Statement Summary
The Commission is examining potential regulatory barriers affecting access to the registered Asset-Backed Securities (ABS) market, specifically questioning whether current registration and reporting frameworks hinder issuer and investor participation. Key considerations include the burden of asset-level disclosure for Residential Mortgage-Backed Securities (RMBS), which may deter issuers from offering registered securities due to privacy concerns. The Commission suggests that market lethargy may not be strictly due to regulation, but could reflect reduced investor interest in RMBS post-financial crisis, alongside market preferences for Agency RMBS that are perceived as safer. The call for public comments indicates a desire to explore whether regulatory revisions are necessary or if they could compromise transparency and investor protection. Historical patterns show a stark decrease in registered private-label RMBS since 2008, although recent unregistered offerings have seen some revival.
Original Statement
Today the Commission poses the question of whether there are “regulatory impediments to issuer and investor access to the registered Asset-Backed Securities (ABS) market,” which are causing the market to be depressed. We further ask whether the “current framework for registration and reporting is serving the needs of the current ABS market.” Among those impediments, we consider:
- Whether asset-level disclosure requirements for Residential Mortgage-Backed Securities (RMBS) are too onerous;
- Whether issuers are foregoing registered RMBS offerings because they cannot provide investors with sensitive asset-level information such as 5-digit zip codes or credit scores;
- Whether the definition of ABS for the purpose of registration is too narrow.
First, I encourage commenters to question the premise driving the release. We appear, for example, to presume that registered RMBS market levels are artificially depressed and that the cause is regulatory. It is possible, however, that market levels reflect the degree of investor interest in these products. In other words, the supply may reflect demand. For example, the Release notes that only one issuer has publicly issued private-label RMBS since 2009, and there have been no registered private-label RMBS offerings since June 2013. But, the Commission first adopted asset-level disclosure requirements in 2014, one year after the last registered private-label RMBS offering. It’s hard to peg a problem on a regulatory burden that existed prior to the enactment of such regulation.
“It is worth looking at other market trends and risks related to private-label RMBS (including some exposed during the 2008 financial crisis) and not rush to adjudge that purportedly burdensome regulations are at the root of all problems.”
It may be that depressed interest is a symptom of continued investor wariness around the asset class (which might still be perceived as unsafe based on performance during the financial crisis). Or, there may continue to be concerns about the ratings of such products, or enforcement of representations and warranties, among other servicing problems. Likewise there may be an investor preference for Agency RMBS based on a perception about the availability of U.S. government guarantees, or based on yields and returns.
Second, it is worth asking if this is a good use of our dwindling resources. In October 2019, Chairman Clayton posed many of the same questions that we ask today and sought public comment on the subject. The comment file received 9 letters. This is, by our standards, not a tremendous amount of public interest. This could be an indication that we are seeking a solution in search of a problem.
“Finally, I urge commenters to think broadly in formulating their suggestions, and not simply acquiesce in the deregulatory zeitgeist.”
Be mindful of removing requirements that serve to provide transparency and consistency in aid of investor analysis and diligence or provide information that bolsters market integrity. I encourage investors to respond to the requests to provide insight on what information would be most helpful and necessary for investment in these products.
Thank you to those who worked on this release in the Division of Corporation Finance, the Division of Investment Management, the Office of Credit Ratings, the Office of the General Counsel and the Division of Economic and Risk Analysis.
