Table of Contents

III. Discussion of the Amendments

B. Disclosure

1. Regulation AB

As we explained in the Proposing Release, no disclosure items have previously existed that were tailored specifically to asset-backed securities. While some disclosure items in Regulation S-K are relevant to ABS, such as a description of the security, most items do not elicit useful disclosure for ABS investors. For ABS, there is generally no business or management to describe; rather, information about the pool assets, servicing, transaction structure, flow of funds and enhancements is more relevant. Analysis regarding the characteristics of the pool assets is necessary to determine the timing and amount of expected payments on the assets and thus payments on the ABS. In addition, the legal and often complex flow of funds of the transaction and the impact of any credit enhancement or other support must be analyzed. Through the staff comment process and industry practice, informal disclosure practices have developed. These practices, however, may not have been fully transparent to issuers and investors.

As proposed, we are adopting a new principles-based set of disclosure items in one central location in a subpart of Regulation S-K, called Regulation AB.¹⁹⁴ These disclosure items, based on existing disclosure practices and revised from the proposal in response to comment, will form the basis for disclosure in both Securities Act registration statements and Exchange Act reports for asset-backed securities. As noted in Sections III.A. and D., specific disclosure requirements in ABS registration statements and forms will be keyed to items in Regulation AB in a manner consistent with the integrated disclosure system applicable to other issuers.

While not all commenters agreed, the majority of commenters supported our proposal for principles-based disclosure rules in lieu of detailed disclosure guides for each securitized asset class.¹⁹⁵ For example, one commenter representing ABS investors believed proposed Regulation AB represents a major step in improving disclosures provided to investors and includes many of the items investors have previously recommended as critical to investors.¹⁹⁶ We continue to believe a principles-based approach provides the best framework for disclosure in the context of asset-backed securities. We believe it would be impractical to provide an exhaustive list of disclosure items required for each asset class. Not only do we believe this approach would be impractical due to the many existing asset classes that are securitized today, it would not provide any effective guidance with respect to new asset classes that may be securitized in the future. Due to the dynamic nature of the ABS market, any such list would likely become outdated quickly.

Under our principles-based approach, in many instances we identify the disclosure concept or objective required and provide one or more illustrative examples. Some commenters objected to our providing illustrative examples, expressing concern that the mere identification of an item in the list could suggest that the item is required, regardless of its applicability or materiality to the particular asset class or transaction involved.¹⁹⁷ This concern is misplaced and would, if accepted, lead to a rules-based regime that would be both inflexible and subject to evasion. As we stressed in the Proposing Release, application of the particular concept or objective needs to be tailored in preparing and presenting the disclosure to the information material to the particular transaction and asset type involved. We have made several revisions to the proposed disclosure items where illustrative lists are used to clarify this point.

The balance we are striving to achieve through this approach is to provide enough clarity so that the disclosure concept or objective is understood and can be applied on a consistent basis, while not providing too much detail that could obscure or override the concept or objective or that would result in disclosure that would be immaterial or inapplicable. We believe using illustrative lists, with a reference that the actual disclosure must be tailored based on the material aspects of the transaction involved, helps to identify the types of disclosures that may be applicable in response to the identified disclosure concept. Issuers must assess the materiality to investors of the information that is identified by the particular concept or objective, or that would result from employing the example given, in the case of the particular transaction and asset type involved. We believe this approach fosters transparency and comparability without being overly rigid and reduces the risk that the disclosure requirements will become out-of-date. We also note that in some instances an item may not be material and therefore no disclosure would be required. We also direct issuers to longstanding Commission rules that state that, unless specified otherwise, no reference need be made in the prospectus to inapplicable disclosure items.¹⁹⁸

Of course, as we stated in the Proposing Release, in some instances we believe we must and therefore do set forth certain disclosure items with greater specificity. Further, we are codifying several existing percentage tests, with several revisions from our proposal in response to comment, that provide requirements as to when particular disclosure is required, particularly regarding concentrated obligors or significant credit enhancement or other support. As we stated in the Proposing Release, we believe such breakpoints provide consistency, comparability and clarity.

The structure of Regulation AB is as follows:

• Item 1100 sets forth items of general applicability for the whole subpart, such as guidance regarding the presentation of delinquency and loss information when it is required, alternative methods for presenting third party financial information (discussed further in Section III.B.10.) and guidance regarding disclosures related to foreign ABS (previously discussed in Section III.A.4.).
   

• Item 1101 sets forth definitions applicable to asset-backed securities.
   

• Items 1102 – 1120 constitute the basic disclosure package for Securities Act registration statements for ABS offerings. In addition, several of the items will be required on an ongoing basis in Exchange Act reports, such as updated financial information regarding certain third parties and disclosure regarding legal proceedings.
   

• Item 1121 identifies disclosure for distribution reports on Form 10-D regarding cash flows and performance of the asset pool and the allocation of cash flows and distribution of payments on the ABS. This item is discussed more fully in Section III.D.4.
   

• Items 1122 and 1123 address two longstanding requirements for the annual Form 10-K report based on market practice and the modified reporting system. Item 1122 addresses assessments of compliance with servicing criteria and the filing of attestation reports by registered public accounting firms on such assessments. This item, as revised from the proposal, is discussed more fully in Section III.D.7. Item 1123 specifies the form of the separate servicer compliance statement. This compliance statement pertains to the servicer’s compliance with the particular servicing agreement for the transaction, as opposed to an attested assertion of compliance against a general set of servicing criteria. This item is discussed more fully in Section III.D.5.

As we stated in the Proposing Release, many of our disclosure items are based on the market-driven disclosures that appear in filings today. Commenters, although suggesting comment on some individual items, generally agreed with this assessment.¹⁹⁹ In addition, as we explained in more detail in the Proposing Release, our consideration of the disclosure items was informed by the staff review process as well as the staff’s participation in the 2003 MBS Disclosure Report. Commenters on the proposals also provided additional examples and suggestions to improve the disclosure items.

As we stated in the Proposing Release, however, we remain concerned that current disclosure practice has resulted in the inclusion of undue boilerplate language in ABS filings, particularly prospectuses and registration statements, and a disproportionate emphasis on legal recitations of transaction terms. Further, as disclosure practice may have been driven primarily by the staff review process and by observing and conforming to filings for other transactions, disclosures may have been included from other filings or retained from prior filings without necessarily considering their applicability or continued applicability with respect to the transaction in question. The cumulative effect of these practices is to diminish in some cases the usefulness of the disclosure documents through the accumulation of unnecessary detail, duplicative or uninformative disclosure and legalistic recitations of transaction terms that obscures material information. Efforts to revise disclosure documents in response to our “plain English” initiative have certainly helped by demonstrating that even the most complex structures can be described clearly and accurately without resorting to overly legalistic presentations.²⁰⁰

Therefore, in connection with our codification of a universal set of disclosure items, we continue to seek a reevaluation by transaction participants of the manner and content of presented disclosure, including the elimination of unnecessary boilerplate legal recitations of immaterial terms. Transaction participants should view this rulemaking initiative and the pre-compliance period for the new rules as an opportunity to evaluate whether there is information that has been included in registration statements and prospectuses that is not required, not material and not useful to investors, and therefore should be reduced or omitted. Transaction participants should similarly consider whether disclosure should be revised so that its relevance to the transaction in question is more apparent and is presented in a manner that is more focused on providing clear and understandable disclosure for investors. Transaction participants also should continue to be mindful of the plain English disclosure principles to avoid legalistic or overly complex presentations and recitations that make the substance of the disclosure difficult to understand. Transaction participants should continue to focus on the use of tabular presentations, flow charts and other design elements that aid understanding and analysis, and we have included, as proposed, several reminders and suggestions of these principles in various Items of Regulation AB where they may be particularly appropriate.

In addition to the manner and presentation of disclosures, we also stated in the Proposing Release and remain concerned that existing disclosure standards have not adequately captured certain categories of information in respect of an asset-backed securities transaction, such as the background, experience, performance and roles of various transaction parties, including the sponsor, the servicer and the trustee, that may be material and should be disclosed when they are material. While asset-backed securities are designed not to be direct obligations of these entities, it seems apparent from recent market events that their roles often can be as important to the performance of an ABS transaction as the transaction structure or its governing documents.²⁰¹ As a result, we proposed specific disclosure line items relating to these entities designed to elicit additional information in these areas to the extent material. While we received comment on the particularities of these disclosure items, we received overall support for increasing disclosure in this area beyond current market practice.²⁰² Accordingly, we have adopted these new disclosure items, with revisions in response to comment, discussed in more detail below.

We also note that several commenters speaking for investors expressed concerns that certain information is provided to rating agencies but is not otherwise disclosed or shared with investors, even upon request.²⁰³ This practice, to the extent it exists, controverts in part issuer comments that such information is not available or that disclosure would be costly. If an issuer concludes that it need not disclose information in response to a particular disclosure line item because the issuer determines that the information is not material, but agrees to provide the information to credit rating agencies, the issuer should consider its determination regarding materiality in the context of the decision to provide the information to rating agencies.

