Statement Summary
The Commission has released a concept paper to seek public input on disclosure requirements for residential mortgage-backed securities (RMBS) and related asset-backed securities (ABS) regulations. With home ownership increasingly unattainable for many Americans due to rising mortgage costs, reviving the RMBS public market could lower these costs and support the housing sector. No public RMBS offerings have occurred since June 2013, despite significant activity in the private Rule 144A market.
The paper highlights challenges such as stringent asset-level disclosure requirements imposed by Regulation AB II, which market participants view as barriers to public offerings. The Commission welcomes suggestions on revising these requirements, balancing investor information needs against privacy concerns. The release also seeks comments to harmonize definitions of ABS to reduce compliance complexities. This initiative is essential for revitalizing the public RMBS market and enhancing the broader ABS regulatory framework to benefit U.S. capital markets.
Original Statement
Today, the Commission issued a concept release to solicit public feedback on disclosure requirements for public offerings of residential mortgage-backed securities (RMBS), as well as certain aspects of the agency’s regulations of asset-backed securities (ABS) generally. Home ownership has long been the cornerstone of the American Dream. Yet, this dream remains out of reach for too many Americans today due, in part, to mortgage costs. A vibrant public market for RMBS can have downstream effects of reducing these costs and benefitting the U.S. housing sector.
Unfortunately, there have been no public offerings of RMBS since June 2013. In contrast, there have been over $100 billion in RMBS issuance annually in the Rule 144A market for five of the past six years. It is important for the Commission to hear from market participants on steps it can take to revive the public RMBS market. A public market for RMBS provides market benefits and investor protections that a Rule 144A market cannot, including increased liquidity, a broader investor base, and greater transparency and public disclosure.
While several factors may be contributing to the drought in public market, the Commission must consider whether its rules – including amendments to Regulation AB (known colloquially as Regulation AB II) that were adopted to implement mandates of the Dodd-Frank Act) – have had an adverse effect.
Challenges and Considerations
One requirement of Regulation AB II is for RMBS issuers engaged in public offerings to provide asset-level disclosures about the underlying residential mortgages. For each mortgage, this disclosure calls for approximately 105 data points as a baseline and up to another 165 data points upon the occurrence of certain events. Market participants have identified these asset-level disclosure requirements as a barrier to public offerings of RMBS. Therefore, I am pleased that the concept release is seeking comment on how to revise these requirements to enable more public offerings, thereby facilitating capital formation while maintaining investor protection.
Another consideration in the development of a public market for RMBS is how to strike the right balance between investors’ need for detailed information about mortgage obligors, including credit scores and income, and privacy concerns raised by public disclosure of that information. In 2014, the Commission proposed an approach of permitting sensitive obligor data to be provided on an issuer-sponsored website, instead of on EDGAR. Based on public feedback at the time, the Commission did not adopt this approach. In light of the passage of time and evolution of industry practice, I support re-visiting the idea of using a website separate from EDGAR to provide investors with access to the sensitive obligor data they need. I also welcome input on any other potential approaches to address privacy concerns stemming from public disclosure of such data.
Regulatory Harmonization
The concept release also seeks public comments on other aspects of ABS regulation, including harmonizing the definition of “asset-backed security” in Regulation AB with the definition of the same term in section 3(a)(79) in the Securities Exchange Act of 1934. Disparate definitions for the same concept result in complexity, which can lead to increased compliance costs. Accordingly, I support gathering input on whether the definitions should be harmonized or more aligned.
Public offerings of RMBS, and ABS offerings generally, play a vital role in the U.S capital markets and the U.S. economy. The concept release is the first step in the Commission’s efforts to revitalize the public market for RMBS and modernize the agency’s regulations of ABS. I look forward to the public’s feedback and the staff’s recommendations for any proposed rule changes based on that feedback.
I would like to thank the following staff members for their work on the concept release.
