SEC to Examine Disclosure Requirements for RMBS
Securities and Exchange Commission Jay Clayton this week issued a statement instructing SEC staff to review the Commission’s residential mortgage-backed securities asset-level disclosure requirements with an eye toward facilitating more SEC-registered offerings.
The statement (https://www.sec.gov/news/public-statement/clayton-rmbs-asset-disclosure#_ftn5) suggests Clayton is interested in determining whether current disclosure rules have discouraged private securitizers from issuing SEC-registered RMBS, as part of the Trump Administration’s efforts to reduce the federal government’s regulatory footprint.
“Since the financial crisis, activity in the SEC-registered RMBS space has been very limited and since the Commission revised its ABS rules in 2014, no SEC-registered RMBS offerings have taken place,” Clayton said. “By contrast, in the five years ended June 30, 2019, Fannie Mae and Freddie Mac have issued an aggregate of approximately $4.47 trillion in face amount of RMBS.”
Clayton noted while there are a “number of factors” that may be contributing to the absence of SEC-registered RMBS offerings, “I am interested in receiving feedback on whether any portion of the Commission’s 2014 ABS rules are a significant contributing factor to this absence. For example, the Commission’s rules require 270 data points for each asset (i.e., mortgage) in an SEC-registered RMBS offering,” he said. “In contrast, RMBS offerings by Fannie Mae and Freddie Mac generally have approximately 100 data points for each asset. In addition, potential issuers of SEC-registered RMBS have expressed concerns regarding the scope and interpretation of these asset-level disclosure requirements.”
The Mortgage Bankers Association reacted favorably to the statement. “MBA commends Chairman Clayton for initiating a review of the SEC’s asset-level RMBS disclosure requirements in an effort to accelerate the revitalization of the private securitization market,” said MBA President and CEO Robert Broeksmit, CMB. “A more robust, sustainable private market would increase the diversity of housing finance capital sources, making the system more resilient and promoting greater liquidity, while also lowering costs and improving choices for borrowers.”
Broeksmit said MBA will be working with its members to provide feedback to the SEC, “and we look forward to continuing to engage with the Commission on this and other ways to promote a healthy private secondary mortgage market. In particular, we think utilization of Mortgage Industry Standards Maintenance Organization standards must be part of the solution, as this will reduce the costs of implementation.”
Dan Fichtler, MBA Associate Vice President of Housing Finance Policy, said development of a responsible, sustainable private RMBS market is a “critical step” toward diversifying the sources of mortgage financing, providing greater options for borrowers and better protecting taxpayers.
“Since the last revision of the SEC’s RMBS disclosure and reporting requirements in 2014, however, no SEC-registered RMBS offerings have taken place,” Fichtler said. “The SEC is correct to revisit its rules to ensure that the required information is feasible for issuers to produce, as well as consistent with MISMO standards and definitions. This process represents an opportunity to address one of the most important barriers to a robust private RMBS market revival.”
Rick Hill, MBA Vice President of Industry Technology, said use of MISMO standards for RMBS reporting is one important component of a revitalized private label securities market.
“Use of standards greatly reduces costs and the potential for errors compared to proprietary reporting requirements,” Hill said. “Development of a robust private-label securities market will provide additional execution options for lenders and more financing options for borrowers. Multiple alternatives permit lenders to choose the execution that best fits their current business needs.”
Hill said MBA will respond to Clayton’s request for feedback. “The limitations with current RMBS disclosure and reporting requirements have contributed to the absence of public issuances,” he said. “Issuers have told MBA that they cannot comply with the existing requirements due to several issues, including uncertainty with the reporting requirements. MBA, in collaboration with MISMO, has been collecting feedback on issues and concerns with the existing SEC requirements. We welcome the SEC’s request for feedback and look forward to providing suggestions that will enable the development of a robust market.”