Finally, consistent with current practice and our proposal, we are not requiring audited financial statements for the issuing entity in either Securities Act or Exchange Act filings. Commenters overall agreed that audited financial statements prepared in accordance with generally accepted accounting principles would not provide material information to investors.²⁰⁴ Often a new issuing entity is created for each transaction, so prior financial information about that entity would likely be of little use. On an ongoing basis, while an annual audit could provide benefits in providing some assurance with respect to controls over the administration of the transaction and the pool assets, we believe our amendments to require registered public accounting firm attestation reports as to assessments of compliance with particular servicing criteria, discussed in Section III.D.7., are a more direct and targeted approach to achieve such objectives. Similarly, we believe that one of the other objectives for financial statements—to present results of financial activity during a period—can be addressed more particularly by our disclosure requirements regarding distributions on the asset-backed securities.

2. Forepart of Registration Statement and Prospectus

Existing Items 501-503 of Regulation S-K will still provide the basic disclosure requirements for the forepart of Securities Act registration statements and registration statement prospectuses, which cover items such as the cover page of the prospectus, the prospectus summary and risk factors. As proposed, new Items 1102 and 1103 of Regulation AB amplify those requirements by providing guidance on preparing those sections for ABS offerings consistent with current practice. In particular, they clarify information that is to appear on the cover page of the prospectus, as well as inform the type and manner of presentation for ABS-specific disclosure items for the prospectus summary.

As with prospectuses for all registered offerings, disclosure on the cover page is to be limited and brief. For example, credit enhancement disclosure for the cover page should consist of only brief identifying statements, such as bond insurance provided by the particular named insurer. We proposed that certain class-specific information appear on the cover page. However, some commenters noted that in some transactions, given the number of classes in the offering, it is difficult and sometimes impractical to provide such class-specific information on the cover page.²⁰⁵ As suggested by these commenters, we are clarifying that if the information regarding multiple classes cannot appear on the cover page due to space limitations, the information is to be included in the summary or in an immediately preceding separate table.

Consistent with common ABS-specific items such as a summary of the flow of funds and credit enhancement, disclosure specified for the summary includes disclosure of the classes offered by the prospectus and classes issued in the same transaction or residual or equity interests in the transaction not being offered by the prospectus.²⁰⁶ Also required is a summary of any prefunding or revolving periods, such as the length and amount of such periods and the requirements for assets that may be added.²⁰⁷ A summary of the amount or formula for calculating the servicing fee, including the source of payment of those fees and their distribution priority, also is separately required for the prospectus summary.

As proposed, we are not providing a representative list of risk factors that may be common to many ABS transactions. The comment we received on this point supported this decision.²⁰⁸ We remain concerned that any such list would result in boilerplate and generic disclosures in all prospectuses even if not applicable to the particular transaction. Registrants should take care in analyzing the most significant factors that make the ABS offering speculative and risky, and explain briefly yet particularly how those risks affect investors. We are clarifying, as proposed, that in identifying risk factors, registrants are to identify any risks that may be different for investors in any offered class of asset-backed securities (such as subordinated classes or principal-weighted or interest-weighted classes), and if so, identify such classes and describe such differences.

3. Transaction Parties

a. Sponsor

We are adopting our proposed definition of “sponsor” as the person who organizes and initiates an asset-backed securities transaction by selling or transferring assets, either directly or indirectly, including through an affiliate, to the issuing entity. While some commenters supported the definition for purposes of disclosure,²⁰⁹ others expressed various concerns about the definition, particularly given that the proposed definition also was to be used in our proposed Form S-3 filing eligibility condition relating to Exchange Act reporting compliance.²¹⁰ As discussed in Section III.A.3.c., we are adopting a revised formulation of the reporting compliance condition that is no longer linked to the sponsor definition.

In addition, commenters who questioned the proposed sponsor definition appeared to construe the proposed definition beyond its plain language. In particular, the commenters questioned application of the definition to so-called aggregator or consolidator transactions where the sponsor acquires loans from many other unaffiliated sellers before securitization by the sponsor. We do not believe in these typical situations that each of the underlying sellers, who did not take part in the organization or initiation of the securitization transaction, would meet the plain language of the definition of “sponsor.” We do recognize that the facts and circumstances of the particular transaction may result in a sponsor that is unaffiliated with the depositor (e.g., a “rent-a-shelf” transaction) or that there may even be more than one unaffiliated sponsor. We also believe that where pool assets are transferred through one or more affiliates of the sponsor before transfer to the depositor and the issuing entity, it will be clear in nearly all instances as to which party was in the position of organizing and initiating the securitization transaction and thus is the sponsor.

We also are adopting, with minor revisions in response to comment, our proposed disclosure item for the sponsor.²¹¹ Commenters representing investors particularly supported the disclosure discussed in the Proposing Release.²¹² In addition to basic identifying information about the sponsor, a description of the sponsor’s securitization program will be required. The purpose of the description is to provide context within which to analyze the asset-backed securities and the characteristics and quality of the asset pool. Such a description is to consist, to the extent material, of both a general discussion of the sponsor’s experience in securitizing assets of any type, as well as a more detailed discussion of the sponsor’s experience in and overall procedures for originating or acquiring and securitizing assets of the type to be included in the current transaction. Information is to be included, to the extent material, regarding the size, composition and growth of the sponsor’s portfolio of assets of the type to be securitized, as well as information or factors related to the sponsor that may be materially relevant to an analysis of the origination or performance of the pool assets, such as whether any prior securitizations organized by the sponsor have defaulted or experienced an early amortization or other performance triggering event. Another example would be any action taken outside the ordinary performance of a transaction to prevent such an occurrence.

As we stated in the Proposing Release, other relevant information for the description, to the extent material, would include the sponsor’s credit-granting or underwriting criteria for the asset types being securitized (and the extent to which they have changed), the extent to which the sponsor outsources to third parties any of its origination or purchasing functions and the extent to which the sponsor relies on securitization as a material funding source. A description of the sponsor’s material roles and responsibilities in its securitization program and the sponsor’s participation in structuring the transaction also is required, including whether the sponsor or an affiliate is responsible for the selection of the pool assets.

b. Depositor

We are adopting our proposed definition of “depositor” as the person who receives or purchases and transfers or sells the pool assets to the issuing entity. For asset-backed securities transactions where there is not an intermediate transfer of assets from the sponsor to the issuing entity, the sponsor is the depositor.²¹³

Consistent with our proposal, if the depositor was not the same entity as the sponsor, separate identifying information about the depositor will be required, including information on the ownership structure of the depositor and the general character of any activities of the depositor other than securitizing assets.²¹⁴ In addition, if material and materially different from the sponsor, information similar to that discussed above regarding the depositor’s securitization program and its experience would be required. Finally, disclosure will be required regarding any continuing duties of the depositor after issuance of the asset-backed securities with respect to the asset-backed securities or the pool assets.

c. Issuing Entity and Transfer of Asset Pool

As we explained in the Proposing Release, the nature of the issuing entity and the transfer of the pool assets is elemental to the concept of securitization. We are adopting our proposed definition of “issuing entity” as the trust or other entity created at the direction of the sponsor or depositor that owns or holds the pool assets and in whose name the asset-backed securities supported or serviced by the pool assets are issued.

Consistent with our proposal, disclosure will be required regarding both the nature of the issuing entity and the sale or transfer of the pool assets.²¹⁵ Information about the issuing entity itself will include a description of its permissible activities, restrictions on activities and capitalization. If the issuing entity has its own executive officers, board of directors or persons performing similar functions, disclosure required by Items 401, 402, 403 and 404 of Regulation S-K will be required.

The governing documents of the issuing entity will need to be filed as an exhibit.²¹⁶ This is consistent with the requirement in Item 601 of Regulation S-K of filing all governing documents and material agreements for the offering, which for ABS includes, among other things and as applicable depending on the transaction’s structure, the pooling and servicing agreement, the indenture and related documents. The management or administration agreement for the issuing entity also must be filed in addition to describing its material terms in the prospectus.²¹⁷

In addition to a material narrative description of the sale or transfer of the pool assets, such information also should be provided graphically or in a flow chart if it will aid understanding. The discussion also must describe the creation (and perfection and priority status) of any security interests for the benefit of the transaction. Disclosure also is required regarding any expenses incurred in connection with the selection and acquisition of the pool to be payable from offering proceeds.

Several commenters objected to our proposed disclosure requirement of the amount paid or to be paid for the pool assets, arguing that such information, particularly for pool assets that are not securities, is proprietary or in some instances not a meaningful concept.²¹⁸ We are limiting disclosure to instances when the pool assets are securities, as defined under the Securities Act, and requiring disclosure of the market price of the securities and the basis on which the market price was determined. We continue to support disclosure of such information in those securitizations, such as corporate debt securitizations or ABS repackagings.

