The Mortgage Bankers Association (MBA) and the Commercial Mortgage Securities Association (CMSA) joined with the Real Estate Roundtable and the National Association of Realtors to send 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, sent to Senators Dodd and Shelby today, in advance of a Senate Banking Committee hearing held April 22, 2008 on Turmoil in U.S. Credit Markets: The Role of the Credit Rating Agencies, warns that differentiating between ratings would only serve to further erode investor confidence and threaten an already fragile economy.
"At a time when we need to restore liquidity and confidence in the market, the last thing we ought to be doing is be making the ratings process more complicated," said Kieran P. Quinn, CMB, chairman of the MBA. "We recognize improving the ratings process is a key to getting players back in the market, and we want to work with Congress to find the best way to do that. This just isnt it."
The letter recommends educating investors about the risk associated with all securities, as opposed to focusing exclusively on structured securities. The letter points out that the proposed change would require investors to revise their investment priorities and develop new processes to interpret the new ratings, something that will hurt, not help, investor confidence.
"CMSA supports efforts to ensure the quality of credit ratings but strongly opposes any proposals that would differentiate between structured finance products and corporate and municipal bonds," said Dottie Cunningham, chief executive officer of CMSA. "CMSA urges policymakers to proceed with caution and requests that reforms be focused on investors and instilling confidence in our already fragile markets."