SEC Gives Lenders Some Slack on 'Reg AB'

The Securities and Exchange Commission is giving servicers of asset-backed securities some latitude in defining their platforms for testing and reporting purposes under Regulation AB.

The SEC has clarified that servicers can define their ABS servicing platforms by collateral types and even by the computer systems they use. However, a platform should not be "artificially designed," the SEC says in newly issued written guidance that industry groups and accounting firms were waiting for.

A platform should "mirror actual servicing practices of the servicer conducting the assessment," the SEC says.

Under Regulation AB (Item 1122), servicers are required to assess their compliance with a list of servicing activities and hire auditors to test the accuracy of their assessment.

Early next year, servicers will file "Compliance with Applicable Servicing Criteria" reports for each platform and certify compliance or noncompliance for each quarter of 2006.

The written guidance, which the SEC calls "Telephone Interpretations," is expected to make it easier for servicers and their auditors to get their hands around the Item 1122 reporting requirements.

Mortgage Bankers Association senior director Alison Utermohlen said the SEC addressed the major issues the MBA raised in a May 17 letter.

"We think this new guidance really will go a long way to addressing a lot of nagging questions that people have been struggling with over the past year," she said.

In terms of testing platforms, Ms. Utermohlen noted that platforms should be consistent from year to year. "If there is a change, there has to be a reasonable basis for that change," she said.

The Reg AB reporting requirements went into effect Jan. 1 and it is not retroactive. It applies only to asset-backed securities issued since the start of the year. So far, private-label issuers have securitized $586 billion in residential mortgages and $98 billion in commercial mortgages this year, according to the MBA. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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