We also are adopting our proposed requirements for disclosure, to the extent material, regarding any provisions or arrangements included to address any one or more of the following issues:²¹⁹

• Whether any security interests granted in connection with the transaction are perfected, maintained and enforced;
   

• Whether a declaration of bankruptcy, receivership or similar proceeding with respect to the issuing entity can occur;
   

• Whether in the event of a bankruptcy, receivership or similar proceeding with respect to the sponsor, originator, depositor or other seller of the pool assets, the issuing entity’s assets will become part of the bankruptcy estate or subject to the bankruptcy control of a third party; and
   

• Whether in the event of a bankruptcy, receivership or similar proceeding with respect to the issuing entity, the issuing entity’s assets will become subject to the bankruptcy control of a third party.

We continue to believe such disclosure, where material, is appropriate to provide transparency to investors regarding the legal and structural complexities of ABS transactions. In addition, any material risks related to the above must be discussed in the risk factors section of the prospectus. Consistent with current practice and our proposal, we are not mandating the filing of any report or opinion of an expert or counsel regarding any of the above items, although registrants may elect to file such items voluntarily, subject to any applicable consent requirements.²²⁰

d. Servicers

As we explained in the Proposing Release, the role of the servicer is often not limited to administration and collection of the pool assets. The servicer often also is the primary party responsible for calculating the flow of funds for the transaction, preparing distribution reports and disbursing funds to the trustee who in turn uses the allocations provided by the servicer to distribute funds to security holders. We also recognize that in many transactions, multiple entities are used to perform different servicing functions. For example, while the particular division of responsibilities may vary by transaction or asset class, an ABS transaction may involve one or more entities, sometimes called “master servicers,” that oversee the actions of other servicers and may perform the allocation and distribution functions. Different servicers, sometimes called “primary servicers,” may be responsible for primary contact with obligors and collection efforts. In addition, one or more other servicers, sometimes called “special servicers,” may exist for specific servicing functions, such as borrower work-out or foreclosure functions. The allocation and distribution functions may be with a separate entity, sometimes called an “administrator.” While some servicers may be affiliated with the sponsor, other non-affiliated sub-servicers may be employed.

We are adopting as proposed a unified definition of “servicer” to mean any person responsible for the management or collection of the pool assets or making allocations or distributions to holders of the asset-backed securities. As we stated in the Proposing Release, our definition of “servicer” is designed to capture the entire spectrum of activity to include both collection and asset maintenance activities as well as cash flow allocation and distribution functions for the ABS. This includes parties often referred to as “administrators.” However, given that some of these functions may be performed by the trustee in certain transactions, the definition clarifies that the term “servicer” does not include a trustee for the issuing entity or the asset-backed securities that makes allocations or distributions to holders of the asset-backed securities, if the trustee receives such allocations or distributions from a servicer and the trustee does not otherwise perform the functions of a servicer.

We are not persuaded by some commenter suggestions that we should create separate definitions for different aspects of the servicing function.²²¹ These commenters suggested various additional definitions, including master servicer, administrator, primary servicer, special servicer, affiliated servicer and unaffiliated servicer. Similar to our concerns about creating asset-specific disclosure guides, there is not a uniform differentiation of servicing functions consistent across all asset classes or even within the same asset class. Nor do we think it is appropriate to establish rigid definitions that may not encompass future changes to market practice involving servicing. Our definition of servicer is a principles-based definition for any entity that performs any one or more of the servicing functions.

Some of these commenters were concerned that applying the servicer disclosure item to an entity that performs only a limited aspect of the servicing function would compel inapplicable or immaterial disclosure. As stated above, this does not reflect an accurate understanding of how Commission disclosure items are to be applied. We have made several additional modifications to the servicer disclosure item to make clear that disclosure is required based on materiality.²²² If an entity’s role is limited to one or more of the servicing or administrative functions such that an aspect of the disclosure item is not applicable or material, it is not required. For example, if a trustee also calculated the flow of funds for the transaction, information about the size, composition and growth of its serviced asset portfolio may not be material. However, even if a party performs only one function, if that function is material, such as calculation of the flow of funds for the transaction, material disclosure with respect to that function would of course be required.

Understanding the material aspects of the entire servicing function is important to understanding how servicing may impact expected performance. As proposed, the disclosure item requires information regarding the entire servicing function, including a clear introductory description of the roles, responsibilities and oversight requirements of the entire servicing process and the parties involved.²²³ This will include identifying, as applicable:

• Each master servicer;
   

• Each affiliated servicer;
   

• Each unaffiliated servicer (such as primary servicers) that services 10% or more of the pool assets; and
   

• Any other material servicer responsible for calculating or making distributions to holders of the asset-backed securities, performing work-outs or foreclosures, or other aspect of the servicing of the pool assets or the asset-backed securities upon which the performance of the pool assets or the asset-backed securities is materially dependent.

In addition, additional information, discussed further below, will be required about each servicer identified in the first, second and fourth bullets above, as well as each unaffiliated servicer identified in the third bullet above that services 20% or more of the pool assets.

We are not limiting disclosure, as suggested by some commenters, only to those in actual contractual privity with the issuing entity.²²⁴ We received support for disclosure of underlying servicers and all entities with a role in the servicing function that may materially impact performance of the pool assets and thus the asset-backed securities.²²⁵ As proposed, disclosure will be required for such entities, to the extent material. In addition, we are maintaining our proposed approach of requiring disclosure regarding all affiliated servicers.

We have revised our percentage breakpoints for determining servicer disclosure for unaffiliated servicers, such as primary servicers, that service individual pool assets. While not all commenters agreed, several commenters believed the 10% threshold we originally proposed was too low.²²⁶ To lessen potential disclosure burdens, many of these commenters suggested, alternatively, limited disclosure for unaffiliated servicers that service at least 10% of the pool assets, but less than some higher threshold, such as 20%.²²⁷ As noted above, the final disclosure item will require identification of each unaffiliated servicer that services 10% or more of the pool assets. The more detailed disclosure discussed below will only be required for such servicers that service 20% or more of the pool assets. As noted in the Proposing Release, we believe 10% and 20% breakpoints provide consistency and clarity in determining a triggering event for disclosure, and are consistent with many other longstanding standards used for our existing disclosure requirements.²²⁸

As to those servicers where more detailed information is required, we explained in the Proposing Release that given the increasing realization of the importance of the role of the servicer in ABS transactions, the disclosure item is designed to elicit additional material information regarding the servicer’s function, experience and servicing practices.²²⁹ Commenters were mixed over our proposed disclosure requirements for these servicers. Commenters representing investors in particular supported additional disclosure regarding servicers,²³⁰ while those representing primarily issuers and their representatives suggested reductions for disclosure that is not typically provided today.²³¹ In most instances, the objections from this latter group of commenters centered around concerns that aspects of the disclosure item may not be material in all instances. As we specified above, we are making additional revisions to the disclosure item to clarify that disclosure is required based upon materiality. We also are making a few other minor changes to individual aspects of the disclosure item in response to comment, discussed in further detail below.

The information to be provided, to the extent material, can be categorized into three general categories: basic information and experience; the agreement with the servicer and servicing practices; and back-up servicing. Basic information and experience regarding the servicer includes disclosing how long it has been servicing assets. As with the sponsor, the servicer disclosure is to include, to the extent material, both a general discussion of the servicer’s experience in servicing assets of any type, as well as a more detailed discussion of the servicer’s experience in, and procedures for, servicing assets of the type included in the current transaction.

We also are retaining disclosure of any material changes to the servicer’s policies or procedures in servicing assets of the same type during the past three years in order to demonstrate recent trends involving the servicer. Some commenters expressed concern that the disclosure required about servicing policies and procedures and their changes could result in excessive disclosure or inappropriate disclosure of competitively sensitive information.²³² The description contemplated is limited to that which a reasonable investor would find material in considering an investment in the asset-backed securities and the servicing and administration of the pool assets and the ABS, as the case may be. Further, we believe this will not encompass inappropriate disclosure of information that would cause competitive harm.

Other information specified in the disclosure item includes, to the extent material, information regarding the size, composition and growth of the servicer’s portfolio of serviced assets of the type to be securitized and information on factors related to the servicer that may be material to an analysis of the servicing of the assets or the asset-backed securities, as applicable. Other information that may be material could include whether any prior securitizations of the same asset type involving the servicer have defaulted or experienced an early amortization or other performance triggering event because of servicing, the extent of outsourcing the servicer utilizes or if there has been previous disclosure of material noncompliance with servicing criteria with respect to other securitizations involving the servicer.

As proposed, information regarding the servicer’s financial condition will continue to be required in some situations. In response to comments, we have revised this requirement to clarify information regarding the servicer’s financial condition may be required to the extent that there is a material risk that the effect on one or more aspects of servicing resulting from such financial condition could have a material impact on pool performance or performance of the asset-backed securities. As we stated in the Proposing Release, general financial information is not required. We are seeking particular information when there is a material risk the financial condition could have a material impact as described.

Regarding the second category of disclosure, the material terms of the servicing agreement will need to be described, as well as the servicer’s duties regarding the asset-backed securities transaction. As proposed, the servicing agreement will be required to be filed as an exhibit.²³³ A description of the servicer’s servicing practices also will be required to the extent material and applicable to the servicer’s role in the transaction. The disclosure item identifies the following types of information:²³⁴

• The manner in which collections on the assets will be maintained, including the extent of commingling of funds.
   

