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ASF Seeks to Rebuild Investors' Confidence

The American Securitization Forum has launched ASF Project RESTART, an industry-developed initiative to help rebuild investor confidence in mortgage- and asset-backed securities, restore capital flows to the securitization markets and, ultimately, increase the availability of affordable credit to borrowers.

The first phase of the project is a proposed ASF RMBS Disclosure Package, which standardizes and expands existing issuer disclosure to investors and credit rating agencies, particularly on mortgage loan-level information. It is geared towards producing a uniform set of data that are reliable, understandable, consistent and equally available to all market participants.

ASF says the package will enable investors to more easily compare loans and transactions across all issuers and perform necessary and sufficient loan-level analysis to evaluate RMBS transactions on the basis of the features and performance of the underlying mortgage loans. The same loan-level detail will aid credit rating agency evaluations by enhancing the quality, consistency and comparability of information relating to securitized assets.

"The initiative will help identify specific and necessary steps towards actionable solutions that are designed to revive investment now, in response to the current crisis, and promote well-functioning markets over the long term as the securitization process evolves," said Tom Deutsch, deputy executive director of the ASF.

RESTART, Residential Securitization Transparency and Reporting, is a collaborative effort of ASF members and others in the market to find industry solutions. The project's members identified, in the first phase of the project, over 130 specialized sets of core pool and loan-level data fields useful in rating and evaluating a pool of mortgage loans in an RMBS transaction.

Under the proposed package, issuers will collect and provide additional data for specialized types of loans. The data fall into categories, including general information, loan type, mortgage lien information, loan term and amortization type, adjustable-rate mortgages, pledged prepayment penalties, borrower information, borrower qualification, subject property, loan-to-value and HUD-1 information.

"Events over the last year have created unprecedented dislocations in the credit markets, which has caused a shift from an overabundance of liquidity to an environment where many borrowers are unable to find affordable mortgage credit because originators cannot finance loans in the debt capital markets," said George Miller, executive director of the American Securitization Forum.

"Given extreme pressures on lenders' balance sheets and the capital constraints they face, as well as macro factors such as broad-based housing price declines and overall economic weakness, the need to restore the benefits of securitization to borrowers, lenders and the economy at large has never been greater."

Comments are being taken on the proposed package until Aug. 22. ASF anticipates issuing a final version before year-end 2008 for implementation in 2009. Under subsequent phases of Project RESTART, ASF will develop and release for comment additional proposals for an ASF RMBS reporting package and related market standards addressing enhancements to representations and warranties, loan repurchase processes, due diligence standards, model servicing provisions and ongoing review of standards.

The proposed package puts the investor in the shoes of the mortgage originator. During a Sunset Seminar at the ASF's headquarters here, Patrick Greene, senior vice president, Wells Fargo Home Mortgage, said from an originator perspective, there needs to be more disclosure and transparency, and mortgage issuers will have to provide clear, detailed information to the investor. Everyone participating has to make changes, he said.

The panel of speakers, including Mr. Deutsch, agreed that everyone in the industry must make compromises going forward.

"Let's begin dialogue," said Mr. Greene. "There are a lot of disagreements to work through." Over the past few years, investors have not seen the quality of loans they were looking for. In a sense, this proposal is expected to help investors understand how loans are closed and place investors at the closing table and provide a new level of confidence to get capital flowing again.

The speakers at the Sunset Seminar stressed that data must be consistent and how important it is for every market participant to look at the same data set when looking at comparisons on pools of loans and different transactions.

Enough information will have to be provided from servicers to see if a loan modification is the right move for a borrower. Mr. Deutsch stressed how important it is for the origination role to be defined to the investor as well as the broker and correspondent channels. Investors will also have to understand delinquencies and the methodology involved in reporting them. There will be a focus on how the mortgage borrower is failing and their ability to pay.

When asked if originators are going to be able to handle the cost structure needed to maintain new systems to handle these changes, Mr. Greene responded by saying it's too early to tell yet. Will this proposal stifle innovation and creativity on the underwriting side? What if someone develops another credit scoring model similar to the FICO score to help borrowers qualify for a home? These questions provide room for debate, Mr. Greene said. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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