UPDATE: US To Propose Tougher Rules For Securitization Markets
(Updates with details of plan)
By Jessica Holzer
Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- The Obama administration will propose rewriting rules
governing the securitization markets as part of its revamp of financial
regulation.
Loan originators would have to retain 5% of the credit risk of loans sold off
to securitizers or investors, according to a Treasury document obtained by Dow
Jones Newswires.
Originators would be barred from directly or indirectly hedging that credit
risk, under the administration's proposal.
In addition, issuers of asset-backed securities would have to adhere to far
tougher disclosure rules.
The proposed changes aim to force lenders to focus on the long-term
performance of the loan and to lessen regulators' reliance on credit-rating
agencies.
"Strengthening the supervision of securitization markets is a critical step in
modernizing our regulatory framework and addressing the root causes of this
financial crisis," the document said.
The administration is expected to unveil its broad plan for overhauling
financial market rules Wednesday. Treasury spokesman Andrew Williams confirmed
that the document on securitization rules was authored by Treasury officials.
Under the proposal, issuers of asset-backed securities would have to share
information with investors and with credit-rating agencies about individual
loans and any compensation paid to brokers, originators and sponsors. In
addition, legal documents for securitizations would be made more standard.
Fees paid to mortgage brokers and lenders would have to be doled out over time
and could be slashed if a loan turns out to be poorly underwritten. Originators,
meanwhile, would no longer be able to recognize an immediate "gain on sale" from
a securitization transaction.
The plan also seeks to strengthen rules for credit-rating agencies, widely
blamed as a cause of the financial mess.
The agencies would have to write "robust" policies and procedures for managing
and disclosing conflicts of interest. They would have to differentiate the
ratings they assign to asset-backed securities from other debt. The would also
be forced to publicly disclose information about their methodology for rating
asset-backed securities.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@
dowjones.com
(END) Dow Jones Newswires
06-15-091658ET
Copyright (c) 2009 Dow Jones & Company, Inc.
|