• Terms or arrangements regarding advances of funds regarding cash flows, including interest or other fees charged and terms of recovery. As proposed, statistical information regarding past advance activity will be required, if material.
   

• The servicer’s process for handling delinquencies and losses.
   

• Any material ability to waive or modify any terms, fees, penalties or payments on the assets.
   

• Custodial requirements regarding the assets.

As the ABS market has matured, another aspect of such transactions that has increased in importance is the role of servicer transition arrangements, or back-up servicing.²³⁵ An efficient transition from one servicer to another can be essential to prevent portfolio deterioration and possible losses. However, depending on the nature of the assets and the availability of alternative servicers, the process of transferring servicing can be complex. In particular, if the existing servicing fee in a transaction is insufficient to attract a replacement servicer, delays may occur that could affect portfolio performance, and any additional fees required by a replacement servicer could affect cash flows that otherwise would be available to security holders.

As a result, the scrutiny of back-up servicing arrangements has increased, including the level of arrangements with a particular back-up servicer, often referred to in market practice as how “warm” the back-up servicer is. We are adopting our proposed disclosure requirements regarding any terms regarding a servicer’s removal, replacement, resignation or transfer, including arrangements regarding, and any qualifications required for, a successor servicer. Material information on the process for transferring servicing will need to be described, as well as any provisions for the payment of expenses associated with a servicing transfer or any additional fees that may be charged by a successor servicer.²³⁶

e. Trustees

An ABS transaction may involve one or more trustees. For example, there may be a separate trustee for the issuing entity and for the ABS indenture. Commenters overall supported the proposed disclosure item regarding trustees.²³⁷ We did not propose a separate definition of trustee, and, based on the comments received, we do not believe it is necessary to provide one.

As proposed, in addition to basic identifying information about any trustee, disclosure will be required regarding the trustee’s prior experience in similar ABS transactions (if applicable), indemnification provisions, limitations on liability and removal or replacement provisions.²³⁸ In addition, as we explained in the Proposing Release, there has been debate in the market on the nature and role of the trustee in ABS transactions, in particular the trustee’s level of oversight regarding the transaction.²³⁹ To help provide transparency to this topic, we are adopting our proposal for explicit disclosure of the trustee’s duties and responsibilities regarding the asset-backed securities under the governing documents and under applicable law. In providing this information, the description should address material factors, as applicable, such as the extent to which the trustee independently verifies distribution calculations, access to and activity in transaction accounts, compliance with transaction covenants, use of credit enhancement, the addition, substitution or removal of pool assets, and the underlying data used for such determinations.

In addition, the trustee disclosure item requires disclosure of any actions required by the trustee, including whether notice is required to investors, rating agencies or other third parties, upon an event of default, potential event of default (and how defined) or other breach of a transaction covenant. The required percentage of a class or classes of asset-backed securities needed to require the trustee to take action also must be described.

Finally, in response to comment regarding transactions with multiple trustees,²⁴⁰ we are adding a clarifying instruction to the disclosure item that if multiple trustees are involved in the transaction, a description should be provided of the roles and responsibilities of each trustee.

f. Originators

Some ABS transactions involve pool assets that were not originated by the sponsor. The sponsor may have acquired the pool assets from a separate originator or through one or more intermediaries in the secondary market before securitizing them. If the pool assets from a single originator or group of affiliated originators reach a certain concentration threshold, information regarding that originator and its own origination program may become relevant.

We are adopting our proposed disclosure item for originators, but with revised percentage breakpoints for when disclosure is required.²⁴¹ The breakpoints we are adopting are similar to those being adopted for servicers. Like our proposed 10% threshold for servicers, some commenters believed the more detailed disclosure we proposed for originators should only be provided for originators that meet a higher percentage threshold, although again not all commenters agreed.²⁴²

Under the final disclosure item, each originator, apart from the sponsor or its affiliates, that has originated, or is expected to originate, 10% or more of the pool assets must be identified. In addition, for any originator where the percentage is 20% or more, additional information regarding the originator’s origination program must be provided, including, if material, information regarding the size and composition of the originator’s origination portfolio, as well as information material to an analysis of the performance of the pool assets, such as the originator’s credit-granting or underwriting criteria. As with trustees, we do not believe it is necessary to provide a separate definition for originators.

g. Other Transaction Parties and Scope of Disclosure

As we explained in the Proposing Release, ABS transactions may involve additional or intermediate parties other than the typical ones identified above, such as intermediate transferors. As proposed, we are clarifying in the general applicability section of Regulation AB that if the ABS transaction involves such a party, information is required to the extent material regarding that party and its role, function and experience in relation to the asset-backed securities and the asset pool.²⁴³ The material terms of any agreement with such party will need to be described, and the agreement with that party will need to be filed as an exhibit.

In addition, as noted in Section III.A.2.c., some ABS transactions are structured such that the asset pool consists of one or more financial assets that represent an interest in or the right to the payments or cash flows of another asset pool, such as in the case of a credit card issuance trust and an origination trust in a motor vehicle lease transaction. In many cases, such structures are established under the direction of the same sponsor or depositor and are designed solely to facilitate the ABS transaction. The actual source of the cash flows that are to be used to service the asset-backed securities is the asset pool underlying the intermediate financial asset. Consistent with current practice, we are clarifying as proposed that, in such an instance, references to the asset pool and the pool assets of the issuing entity also include the other asset pool.²⁴⁴ As such, required disclosure regarding the composition of the asset pool, including servicers and significant originators and obligors, will include disclosure of the composition of the underlying asset pool, to the extent material. In addition, the requirements regarding assessments of compliance with servicing criteria and servicer compliance statements, discussed in Section III.D., encompass the assets underlying the intermediate financial asset.

4. Static Pool Information

In the Proposing Release, we noted the development of static pool information as an increasingly valuable tool in analyzing performance.²⁴⁵ Such information indicates how the performance of groups, or static pools, of assets, such as those originated at different intervals, are performing over time. By presenting comparisons between originations at similar points in the assets’ lives, such data allow the detection of patterns that may not be evident from overall portfolio numbers and thus may reveal a more informative picture of material elements of portfolio performance and risk. We had previously received requests that disclosure of such data should be required because investors view static pool data regarding delinquency and loss experience as important information in evaluating an investment in asset-backed securities.²⁴⁶

We proposed to require disclosure of static pool data if material to the transaction. In particular, we proposed to require static pool data with respect to the delinquency and loss experience of the sponsor’s overall portfolio for the past three years, or such shorter period that the sponsor had been making originations or purchases, and that such data be presented in increments (e.g., monthly or quarterly) material to the asset type being securitized. In addition to the sponsor’s overall portfolio, static pool data also was proposed to be required, if material, on a pool level basis with respect to prior securitized pools involving the same asset type established by the sponsor during the period. We separately proposed requiring static pool data for the offered asset pool itself, to the extent material, such as in the case of securitizations involving seasoned assets.

Our proposals relating to static pool information generated considerable comment. Investors uniformly supported the proposals, emphasizing the importance of the information to them in making informed investment decisions.²⁴⁷ Commenters representing issuers and their representatives generally expressed reticence about, and in some cases even opposition to, the proposed requirement, primarily because static pool data is not typically provided to investors today.²⁴⁸ While this was in fact one of the primary reasons for our proposal, issuers nevertheless expressed concern about the lack of existing market practice for gauging materiality of the data.

Some of these commenters argued that because static pool data is not provided today, issuers have determined that such data is not and never would be material. However, as set out in the leading cases on the subject, TSC Industries, Inc. v. Northway, Inc.²⁴⁹ and Basic, Inc. v. Levinson,²⁵⁰ materiality is judged from the standpoint of a reasonable investor and whether there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision.²⁵¹ The argument by commenters against the materiality of the data is to some extent belied by the universal and sustained comment we have received from investors that they would find the information very important in making their investment decisions.

A new line item disclosure requirement represents our judgment that an item is or has become material. It is not, in and of itself, a judgment about past disclosure practices or requirements.²⁵² This is particularly true in the ABS context, where there have not previously been explicit Commission disclosure requirements. Disclosures for ABS offerings have developed informally over time through the staff review process. However, the basic disclosure framework was developed with the staff nearly two decades ago when the registered ABS market was in its relative infancy. The market has matured since that time, as has sophistication of investors in analyzing ABS. In addition, the growth of technology and the attendant ability to analyze more information means that information that may have not been considered material in the past may now have become material. The fact that we are now requiring static pool information as a disclosure item represents a judgment by us today that there are cases where the data is material and should be disclosed in such cases.

