Friday, January 21, 2011 8:09:50 PM
Jesse Hamilton and Jody Shenn
Jan 20, 2011
The U.S. Securities and Exchange Commission approved rules that will require issuers of asset- backed securities to disclose repurchase requests and completions related to the pooled assets.
The rules, part of the SEC’s rulemaking under the Dodd- Frank financial-regulation overhaul, were approved by commissioners at a meeting in Washington today. Commissioners also approved a second set of rules requiring issuers to review assets underlying the securities as the agency moved to restore investor confidence in the ABS market.
“ABS issuers would be required to disclose the history of the repurchase requests they received, and the repurchases they made,” SEC Chairman Mary Schapiro said at the meeting. “Disclosure would be required to be filed in tabular format to help investors use this information to identify originators that may have underwriting deficiencies.”
The rule changes reflect claims, sometimes in lawsuits, by mortgage-securities investors and insurers including Allstate Corp., Pacific Investment Management Co. and MBIA Inc. that loan sellers and bond underwriters misrepresented the quality of the underlying credits and should be forced to repurchase debt. So- called mortgage putbacks may cost sellers as much as $90 billion, JPMorgan Chase & Co. analysts said in October.
‘Rational Measures’
The disclosure rules are “rational measures aimed at providing investors with the information that they need, without unreasonable cost,” Schapiro said. They provide relief for issuers who can’t get the required information without unreasonable expense, she said.
Securitizers will be required disclose their history of requests and repurchases related to outstanding ABS in tables that investors can use to review and compare the securities, the SEC said. Issuers will be required by Feb. 14, 2012, to provide tables dating back three years, the agency said.
“They shouldn’t affect issuance much one way or another, but they may allow investors more comfort when analyzing deals in the secondary market,” said Ronald Thompson Jr., head of asset-backed securities strategy at Knight Libertas LLC in Greenwich, Connecticut.
The market for U.S. home-loan bonds without government backing, where allegations of misrepresentations are most common, has failed to revive even as other securitization markets gear up again. Only one securitization of new residential mortgages, totaling $237.8 million, has been completed in almost three years, compared with the market’s record issuance of $1.2 trillion in each of 2005 and 2006.
Municipal Authorities
Municipal authorities, such as housing agencies or state education authorities, that sell bonds and use the proceeds to make loans for projects or home purchases, opposed the rules, saying they would saddle them with unnecessary regulations.
A three-year phase-in period for the rules will give local officials plenty of time to prepare, and give the commission room to change the rules if needed, Schapiro said.
Republican Commissioners Kathleen Casey and Troy Paredes raised objections to the rules requiring reviews of ABS assets by issuers or designated third parties.
“It is not clear to me what is gained,” said Casey, who cited the “reasonable assurance” standard for assuring the accuracy of disclosures in voting against the measure.
MBIA, in a lawsuit against Bank of America Corp., said its reviews found that 91 percent of defaulted or delinquent loans packaged into a set of bonds by the bank’s Countrywide Financial Corp. unit had “material discrepancies from underwriting guidelines,” such as borrower incomes, credit scores or debt-to- income ratios.
“I believe that a minimum standard better serves investors’ interest,” Schapiro said. “Investors need to know that issuers are taking steps to check that the assets in the pool are what the prospectus represents them to be.”
http://www.bloomberg.com/news/2011-01-20/sec-approves-rules-requiring-greater-disclosure-on-asset-backed-securities.html?cmpid=yhoo
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