MBA evaluates SEC regulatory proposals on credit rating agenciesMortgagePress.comMBA, SEC, credit rating agencies, FICO
The Mortgage Bankers Association has praised the Securities and
Exchange Commission (SEC) for issuing proposed credit ratings
agency reform measures that would promote transparency,
accountability, and credibility. Even though MBA opposes different
types of ratings for structured finance versus other investment
products, we appreciate the agency's recognition of the
controversial nature of this issue by considering under a separate
track, the proposal to require structured securities to have a
unique identifier or enhanced disclosure information.
"We recognize that credit rating agencies play a pivotal role in
the investment community by making assessments about financial
services providers and financial instruments used in the secondary
mortgage market," said Kieran P. Quinn, CMB, MBA's Chairman. "We
are pleased the SEC's recognizes the valuable impact ratings
agencies have on the relationship between issuers and
investors."
The first part of the proposal significantly increases the scope
and depth of disclosures credit ratings agencies would be required
to make. For example, ratings agencies would be required to
publicly disclose the information it uses to determine a rating on
a structured product. The proposal also would require rating
agencies to disclose the way they rely on the due diligence of
others to verify the assets underlying a structured product. The
Proposal's first part also includes measures to decrease
opportunities for ratings agency conflicts of interest. For
example, ratings agencies would be prohibited from structuring the
same products that they rate. MBA has long supported efforts such
as these to increase transparency and credibility of credit
ratings.
The second part of the proposal would require credit rating
agencies to differentiate structured products ratings from bond
ratings, either through the use of different symbols, or by issuing
a report disclosing the differences between ratings of structured
products and other securities. MBA believes separate ratings for
structured products vs. bonds will add further confusion and
disruption to secondary market transactions. We will advocate that
this portion of the proposal be withdrawn or modified. The SEC's
vote on this portion of the proposal was not unanimous, and SEC
board members opposing the proposal referenced MBA's position. We
are planning to review the Proposal upon its public issuance and
will submit formal comments during the comment period of 30 days
after their publication in the Federal Register.
"MBA is pleased that the SEC has agreed to review the
differentiation of structured rating under a separate approval
track because it will allows for the separate consideration of
constructive rating agency reforms while at the same time
maintaining MBA's strong opposition to the proposed structured
rating's identifier," said Sternin.
MBA will work with the SEC and other industry participants to
try and address concerns about separate ratings approaches for
structured securities.
For more information, visit www.mortgagebankers.org.
