Last week the SEC issued a proposal that would change the way issuers of
asset-backed securities provide information to investors by requiring
the issuers to perform and disclose a review of the products' assets,
according to an Oct. 13 SEC press release. Asset-backed securities are
products sold to investors in which the securities are backed by bundled
loans. The underlying loans are often residential mortgage loans, commercial
loans, and/or student loans.
The SEC has proposed the new rules with three goals in mind:
1. To make registered issuers of asset-backed securities conduct a thorough
review of the products' underlying bundled assets;
2. To require registered issuers of asset-backed securities to publicly
disclose the information obtained through the required review; and
3. To require both registered and unregistered issuers and underwriters
of asset-backed securities to disclose the findings and conclusions of
any third-party reviewer hired to conduct a review into the products'
underlying bundled assets.
"This marks the third Commission proposal to address the ABS issues
that came to light during the financial crisis," said SEC Chairman
Mary L. Schapiro. "This proposal will require issuers to provide
investors with better information about the loans backing the asset-backed
Issuers would also be required to disclose: if and how the underlying
assets differ from the disclosure in the prospectus regarding underwriting
criteria, if the underlying assets failed to meet the underwriting criteria,
and information about the entity that decided to include an asset in the
security that did not meet the underwriting criteria.
The proposed changes are designed to meet the requirements of the Dodd-Frank
Wall Street Reform and Consumer Protection Act that said the SEC must
"adopt rules regarding the review of assets, such as loans, underlying
the securities no later than 180 days after enactment," according
to the SEC's press release.
Additional proposals issued over the past six months have included: requirements
that ABS issuers and credit rating agencies disclose representations,
warranties and enforcement mechanisms to all investors; and revisions
to the current disclosure, reporting and offering process by which asset-backed
securities are underwritten and issued.
The SEC has requested comments from the public on the proposed rules.
All comments should be received by November 15.