(a) In general. A sponsor
choosing to retain an eligible vertical interest or an eligible horizontal
residual interest (including an eligible horizontal cash reserve account),
or combination thereof under section 244.4, with respect to a securitization
transaction may offset the amount of its risk retention requirements
under section 244.4 by the amount of the eligible interests, respectively,
acquired by an originator of one or more of the securitized assets
if:
(1) At the closing
of the securitization transaction:
(i) The originator acquires the eligible
interest from the sponsor and retains such interest in the same manner
and proportion (as between horizontal and vertical interests) as the
sponsor under section 244.4, as such interest was held prior to the
acquisition by the originator;
(ii) The ratio of the percentage of eligible interests acquired and
retained by the originator to the percentage of eligible interests
otherwise required to be retained by the sponsor pursuant to section
244.4, does not exceed the ratio of:
(A) The unpaid principal balance of all the
securitized assets originated by the originator; to
(B) The unpaid principal balance of all the
securitized assets in the securitization transaction;
(iii) The originator acquires and
retains at least 20 percent of the aggregate risk retention amount
otherwise required to be retained by the sponsor pursuant to section
244.4; and
(iv) The originator
purchases the eligible interests from the sponsor at a price that
is equal, on a dollar-for-dollar basis, to the amount by which the
sponsor’s required risk retention is reduced in accordance with this
section, by payment to the sponsor in the form of:
(A) Cash; or
(B) A reduction in the price received by the originator from the
sponsor or depositor for the assets sold by the originator to the
sponsor or depositor for inclusion in the pool of securitized assets.
(2) Disclosures. In addition to the disclosures
required pursuant to section 244.4(c), the sponsor provides, or causes
to be provided, to potential investors a reasonable period of time
prior to the sale of the asset-backed securities as part of the securitization
transaction and, upon request, to the Commission and its appropriate
Federal banking agency, if any, in written form under the caption
“Credit Risk Retention”, the name and form of organization of any
originator that will acquire and retain (or has acquired and retained)
an interest in the transaction pursuant to this section, including
a description of the form and amount (expressed as a percentage and
dollar amount (or corresponding amount in the foreign currency in
which the ABS interests are issued, as applicable)) and nature (e.g.,
senior or subordinated) of the interest, as well as the method of
payment for such interest under paragraph (a)(1)(iv) of this section.
(3) Hedging,
transferring and pledging. The originator and each of its affiliates
complies with the hedging and other restrictions in section 244.12
with respect to the interests retained by the originator pursuant
to this section as if it were the retaining sponsor and was required
to retain the interest under subpart B of this part.
(b) Duty to comply.
(1) The retaining sponsor shall be
responsible for compliance with this section.
(2) A retaining sponsor relying on this
section:
(i) Shall
maintain and adhere to policies and procedures that are reasonably
designed to monitor the compliance by each originator that is allocated
a portion of the sponsor’s risk retention obligations with the requirements
in paragraphs (a)(1) and (3) of this section; and
(ii) In the event the sponsor determines
that any such originator no longer com plies with any of the requirements
in paragraphs (a)(1) and (3) of this section, shall promptly notify,
or cause to be notified, the holders of the ABS interests issued in
the securitization transaction of such noncompliance by such originator.
