Five Questions (Plus One) with Richard Johns, executive director, SFIG

Date: June 25, 2020

Richard Johns is the first and only person to serve as executive director for The Structured Finance Industry Group (SFIG) since its formation in 2013. SFIG’s growing membership includes roughly 300 institutional members, including investors, issuers, and other participants in the structured finance industry. A member-driven advocacy organization, SFIG has more than 50 actively engaged committees and task forces, representing industry viewpoints across all aspects of the regulatory and legislative landscape.

Johns took time to answer our Five Questions (plus a bonus sixth one, just for fun) in the midst of final arrangements for SFIG’s annual conference, ABS Vegas, which will be held from February 28-March 2 in Las Vegas. Last Year’s ABS Vegas event attracted more than 6,500 industry participants, making it the largest structured finance conference in the world.

One of SFIG’s core principles is inclusion, which is underscored by your extensive and diverse board. How are you able to achieve consensus with so many different market participants who would have, at times, opposing points of view?

Well, I guess if we are going to use the word “achieve” consensus, you really need to start with people disagreeing…otherwise you are simply documenting existing consensus. I’m not sure there is much difference at SFIG as compared to my old issuance days when you would come to market and expect a natural tension between the issuer and investor. Issuers wanted tighter spreads, investors wanted a wider range—and eventually you all settle on a number where the market will reflect sufficient liquidity to satisfy both parties. Policy positions are not necessarily all that different; you just have different variables. For example, instead of a spread, the operative variable may be disclosure or the amount of risk retention. So in essence, both sides are motivated to find the middle ground and support a solution that maintains a robust but liquid market. We’ve had numerous examples where this process has worked, thus enabling us to present an “agreed-upon market view,” which in turn affords significant benefit for rule makers.

There are times, of course, when members’ positions are so far opposed that you can’t reach an overall agreement. In those cases, we still try to find the areas where there are common views, share those consensus positions with the rule makers, explain where the differences of opinion are and, hopefully, give some insight underlying those differences of opinion. So now, even if we don’t have a fully agreed position to advocate, we have still managed to educate the rule makers regarding the reasons for any disagreements and the reasons underlying those disagreements, and thus, hopefully aid the rule makers in their process of making decisions.

How is SFIG promoting the securitization industry as a career path for women?

I’m not sure I would describe this process as the promotion of securitization as a career path for women, but rather that if women do chose securitization as a career path, we are taking steps to facilitate women’s success in this arena. We are extremely fortunate to have eight strong women associates on the SFIG staff, and these women represent two-thirds of our team. Our female staff members, coupled with an incredible amount of female talent and leadership in our membership and a board that is committed to the cause, leaves us very well positioned to actively support women in this industry. In addition, we launched SFIG’s Women in Securitization (WiS) initiative at the beginning of this year. We have had noticeable successes already. There was a fabulous launch event at ABS Vegas; WiS Week during the summer, which allowed us to host a series of roundtables across the country; we kicked off a mentoring program; we provided a WiS panel at ABS East, where the challenges facing women in the industry were given equal airtime as compared to topics like Reg AB II, risk retention and high-quality securitization; and this week, we hosted a workshop on networking skills in New York.

2016 promises to deliver even greater accomplishments as we focus on educating member organizations’ senior management on best practices and policies and continue to build out personal professional development opportunities for women. We already have a great event to look forward to at ABS Vegas, where WiS will take front and center stage with a full plenary panel session as part of the agenda. So please stay tuned, because if you don’t, you will miss something important.

In a nutshell, what is at stake in the Madden v. Midland Funding Supreme Court case and what is the position of SFIG and its membership?

Earlier this year, the Second Circuit Court of Appeals ruled that a debt buyer, who purchased defaulted credit card accounts from a national bank, is not entitled to collect the interest rate set under the cardholder agreement, as has been allowed since the 1800’s by the National Bank Act. The court decided that the usury laws of the state took precedence over the interest rate set by the cardholder’s agreement. This decision will have far reaching implications for the securitization of consumer loans. SFIG is submitting an amicus curiae brief to the U.S. Supreme Court in support of the defendant, asking the Supreme Court to take the appeal. If the Supreme Court upholds the Second Circuit’s decision, then industry participants will be required to evaluate the applicability of the pertinent state usury law to each and every individual loan included in a securitization.

What are the regulatory and policy priorities for SFIG in the coming year?

Ha! Ha! It may be easier to list what isn’t on our agenda. It used to be that when a rule proposal came out, we all commented on it and then the rule was passed, and we all implemented it. Then we moved on to the next issue.

The process doesn’t seem to work like that anymore. Take something like risk retention—that was one of our first letters back in late 2013, and it still isn’t to be implemented for another year yet for ABS product, so I’m sure we will continue to work on interpretation until at least that point.

Reg AB II is another great example. The “roll-on, roll-off” process for regulation seems to have become simple “roll-on.” So our agenda is incredibly broad and covers not just rule-making proposals but also market development opportunities.

In addition to Reg AB II and risk retention we will be focusing on Basel’s Fundamental Review of the Trading Book, Basel’s STC (simple, transparent, comparable) capital proposal (and other similar high-quality securitization initiatives), NSFR, and derivatives. We will also be pushing a number of market development initiatives covering marketplace lending, solar, and China, plus a variety of mortgage finance initiatives.

What role is SFIG playing in the effort to reform the mortgage industry, including providing clarity for lenders and investors? And GSE reform?

Well, of course, the biggest thing we have on our agenda is our RMBS 3.0 project. This is aimed at removing uncertainty and building trust in the market by creating ranges or examples of best practices across a variety of areas within the private label market. So far, we have issued three releases for the project, coupled with three specific conferences/symposia. In our most recent release, we finished a comprehensive set of representations and warranties (47 in total) and released a template for the establishment of a “deal agent” role that provides an alignment of interest with investors in a transaction. In addition to putting more detail on that framework during 2016, we expect to have a robust agenda addressing issues like simplifying and streamlining bondholder communication, proposing standards for the disclosure of data and due diligence findings in a Reg AB II environment, standardizing the disclosure of loan underwriting methods, and working with members to implement a standardized set of roles and responsibilities.

As regards GSE reform, we do not expect Congress to tackle full-scale housing finance reform until after the presidential elections. However, over the next year, we will continue to see administrative efforts that will affect how our housing finance system works, particularly through the efforts of the FHFA and the GSEs to create a common securitization platform and single security. SFIG has been and will continue to be an advisor on these multiyear projects through our participation on the Common Securitization Solutions’ Industry Advisory Group.

Bonus sixth question: Who throws the best cocktail party in Vegas? (Hint: it occurs at ABS Vegas.)

It seems like I’m caught between two fabulous choices, with both the VantageScore and the SFIG Women in Securitization events taking place at different points on the Sunday of the conference.

That being said, I’m going to choose VantageScore for sentimental reasons. Since SFIG has gone through its remarkably fast establishment, there have been many milestones that stick in the mind which have helped to chart our swift evolution. One of those was that first conference at the Cosmo [The Cosmopolitan Hotel in Las Vegas] …walking towards that opening night cocktail reception, passing by the VantageScore “glamazons” on their stilts, and entering into the arena to be greeted by lights flashing, music pumping from the DJ on the stage, and a remarkable display of glass-blowing filling the center of the room. That was truly one of those moments where a couple of the board members and I looked at each other, big smiles on our faces, and simply thought “SFIG has arrived!” Thanks, VantageScore.