SEC reconsiders RMBS disclosure Rules, Industry Groups Offer Support
the Securities and Exchange Commission (SEC) is re-evaluating its regulations governing residential mortgage-backed securities (RMBS) following a period with no public offerings in this market.The move has garnered support from the American Bankers Association and seven other industry associations who believe adjustments coudl revitalize the RMBS market and benefit both investors and homebuyers.
The current regulatory framework,known as Regulation AB,underwent meaningful amendments in 2014 in response to the 2008 financial crisis. These changes introduced extensive new reporting requirements for RMBS securitizations. However, government-sponsored enterprises Freddie Mac and Fannie Mae were exempt from these rules, and subsequently, almost all new private-label RMBS have been issued through the Rule 144A market – a private placement exemption.
The SEC itself has acknowledged the limited effectiveness of the current approach, stating that the absence of publicly registered RMBS offerings since the 2014 amendments “strongly suggests” the regulations are not functioning as intended.The commission is specifically examining whether the detailed asset-level disclosures required under Item 1125 of Regulation AB are overly burdensome and discouraging public offerings. Furthermore,the SEC is considering aligning the definition of “asset-backed security” within Regulation AB with the definition used in the Securities Exchange Act of 1934,potentially opening the public market to a wider variety of asset classes.
A joint letter from the associations expressed appreciation for the SEC’s review and outlined support for modifications that would expand the investor base for mortgage credit risk, make public RMBS issuance more viable for issuers, safeguard consumer privacy, and enhance investor protection.
The groups argue that a more active public RMBS market would increase capital available for mortgages, potentially leading to lower costs for American families. They also emphasized that a robust private-label RMBS market is crucial for complete housing finance reform, a key priority for the current administration.
