Tool Offers Loan-Level Transparency to Securitization Investors

One dangerous loophole in the financial services marketplace is the disconnection of accountability between loan originators and investors in mortgage- and asset-backed securities.

Recently, security market insiders who recognize that lack of loan level data transparency from origination to securitization was one of the factors that helped deepen the mortgage crisis are creating a standardized identification solution.

The American Securitization Forum has partnered with Standard & Poor's Fixed Income Risk Management Services - an analytics unit that provides investor solutions separately from the S&P's ratings business - to create a new loan and loan risk identifying system that aims to bring individual loan-level transparency to the MBS and ABS market. FIRMS said it will also create a central loan data repository. Both systems aim to provide investors "with a means to understanding the risk, collateral and credit of an individual loan that has been securitized or may be repackaged for the secondary market."

The unique Loan ID is linked to the CUSIP and ISIN number of the security - assigned by Standard & Poor's at no cost to issuers. It will help investors track down loan data throughout the life of the loan providing a chain of accountability between loan originators and investors.

S&P's Fixed Income Risk Management Services managing director David Goldstein calls the partnership "a critical turning point toward greater transparency" into the individual loans that make up the MBS and ABS markets and help restore investor confidence in the securitized loan market.

"The creation of unique loan-level identifiers is an enormous step forward in the process of creating a more transparent information on underlying collateral in securitizations," commented Tom Deutsch, deputy executive director of the American Securitization Forum.

He expects the Loan ID and its accompanying industry mortgage loan database to build up an infrastructure that will open new grounds in the development of commonly accepted and widely used standards for transparency, due diligence and risk retention.

The effort is part of the ASF Project RESTART, designed to help rebuild investor confidence in the MBS and ABS market and most importantly, restore capital flows to the securitization markets.

Both systems are being developed responding to market needs and in compliance with the ASF Project RESTART disclosure and reporting package guidelines.

The goal is to enable investors to perform ongoing analysis of the underlying collateral and portfolio as well as to monitor loans when they change servicers.

In addition, the Loan ID helps create standardization and consistency in connecting and reporting monthly loan performance data along with data from third-party providers like credit bureaus.

The company stressed that Loan ID is not intended to replace the servicers' primary loan key, instead it will represent "a consistent piece of data that would not change on a loan as it is moved between entities after the loan has been securitized."