)(1)(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 paragraph (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 the capitalization rate used in an appraisal
that meets the requirements set forth in paragraph (a)(2)(ii) of this
section 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 an appraisal that meets the requirements set
forth in paragraph (a)(2)(ii) of this section; and
    (B) 300 basis points.
    (iii) The capitalization rate used in an appraisal under paragraph
(a)(2)(ii) of this section 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 straight-line amortization of principal and interest
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; or
    (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.
    (8) The originator does not establish an interest reserve at
origination to fund all or part of a payment on the loan.
    (9) At the closing of the securitization transaction, all payments
due on the loan are contractually current.
    (10)(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 CRE 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 (9) 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)(10)(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;
    (iii) The sponsor provides, or causes to be provided, a copy of the
certification described in paragraph (a)(10)(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; and
    (11) Within two weeks of the closing of the CRE loan by its
originator or, if

sooner, prior to the transfer of such CRE loan to the issuing entity,
the originator shall have obtained a UCC lien search from the
jurisdiction of organization of the borrower and each operating
affiliate, that does not report, as of the time that the security
interest of the originator in the property described in paragraph
(a)(1)(iii) of this section was perfected, other higher priority liens
of record on any property described in paragraph (a)(1)(iii) of this
section, other than purchase money security interests.
    (b) Cure or buy-back requirement. If a sponsor has relied on the
exception provided in Sec.  ------.15 with respect to a qualifying CRE