Some commenters, instead of arguing that static pool data would never be material, argued alternatively that the lack of additional guidance from the Commission regarding the scope of the proposed requirement could lead issuers to conclude that static pool information is required in all cases, which could, among other things, lead to unnecessary, excessive and expensive disclosure without corresponding benefits to investors. We stressed in the Proposing Release that in all instances disclosure was conditioned on what would be material for the particular asset class, sponsor and asset pool involved, and that disclosure for groups or factors that would not be material was not required. We recognize that under both our proposal and our final rules, there may be transactions where static pool information is not material. At the same time, and similar to many other disclosure requirements under the Federal securities laws, materiality determinations are necessary to determine appropriate levels of disclosure. Finally, we do not believe it is appropriate to exclude particular asset classes or transactions from the requirement in their entirety in lieu of requiring issuers and other offering participants to make materiality determinations.

Other commenters not taking blanket positions against the inclusion of static pool data instead requested more specific guidance as to the scope of the requirement, as well as additional flexibility in presenting the information that would be provided in response to the requirement. After careful consideration of all comments, we continue to believe that a requirement to provide static pool information based on the materiality of the information is appropriate to provide greater transparency to investors. As with our approach for Regulation AB overall, we do not believe it is practical or effective to prescribe specific disclosure by asset class. However, in response to comment, we are making several revisions to the proposal to provide more guidance on the scope of information contemplated by the requirement, as well as to provide alternative means to present the information. Both issuers and investors strongly support using electronic communications and Web site availability to present static pool information. We believe these changes should address many of the commenters’ concerns as to the potential breadth and burdens of the proposal.

a. Disclosure Required

Several commenters expressed concern over the breadth of the proposals to require data for several different data groups, including the sponsor’s overall portfolio, prior securitized pools and the asset pool itself.²⁵³ These commenters believed that without additional direction regarding the appropriate starting point and parameters of the disclosure, uncertainty may promote excessive or redundant disclosures for all data groups. While not all commenters agreed, most believed the starting point for disclosure should be information for a single data group, with that data group being dependent on the type of ABS transaction being offered.²⁵⁴ In particular, commenters suggested that the starting point could be different depending on whether the transaction involved an amortizing asset pool, such as residential mortgages, or a revolving asset master trust, such as a credit card master trust. For transactions involving amortizing asset pools, the starting point for disclosure also could be different depending on the sponsor’s “seasoning” (e.g., the amount of experience the sponsor has had securitizing assets of the same asset class). Using such starting points for disclosure also could promote comparability of information across issuers within particular asset types.

To provide further clarity in determining the material information to disclose, we are adopting this framework in the final rules.²⁵⁵ We provide separate starting points for disclosure depending on whether the ABS transaction involves an amortizing asset pool or a revolving asset master trust. For amortizing asset pools, we further specify suggested starting points based on the sponsor’s experience with securitizing assets of the type to be included in the offered asset pool.

In addition, while we proposed requiring material static pool information with respect to delinquency and loss experience, several commenters recommended expanding the requirement to also include prepayment experience, to the extent material for the particular asset class.²⁵⁶ Prepayments typically include both voluntary prepayments and liquidations after defaults or charge-offs. For some asset types, such as home equity loans, prepayments also could refer to the liquidation rate of a portfolio, where such rate is a combination of scheduled payments, prepayments and charge-offs.

Under our final rules, the scope of the static pool requirement will encompass, to the extent material, static pool information regarding delinquencies, cumulative losses and prepayments, as applicable for the respective asset type.²⁵⁷ As with prepayments, we also recognize that the particular metrics that would be material for delinquencies and cumulative losses may vary by asset class. For example, metrics for student loans, depending on the program, could include not only current period delinquency and cumulative net loss information, but also payment status information (e.g., forbearance and deferment percentages) and claims reject information. For leases, metrics could include credit losses and residual losses.

i. Amortizing Asset Pools

Several commenters believed that in the context of amortizing asset pools, static pool data for prior securitized pools would be a better starting point for disclosure over information about the sponsor’s overall portfolio, particularly as the sponsor’s experience in securitizing prior pools increases.²⁵⁸ These commenters argued that sponsor portfolio data by year, sometimes called “vintage data,” is less “static” than prior securitized pools because new loans are continually added to the portfolio over the course of that year’s vintage. In addition, the sponsor’s retained portfolio may include assets not eligible for securitization. As such, these commenters argued, static pool data for prior securitized pools would typically be more readily comparable to the current securitization transaction. However, to the extent the sponsor’s experience with prior securitized pools is limited, vintage data on the sponsor’s portfolio could be more appropriate as a starting point for static pool disclosure.

We are adopting this suggested approach for amortizing asset pools. Unless the registrant determines that such information is not material, the starting point for disclosure is static pool information, to the extent material, regarding delinquencies, cumulative losses and prepayments, if applicable, for prior securitized pools of the sponsor for that asset type. For unreasoned sponsors—sponsors lacking three years of securitization experience with the same asset type—consideration should be given to instead using as a starting point static pool information, to the extent material, regarding delinquencies, cumulative losses and prepayments, if applicable, by vintage origination years of originations or purchases by the sponsor, as applicable, for that asset type. A vintage origination year represents assets originated during the same year.

We proposed three years of static pool data (or such shorter period of time as the sponsor had been making originations or purchases). However, some commenters indicated that the amount of pool experience necessary for a meaningful evaluation of trends varies by asset type and three years may not be sufficient.²⁵⁹ Our final rules call for information, to the extent material, for a minimum of five years (or such shorter period the sponsor has been either securitizing assets of the same asset type (in the case of seasoned sponsors) or making originations or purchases of assets of the same type (in the case of unseasoned sponsors)).

Consistent with our proposal, delinquency, cumulative loss and prepayment data for each prior securitized pool or vintage origination year, as applicable, is to be presented in periodic increments (e.g., monthly or quarterly), to the extent material, over the life of the prior securitized pool or vintage origination year. We also are establishing a requirement regarding the age of the most recent periodic increment to ensure the currency of the data. Under the final rule, the most recent periodic increment for the data must be as of a date no later than 135 days of first use of the prospectus. For data based on quarterly increments, this allows 45 days from the end of the most recent quarter to include the data. The 135-day standard is consistent with our updating rules for interim financial information for non-ABS issuers that are not “accelerated filers.”²⁶⁰

Several commenters also believed that selected material characteristics for the prior securitized pools or vintage origination years should be provided along with the data to facilitate review and to assess comparability.²⁶¹ We are including in the requirement that summary information is to be provided for the original characteristics of the prior securitized pools or vintage origination years, as applicable and material. Commenters provided several examples of metrics that could be provided based on the relevant asset type. The final rule specifies that while the material summary characteristics may vary, these characteristics may include, among other things, the following: the number of pool assets; original pool balance; weighted average initial pool balance; weighted average interest or note rate; weighted average original term; weighted average remaining term, weighted average and minimum and maximum standardized credit scores or other applicable measure of obligor credit quality; product type; loan purpose; loan-to-value information; distribution of assets by loan or note rate; and geographic distribution information.

Based on the comment received, we are not adopting for amortizing asset pools our proposal to include a line-item disclosure requirement for static pool information for the offered pool itself. However, as we discuss more fully in Section III.B.4.a.iii., while we are not including a specific disclosure requirement for such information, we note there may be instances where failure to provide such information would make the data that is presented misleading.²⁶² For example, for a pool with a material concentration of seasoned assets, disclosure of static pool data about the pool itself may be necessary depending on whether such data would reveal a trend or pattern concerning one or more elements of pool performance and risk that is material and not evident from data relating to asset performance otherwise presented and such omission makes the information presented misleading.²⁶³

ii. Revolving Asset Master Trusts

We received comment that an alternative starting point would be more suitable for revolving asset master trusts, such as credit card master trusts.²⁶⁴ In particular, these commenters argued there could be even more concerns about the “static” nature of the pool due to changes in the master trust revolving asset pool over time and the relationship between the sponsor’s retained portfolio or other securitized pools previously established by the sponsor and the master trust asset pool. Instead, additional incremental performance information based on asset age for the master trust revolving asset pool itself was suggested as a more appropriate starting point. The additional disclosure, where material, would allow an investor to distinguish performance of newer accounts comprising the master trust asset pool from those of more seasoned accounts. Investors also suggested presenting static age-related data for payment rate, yield and standardized credit scores or other applicable measure of obligor credit quality in addition to delinquency and loss data, if applicable.²⁶⁵

For such transactions, we are clarifying that, unless the registrant determines that such information is not material, the starting point for disclosure is data, to the extent material, regarding delinquencies, cumulative losses, prepayments, payment rate, yield and standardized credit scores or other applicable measure of obligor credit quality, as applicable, in separate increments based on the date of origination of the pool assets. While the material increments for presenting the performance data may vary, we are suggesting, based on comment, that issuers consider presenting such data at a minimum in 12-month increments through the first five years of the account’s life (e.g., 0-12 months, 13-24 months, 25-36 months, 37-48 months, 49-60 months and 61 months or more). However, as noted above for amortizing asset pools, performance data for longer periods, in shorter increments or for different pool characteristics may be more appropriate depending on the asset class involved.

iii. Alternative Presentations or other Disclosure

We have attempted to identify above characteristics that may suggest to issuers the appropriate starting point for static pool disclosure. However, we recognize that materiality considerations may dictate that these starting points may not always be suitable to the particular sponsor, asset pool and transaction involved. For example, a sponsor may have three years of experience securitizing a particular asset type, but the sponsor’s experience may have been sporadic, there may have been a significant gap in the experience, or the sponsor’s origination or acquisition program may have materially changed to the point such that information about the sponsor’s vintage portfolio, as well as any explanatory disclosure, may be more appropriate in lieu of or in addition to prior pool information. Similarly, for takedowns involving a new revolving asset master trust, information about prior master trusts by the sponsor or information about the sponsor’s vintage portfolio, in addition to other explanatory disclosure, may also be appropriate in addition to or in lieu of age-related information about the offered master trust pool. Also, as we are expanding the ability to use master trusts to new asset classes, the same may be true for additional asset classes that may be securitized in the future. We noted above as well that in some instances static pool data about the pool itself may be more appropriate for amortizing asset pools.

