Securities industry representatives responding to the just-completed comment period for the Securities and Exchange Commission's Reg AB are largely supportive of the proposed changes aimed at restoring transparency and investor confidence in mortgage-backed securities markets, but have larger concerns about the proposal and whether it can be applied across the board to non-mortgage asset-backed securities markets.
The American Securitization Forum is "largely fine with the approach that the SEC is taking with regard to mortgage-backed securities, both commercial and residential," with "a few tweaks," the group said in response to a question from NMN.
While the ASF is supportive of some of the Securities and Exchange Commission's proposals calling for asset-level information for residential mortgages similar to the ASF's own consensus efforts at suggested standards in this area, the group said other proposals aimed at providing this level of information for some other asset classes are not viable and would drastically shrink the availability of business and consumer credit in other areas.
The group also reiterated past calls for different risk retention rule treatment for different assets. It said that while a "vertical slice" approach where the issuer would retain a portion of each security issued from an ABS are appropriate for residential and commercial MBS given recent accounting and regulatory capital changes, it feels a horizontal or "first loss" approach would be more appropriate for some other asset classes like auto loans and credit cards. In addition, the ASF reiterated calls for various government entities to work in concert to ensure their risk retention rules are in alignment with each other.
The Securities Industry and Financial Markets Association also said Reg AB is too broad in some areas and imposes burdens heavier than it believes are justified in others.
It said its investor members favor the improved mechanisms for representations and warranties proposed, particularly in RMBS transactions and noted that it has developed a suggested approach for this with dealer and sponsor members it feels will be more effective.
