'Reg AB' May Vex Industry
Private-label issuers, servicers and their auditors are still grappling with the testing and reporting requirements of the Securities and Exchange Commission's new asset-backed securities regulation and need more time to adjust, according to the Mortgage Bankers Association.
There is confusion about the role and responsibilities of the various parties in filing "Compliance with Applicable Servicing Criteria" reports (Item 1122) under SEC Regulation AB, the MBA says in a letter to the commission.
The MBA is urging the SEC to modify the initial reporting period so that servicers are not forced to report noncompliance with their servicing contracts and "unnecessarily alarm" ABS investors.
"MBA believes that planning and performance of Item 1122 engagements under Regulation AB has been delayed for legitimate reasons that call for leniency in this initial reporting year," the MBA says in the March 13 letter. While compliance testing should be conducted throughout 2006, the MBA is recommending that noncompliance be reportable only if it is identified in the fourth quarter.
Currently, servicers are expected to file an annual Item 1122 report to certify compliance or noncompliance for each quarter of 2006.
SEC officials will be speaking at a Reg AB conference the MBA is sponsoring April 10-11 in Washington. SEC assistant director for structured finance, Max Webb, and Jeff Cohan, an attorney with SEC's chief counsel's office, are scheduled to speak.
"We are very supportive of the SEC rule," MBA director Kathy Gibbons said. "The issues are all going to get ironed out. But some adjustments are going to be difficult," she added.
The MBA letter outlines the problems issuers, auditors and servicers are encountering in their efforts to comply with the new AB regulation.
"In at least one case, a master servicer has terminated relationships with some business partners who have refused to furnish them with Item 1122 reports," the letter said.
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