To clarify this point, we are expressly providing in the final rule that if the information that would otherwise be required by the directed starting point is not material, but alternative static pool information (e.g., prior pools, portfolio vintage or asset pool) would provide material disclosure, such alternative information is to be provided instead. Further, as we stated in the Proposing Release, registrants may and are encouraged to provide other explanatory information, including disclosure explaining the absence of data.²⁶⁶

Several commenters also expressed concern as to application of the disclosure requirement in transactions, such as “rent-a-shelf”²⁶⁷ and aggregator transactions, where one or more entities transfer the pool assets to an unaffiliated depositor.²⁶⁸ In particular, these commenters argued that in some instances static pool information for one or more entities other than the sponsor may be more appropriate than information about the sponsor. In response, we are clarifying that static pool information regarding a party or parties other than the sponsor may be provided in addition to or in lieu of the contemplated information regarding the sponsor if appropriate to provide material disclosure.

We are not including in the final rule the proposed general instruction to present static pool data separately based on other pool variables. Although as with the rest of our proposal this instruction was conditioned on materiality, the majority of commenters objected to including the language, arguing that the potential breadth of the disclosure that would be required would be too burdensome for prospectus disclosure.²⁶⁹ Several of these commenters also believed the alternative approach we are adopting of requiring material summary characteristics for prior securitized pools or vintage origination years deemphasized the need for such data stratifications.

b. Method of Presentation

Many commenters, including those representing investors, requested flexibility in the presentation of required static pool information.²⁷⁰ In particular, such commenters universally argued for the ability to provide such information electronically through an Internet Web site. Even under the revised disclosure framework suggested by commenters that we are adopting, commenters believed the resulting disclosure could nevertheless involve a significant amount of statistical information for some issuers with features that would be difficult to file electronically on EDGAR as it exists today and difficult for investors to use in that format. Commenters noted that several issuers already provide performance data through their Web sites, although it may not be freely accessible by all investors. In addition, a Web site-based approach, these commenters argued, could provide greater dynamic functionality and utility both for the ability of issuers to present the information and the ability of investors to access and analyze the information, including interactive facilities for organizing and viewing the information. Moreover, given that much of the information for prior securitized pools or the sponsor’s portfolio would be similar from one transaction to the next, providing flexibility to allow the information to be presented in one place for multiple prospectuses would reduce the burdens of repeating the data for each prospectus. In addition, allowing a single place for presentation of the information would provide efficiencies for keeping the data updated and current for future transactions.

We wish to encourage efficient means of providing information to investors. Advances in technology, particularly the Internet, have greatly increased efficiencies in the ability to gather, process, present and analyze information of this type.²⁷¹ Both issuers and investors have expressed a preference for Web site disclosure of such information. Accordingly, we are providing issuers with alternatives for providing the required information for inclusion in the prospectus, as discussed below.

First, as is the case today, the issuer could physically include the information in the prospectus or, for ABS offerings on Form S-3, incorporate the information by reference from a filed Exchange Act report. Some commenters also suggested flexibility to provide the information in an electronic format together with the prospectus, such as a CD-ROM delivered with the prospectus. We have previously provided guidance on the use of such electronic media in providing prospectus disclosure.²⁷² This guidance continues to apply. However, as discussed below, we also are providing separate and specific guidance for providing the information through a Web site.

The second alternative for providing static pool information involves a temporary filing accommodation under our rules governing EDGAR filing that applies until December 31, 2009 and permits the posting of the information on an Internet Web site, subject to the following conditions.²⁷³ As discussed further below, if these conditions are met, the information will be deemed to be included in the prospectus and need not be physically repeated in the prospectus or in a Form 8-K report incorporated by reference into the prospectus and registration statement. It will therefore be subject to all liability provisions applicable to prospectuses and registration statements, including Section 11 of the Securities Act.²⁷⁴

First, the prospectus at effectiveness shall disclose the intention to provide the information through a Web site and the final prospectus shall provide the specific Internet address where the information is posted.²⁷⁵ This alerts investors to the location of the information. The specificity of the Internet address should be directly to the information that is to be deemed part of the prospectus.²⁷⁶ The Web site used for disclosure of the information need not be a Web site maintained by the issuer, although, as noted below, there are conditions for the retention and availability of the information and the information provided through the Web site will be deemed part of the prospectus included in the registration statement.

Second, the information shall be provided through the designated Web site unrestricted as to access and free of charge. As we have stated in our other releases regarding Web site posting,²⁷⁷ the medium to access the information must not be so burdensome that the intended users cannot effectively access the information provided. In addition, as the information provided through the Web site will be deemed a portion of the prospectus no different than if the information was physically included in the prospectus itself and available on EDGAR, we do not believe it would be appropriate to require prior user registration to access the Web site information.

Third, the information shall remain available on the Web site for a period of not less than five years. If a subsequent update or change is made to the information, the date of such update or change shall be clearly indicated on the Web site and the registrant shall undertake to provide to any person without charge, upon request, a copy of the information as of the date of the prospectus. In addition, the registrant shall retain all versions of the information posted through the Web site address for a period of not less than five years in a form that permits delivery to an investor or the Commission, and the registrant shall furnish to the Commission or its staff upon request a copy of any or all information retained pursuant to this requirement. The five-year period shall commence from the filing date of the prospectus, or the date of first use of the prospectus, whichever is earlier. These record retention provisions are consistent with record retention requirements for information retained by the issuer regarding Securities Act registration statements.²⁷⁸ The requirement to keep the information posted ensures that, no different than if the information was physically included in the prospectus, an investor has access to the information at all times during such period.

Fourth, the registration statement shall contain an undertaking that, except as discussed below regarding certain information relating to periods before the compliance date of the new disclosure requirement, the information provided through the specified Internet address is deemed to be a part of the prospectus included in the registration statement for the asset-backed securities.²⁷⁹ As the information will be deemed to be included in that prospectus no different than if the information was physically included in the prospectus, disclaimers of liability or responsibility for the information are not appropriate.²⁸⁰

The information that will be deemed to be part of the prospectus included in the registration statement as a result of the undertaking is limited to the information provided through the specified Web site address.²⁸¹ The reference to the specified Web site address would not mean, standing alone, that other information, including additional static pool information, available elsewhere on the Web site but not available through the Web site address would automatically be deemed to be a part of that prospectus.²⁸² As such, issuers electing the Web site disclosure option should ensure that the portion of the Web site used to disclose the information that is to be included as part of the prospectus does not contain references or hyperlinks to other portions of the Web site not to be included as part of the prospectus (for example, to the general corporate home page of the sponsor). However, for purposes of this requirement, we believe the Internet address to be disclosed in the prospectus would not necessarily be required to be to a separate address for each address that is a “cul-de-sac.” There may be circumstances where the reference could be to a general index or introduction page for static pool data for multiple offerings with links on that page clearly indicating the information to be provided for each prospectus.²⁸³ Unless the registrant or another offering participant otherwise acts to include the other static pool information as part of the prospectus included in the registration statement, the reference to the other information on the index or introduction page will not, by itself, make that information part of that prospectus or an offer for the respective asset-backed securities.²⁸⁴

While recognizing the desire to provide a potentially more cost-effective and useful method of providing static pool information through Web sites, nevertheless we continue to believe at some point for future transactions the information should also be submitted with the Commission in some fashion, provided this does not result in investors not receiving the information in the form they have requested. Accordingly, we are providing that the filing accommodation will apply with respect to filings filed on or before December 31, 2009. We are directing our staff to consult with the EDGAR contractor, EDGAR filing agents, issuers, investors and other market participants to consider how such information can be filed so it is also with the Commission in a cost-effective manner without undue burden or expense and without affecting the result we achieve today that realizes the overriding objective of allowing issuers to be able to provide the data in the form expressed as most desirable by commenters. We wish to assure market participants that any such filing mechanism to replace or supplement the temporary accommodation for filings after December 31, 2009 will not undercut these objectives. As a result, this could include, if necessary, extending the accommodation or, if it appears that an EDGAR solution would not be feasible in that timeframe, alternative methods of having the information submitted to the Commission.

