MBA submits formal response to SEC regulatory proposals on credit rating agenciesMortgagePress.comMBA, Secutiries Exchange Commission, credit rating agencies, NRSROs
The Mortgage Bankers Association has submitted a comment letter
to the Securities Exchange Commission (SEC) in response to the
SEC's proposed amendments to its regulations governing
nationally-recognized statistical rating organizations (NRSROs).
MBA expressed support for measures in the SEC proposal that would
promote transparency, accountability, and credibility of NRSROs and
the methodologies used to assign credit ratings. However, MBA
strongly opposes different ratings symbols to be used for
structured finance versus other investment products.
"Recent events have shed light on the important role of credit
ratings agencies in the housing finance system," said Kieran P.
Quinn, CMB, MBA's chairman. "We commend the SEC and the ratings
agencies themselves for their efforts to restore investor
confidence and bring stability back to the market. Nevertheless, it
is MBA's view that implementing different ratings symbols for
structured and non-structured securities will only increase
confusion and fuel disruption to secondary market transactions. We
recognize that improvements can be made to the ratings process, and
we are committed to working with the SEC to find the best
solution."
MBA's letter notes that structured finance transactions are a
vital segment of the capital markets. However the success or
failure of a securitization is attributable to the quality of its
underlying assets, not its structure. Consolidating all structured
securities under a single unique identifier could cause investors
to focus on the structure of the security rather than its asset
quality. Consequently, the proposal could reinforce the very
behavior it seeks to extinguish.
The SEC's proposal also significantly increases the scope and
depth of disclosures by requiring rating agencies to publish the
information they use to assign a rating to a structured product.
Rating agencies would also be required to disclose their level of
reliance on the due diligence performed by third parties to verify
the assets underlying a structured product. The proposal also
includes measures designed to limit opportunities for ratings
agency conflicts of interest by prohibiting ratings agencies from
structuring the same products that they rate. MBA has long
supported efforts to increase the transparency of credit ratings.
Requiring ratings agencies to disclose confidential qualitative
information however could foster reluctance by those who provide
the information in order to avoid the public disclosure of
proprietary information.
In April 2008 the MBA submitted a letter to Senate Banking
Committee Chairman Christopher Dodd and Ranking Member Richard
Shelby opposing proposals to differentiate between ratings for
structured finance products and ratings for other asset classes,
such as corporate and municipal bonds. The letter also warned that
differentiating between ratings would only serve to further erode
market confidence and threaten an already fragile economy.
"We are hopeful that the SEC will reach the conclusion that its
assumptions about the perceived benefits associated with a unique
structured securities identifier are vastly outweighed by both the
resultant implementation costs and market uncertainty," said Jan
Sternin, MBA's senior vice president of commercial/multifamily.
For more information, visit www.mortgagebankers.org.
