Mortgage Industry News

“So, I’ve had a few days to imagine a world in which the SEC proposal announced on April 7th has been adopted.  That proposal, as reported most clearly by the Wall Street Journal, would exclude Fannie and Freddie from the requirement that private issuers of mortgage-backed securities “reveal more information about each loan underlying the security, helping investors track risks.”

“The proposed rules are intended to provide investors with more detailed and current information about ABS and more time to make their investment decisions.” Until I read the 600 page proposal for myself, I can’t say with certainty, but I can hope that in part the SEC’s goal is standardization of, at a minimum, the securitization element of the mortgage economy (surely the SEC has perceived that the mortgage industry’s greatest risks are rooted in its lack of standardization).

Unfortunately, there are a couple of flies in the ointment, which brings me back to a world I was imagining.   In such a world, where standards are the goal and a double standard applies, 40% of mortgage loans (those securitized by a GSE) will remain subject to negotiation, and the remaining 60% will be held to specific reporting requirements.All of which leaves me still hoping that a push for total standardization of the mortgage industry will prevail.

Well, didn’t the SEC’s proposed new rules for asset-backed securities comprised of mortgages, credit card receivables, auto loans and student loans stir up the buzz in the business and financial media on Thursday!?.  The New York Times story was cited by the MBA NewsLink but the Wall Street Journal headline: “Rules Could Favor Fannie, Freddie”, got the story inside the story.  It cited concerns by at least two commissioners that the added disclosures burdens, which will not be applicable to the GSEs, would “tilt the scale in favor of Fannie and Freddie.”  Immediately, and with only today’s details to consider, I’d tend to agree with Tom Deutsch, executive director of the American Securitization Forum, when he said that “Such unintended consequences could create even greater reliance on a costly tax-payer backed system of mortgage credit extension that would not be subject to these rules.”  As policy makers grapple with the absolutely real need to standardize and intelligently regulate the U.S. mortgage economy, they must avoid taking, or appearing to take, a punitive stance with the private mortgage marketplace. “Skin in the game,” is one thing, but the SEC proposal creates two standards, which in our view is nearly as risky as no standards at all.