Several commenters expressed concern over applying Securities Act liability standards²⁸⁵ to static pool information, arguing instead for application of only general antifraud liability.²⁸⁶ We note that investors expressed uniform support for the value of static pool information in making informed investment decisions.²⁸⁷ We believe it is appropriate for such information used as part of the offering process to be subject to Securities Act liability requirements for the accuracy and reliability of the information, regardless of the medium in which the information is presented. Similarly, just because the information also may be prepared and used for additional corporate purposes does not mean that it should be treated differently from other offering information when used in connection with the offering.

Some of these commenters, due to concerns about issuer responsibility for materiality judgments, also requested a liability safe harbor for the selection of static pool information similar to that provided for forward-looking information.²⁸⁸ However, many disclosure requirements under the Federal securities laws are based on a materiality standard without such a safe harbor.²⁸⁹ Further, unlike forward-looking information relating to subjective events that may occur in the future, static pool information is by definition historical performance information. We also are not persuaded that the lack of existing market practice for the disclosure of static pool information justifies excluding such disclosure from Securities Act liability requirements. We note from the comments received that issuers already are developing standards for static pool disclosure for various asset classes. We are, however, providing accommodations, discussed below, for data regarding certain historical transactions and periods before the compliance date of the disclosure requirement.

As discussed further in Section III.F., we are providing an extended transition period for compliance with the disclosure requirements in Regulation AB, including the static pool disclosure requirements. This extended period allows issuers time to implement policies, processes and procedures to adapt to the new disclosure requirements. For offerings covered by the new rules and forms, material static pool information will be required for the time periods identified above (e.g., previous five years). We believe this approach minimizes the amount of time before investors can begin to incorporate the information into their investment decisions. Of course, registrants voluntarily may comply with the new disclosure requirement before the compliance date, and we encourage them to do so if practicable.

However, we recognize that issuers may not have been collecting the necessary data for periods before the implementation date of the new rules. Even if they had been collecting the necessary information, the information may not have been collected under processes and controls with a view toward disclosure in a prospectus. Similarly, several commenters expressed concern regarding historical data before the implementation date of the rules that may not exist or cannot be provided without unreasonable effort or expense.²⁹⁰

Given that we are establishing a requirement for disclosure of material static pool information as well as an extended transition period to prepare for such disclosure, we believe many commenter concerns regarding availability and access to the data on a going forward basis will not be applicable. However, we are addressing commenter concerns in two ways to address the following static pool information:

• For static pool information regarding prior securitized pools of the sponsor that do not include the currently offered pool, information regarding prior securitized pools that were established before January 1, 2006; and
   

• For static pool information regarding the currently offered pool, information about the pool for periods before January 1, 2006.

First, we are providing in the Item that if any of such information is unknown and not available to the registrant without unreasonable effort or expense, such information may be omitted, provided the registrant provides the information on the subject it possesses or can acquire without unreasonable effort or expense, and the registrant includes a statement showing that unreasonable effort or expense would be involved in obtaining the omitted information.

Second, even for such information that is available or accessible without unreasonable effort of expense, given concerns about proper due diligence regarding such information, we are specifying that the pre-January 1, 2006 information identified above provided in response to the static pool information disclosure requirement will not be deemed to be a prospectus or part of a prospectus for the asset-backed securities, nor shall such information be deemed to be part of the registration statement for the asset-backed securities. Of course, such information will remain subject to the general antifraud provisions of the Securities Act and Exchange Act.²⁹¹ In addition, the prospectus must disclose that such information is not deemed to be part of that prospectus or the registration statement for the asset-backed securities in order to alert investors.

5. Pool Assets

Information about the composition and characteristics of the asset pool is a cornerstone of the disclosure necessary to make an informed investment decision regarding an asset-backed security. As noted above, we are not establishing detailed industry guides for each asset type to be securitized. However, while the material characteristics will vary depending on the nature of the pool assets, we continue to believe, as proposed, that there are certain broad categories of disclosure and examples of common characteristics that can be identified. Of course, the actual disclosure to be provided must be tailored to the asset type and asset pool involved for the particular offering and resulting determinations as to the materiality of information.

a. Pool Composition

As proposed, certain general information regarding the asset pool will be required, including a brief description of the asset type to be securitized and a general description of the material terms of the pool assets.²⁹² In addition, the solicitation, credit-granting or underwriting criteria used to originate or purchase the pool assets must be described. The selection criteria for the asset pool also must be described, as well as the cut-off date or similar date for establishing pool composition. Finally, the effects of any legal or regulatory provisions are to be described, such as any bankruptcy, consumer protection, predatory lending, privacy, property rights or foreclosure laws or regulations, to the extent they may materially affect pool asset performance or payments or expected payments on the asset-backed securities.²⁹³

As information about the asset pool necessarily includes statistical information, the need for clear presentations emphasizing material information is important. Appropriate introductory and explanatory information is to be provided to introduce characteristics, the methodology used in determining or calculating the characteristics and any terms or abbreviations used. For example, this would include explaining the definitions and methodologies for various categories provided (e.g., documentation guidelines for each loan documentation type), the components and method of calculating variables (e.g., loan-to-value or debt-to-income ratios) and the date used for determining statistical data (e.g., if not the cut-off date), as applicable. As is the case today, statistical information is to be presented in tabular or graphical format, if it will aid understanding. Statistical information also is to be presented in appropriate distributional groups or incremental ranges material to an analysis of the information, in addition to presenting appropriate overall pool totals, averages and weighted averages.²⁹⁴

Currently, statistical disclosures by distribution groups or ranges often present just the number, amount and percentage of pool assets for each group or range. If material, statistical information for each group or range also should be presented by other material variables, such as, average balance, weighted average coupon, average age and remaining term, average loan-to-value or similar ratio, and weighted average standardized credit score or other applicable measure of obligor credit quality. Similarly, when presenting averages on an aggregate basis and within each group or range, registrants should consider providing minimums and maximums underlying the averages. As is often the case today, historical data presented regarding pool assets is to be provided, as appropriate, such as the lesser of three years or the time such assets have existed, to allow a material evaluation of the pool data.

As discussed above, we have made several technical and clarifying revisions in response to comment to the proposed list of pool characteristics. While again recognizing that the characteristics that are material will vary depending on the nature of the pool assets, examples of illustrative characteristics in the disclosure item include:

• Number of each type of pool assets.
   

• Asset size, such as original balance and outstanding balance as of a designated cut-off date.
   

• Interest rate or rate of return, including type of interest rate if the pool includes different types, such as fixed and floating rates.
   

• Capitalized or uncapitalized accrued interest.
   

• Age, maturity, remaining term, average life (based on different prepayment assumptions), current payment/prepayment speeds and pool factors, as applicable.
   

• Servicer distribution, if different servicers service different pool assets.
   

• If a loan or similar receivable: amortization period; loan purpose; loan status; loan-to-value (LTV) ratios and debt service coverage ratios (DSCR); and type and/or use of underlying property, product or collateral.
   

• If a receivable or other financial asset that arises under a revolving account, such as a credit card receivable: monthly payment rate; maximum credit lines; average account balance; yield percentages; type of asset; finance charges, fees and other income earned; balance reductions granted for refunds, returns, fraudulent charges or other reasons; and percentage of full-balance and minimum payments made.
   

• Whether the pool asset is secured or unsecured, and if secured, the type(s) of collateral.
   

• Billing and payment procedures, including frequency of payment, payment options, fees, charges and origination or payment incentives.
   

• Information about the origination channel and origination process for the pool assets, such as originator information (and how acquired) and level of origination documentation required, as applicable.

In addition to the above, we are retaining a reference in the disclosure list to standardized credit scores of obligors and other information regarding obligor credit quality. While disclosure of standardized credit scores is typical today for several consumer asset classes, commenters representing issuers from other consumer asset classes that do not typically disclose such information, although generally agreeing that material information surrounding the credit underwriting process and data used to determine suitability and extension of credit should be disclosed, nevertheless expressed reticence to the proposed reference to standardized credit scores.²⁹⁵ However, comment from investors uniformly emphasized the importance of such data as an indicator of potential performance, similar to other variables such as loan-to-value and geographic origination, even though the data may not have been, like these other variables, the primary basis for the initial credit decision.²⁹⁶ Accordingly, we are retaining the reference to standardized credit scores.²⁹⁷

Our proposed disclosure item also included disclosure about the geographic distribution of the pool assets, such as by state or other material geographic region. This aspect of the proposal caused some confusion among commenters as to the extent of disclosure that would be required.²⁹⁸ We are clarifying this aspect of the disclosure item.²⁹⁹ We are retaining a requirement for disclosure regarding the geographic distribution of the pool assets.³⁰⁰ In addition, we are retaining the aspect of the proposal, which is typical for transactions today, that if 10% or more of the pool assets are or will be located in any one state or other geographic region, information is to be provided regarding any economic or other factors specific to such state or region that may materially impact the pool assets or pool asset cash flows. To avoid confusion, we are not adopting the other part of our proposed disclosure item that suggested separate statistical data should be provided for each 10% geographic concentration according to the factors or variables listed above for the entire asset pool. However, if additional material information about the geographic concentration would be necessary to make the disclosure otherwise provided not misleading, such disclosure would be required.³⁰¹ In addition to geographic concentrations, the disclosure requirement also references other concentrations material to the asset type (e.g., school type for student loans), with information regarding such concentrations similar to that provided for geographic concentrations.

Consistent with existing practice, delinquency and loss information for the pool also will be required. As proposed, an item of general applicability for Regulation AB will provide guidance regarding the presentation of such information.³⁰² We received comment on the proposed minimum distributional groupings, or “buckets,” that are to be used in presenting delinquency information in addition to overall delinquency percentages.³⁰³ We are clarifying that, at a minimum, delinquency experience is to be presented in 30 or 31 day increments, as applicable, beginning at least with assets that are 30 or 31 days delinquent, as applicable, through the point that assets are written off or charged off as uncollectable. Such information is to be presented at a minimum by number of accounts and dollar amount. Disclosure also will be required, as proposed, on how delinquencies, charge-offs and uncollectable accounts are defined or determined, addressing the effect of any grace period, re-aging, restructure, partial payments considered current or other practices on delinquency experience.³⁰⁴ We believe this would include separate information on the amount of pool assets that had been previously re-aged, if material.

In a commercial mortgage-backed securitization, given the importance of the underlying properties, we proposed a separate list of illustrative disclosure items for these assets. The proposed disclosure was consistent with similar disclosure required by existing Form S-11 for the registration of offerings of securities for certain real estate companies. We received additional comment to tailor the disclosure further for CMBS transactions, particularly for significant loans in the pool.³⁰⁵ Under the final rule, the following is to be provided, to the extent material.³⁰⁶ For all commercial mortgages:

• Location and present use of each mortgaged property;
   

• Net operating income and net cash flow information, as well as the components of such items, for each mortgaged property;
   

• Current occupancy rates for each mortgaged property;
   

• Identity, square feet occupied by and lease expiration dates for the three largest tenants at each mortgaged property; and
   

• The nature and amount of all other material mortgages, liens or encumbrances against such properties and their priority.

In addition, the following additional information is to be provided for each commercial mortgage that represents, by dollar value, 10% or more of the asset pool, as measured as of the cut-off date:

• Proposed renovation, improvement or development programs.
   

• Competitive conditions.
   

• Management of the properties, historical occupancy rates and property uses.
   

• Further information about material tenants and lease terms.

b. Sources of Pool Cash Flow

As we explained in the Proposing Release, cash flows to support the asset-backed securities in some transactions come from more than one source, such as in lease-backed transactions that include separate cash flows from lease payments and from the sale of the residual asset at the termination of the lease. In such instances, disclosure will be required, as proposed, of the specific sources of funds and their uses, including, if applicable, the relative amount and percentage of funds that are to be derived from each source. Any assumptions, data, models and methodology used to derive such amounts also must be described.

As discussed in Section III.A.2.e., we are adopting our proposed requirements for additional specific disclosures in lease backed ABS if a portion of the securitized pool balance is attributable to the residual values of the physical property underlying the leases. Such disclosure includes information on how residual values are estimated and derived, statistical information regarding estimated residual values and historical statistics on turn-in rates and residual value realization rates. Information also will be required regarding the manner and process in which residual values are to be realized, including disclosure of the entity that will convert the residual values into cash and the experience of such entity. Finally, disclosure will be required of the effects if not enough proceeds are received from the realization of residual values, whether there exists any provisions to address such a contingency, as well as how any cash flow greater than that necessary to repay security holders will be allocated.

c. Changes to the Asset Pool

As discussed in Section III.A.2.f., we are adopting, as proposed, more detailed disclosures on when and how the composition of an asset pool may change, such as through a prefunding or revolving period. Such disclosure includes:

• The term or duration of any prefunding or revolving period.
   

• Aggregate amounts and percentages involved in the prefunding or revolving period, if applicable.
   

• Triggers that would limit or terminate such periods.
   

• When and how new pool assets may be added, removed or substituted, and the acquisition or underwriting criteria for additional pool assets, and the party that makes determinations on such changes.
   

• Any minimum requirements to add or remove pool assets.
   

• Temporary investment of funds pending use.
   

• Whether, and if so, how, investors will be notified of any changes to the asset pool.

d. Rights and Claims Regarding the Pool Assets

When pool assets are transferred to the issuing entity, the sponsor, transferor or other party often makes certain representations and warranties concerning the pool assets, such as to their principal balance and status at the time of transfer. If an asset fails to meet the requirements of those representations or warranties, there may be obligations for the depositor to repurchase or substitute assets that do comply with the representations and warranties for that non-complying asset. As proposed, and consistent with current practice, disclosure of these rights and remedies will be required, as well as disclosure regarding any material direct or contingent claims that parties other than the holders of the asset-backed securities have on any pool assets, such as prior mortgages, liens or encumbrances.

6. Transaction Structure

As proposed, existing Item 202 of Regulation S-K will continue to provide the core disclosure requirements for describing the securities being offered, and new Item 1113 of Regulation AB will provide additional guidance consistent with existing practice for preparing this disclosure for asset-backed securities. For example, the item clarifies that an explanation is to be given of the types or categories of securities that may be offered, such as interest-weighted or principal-weighted classes or planned amortization or companion classes, as well has how principal and interest on each class of securities is calculated and payable. Other specified items include amortization, performance or similar triggers or events (and their effects on the transaction if triggered), overcollateralization or undercollateralization information, cross-default or cross-collateralization provisions, voting requirements to amend the transaction documents and any minimum standards, restrictions or suitability requirements regarding ownership of the securities.

A clear description of the flow of funds for the transaction is required. Such a description is to include payment allocations, rights and distribution priorities among all classes of the issuing entity’s securities, and within each class, with respect to cash flows, credit enhancement and any other structural features in the transaction. Any requirements directing cash flows are to be described, such as to reserve accounts, along with a description of the purpose and operation of those requirements. In addition to an appropriate narrative description, the flow of funds should be presented graphically if doing so would aid understanding.

There has been increased emphasis in the market on the level of fees and expenses involved in an ABS transaction.³⁰⁷ To provide increased transparency of this information in a single location, we are adopting our proposal for a separate table with an itemized list of all estimated fees and expenses to be paid or payable out of the cash flows for the transaction. As proposed, the fee and expense table is to indicate for each item the amount of the fee or expense, its general purpose, the party receiving such fees or expenses, the source of funds for such fees or expenses (if different from other fees or expenses or if such fees or expenses are to be paid from a specified portion of the cash flows) and the distribution priority of such expenses. If the amount of a fee or expense is not fixed, the formula or method of calculation used to determine the fee or expense is to be provided. The tabular presentation should be accompanied by footnotes or other accompanying narrative disclosure to the extent necessary for an understanding of the timing or amount of such fees and expenses, such as any restrictions or limits on fees or whether the estimate may change in certain instances, such as in the event of an event of default (and how the fees would change in such an instance or the factors that would affect the change). In addition, through footnote or other accompanying narrative disclosure, disclosure is required of any, and if so how, fees or expenses could be changed without notice to, or approval by, security holders and any restrictions on the ability to change a fee or expense amount, such as due to a change in transaction party.

Other disclosures regarding the transaction structure include information on the frequency of distribution dates and collection periods for the pool assets and arrangements for cash held pending use, including identification of the parties with access to cash balances and the authority to make decisions regarding their investment and use. We also are retaining information on the ownership of any residual or retained interests to the cash flows, as well as the disposition of excess cash flow, although we are making revisions in response to comment.³⁰⁸ In particular regarding residual ownership, the identity of the residual holder must be disclosed only if the residual holder is an affiliated party or if the residual holder has rights that may alter the transaction structure beyond receipt of residual or excess cash flows. Finally, disclosure will be required of any requirements to maintain a minimum amount of excess cash flow or spread from, or retained interest in, the transaction, and effects on the transaction if the requirements were not met.

As with any fixed-income security, optional or mandatory redemption or termination provisions are to be described, including any “clean up” calls if the principal balance of the pool assets reaches a specified minimum level, with minor revisions to our proposal in response to comment.³⁰⁹ Many ABS transactions include “clean up” calls whereby the securities are called and the trust terminated before its stated termination date when the administrative costs no longer justify the limited outstanding life.³¹⁰ They are typically conducted only when less than 10% of the outstanding pool balance is outstanding. As proposed, we are codifying the existing staff position that the title of any class of securities with an optional redemption or termination feature that may be exercised when 25% or more of the original principal balance of the pool assets is still outstanding must include the word “callable.”³¹¹ This is to alert investors that the callable feature is greater than a typical ABS “clean up” call. In addition, in response to comment,³¹² we are clarifying that in the case of a master trust, a title of a class of securities must include the word “callable” when an optional redemption or termination feature may be exercised when 25% or more of the original principal balance of the particular series in which the class was issued is still outstanding, in lieu of the original principal balance of the entire master trust asset pool.

As proposed, we are adopting additional disclosure requirements if the transaction structure involves a master trust. For example, information will be required, to the extent material, regarding any additional securities already outstanding or that may be issued in the future that are backed by the same asset pool, including:

• The re