The Securities and Exchange Commission today adopted revisions to rules governing the disclosure, reporting, and offering process for asset-backed securities (ABS) to enhance transparency, better protect investors, and facilitate capital formation in the securitization market.
The new rules, among other things, require loan-level disclosure for certain assets, such as residential and commercial mortgages and automobile loans. The rules also provide more time for investors to review and consider a securitization offering, revise the eligibility criteria for using an expedited offering process known as "shelf offerings," and make important revisions to reporting requirements.
"These are strong reforms to protect America´s investors by enhancing the disclosure requirements for asset-backed securities and by making it easier for investors to review and access the information they need to make informed investment decisions," said SEC Chair Mary Jo White. "Unlike during the financial crisis, investors will now be able to independently conduct due diligence to better assess the credit risk of asset-backed securities."
ABS are created by buying and bundling loans, such as residential and commercial mortgage loans, and auto loans and leases, and creating securities backed by those assets for sale to investors. A bundle of loans is often divided into separate securities with varying levels of risk and returns. Payments made by the borrowers on the underlying loans are passed on to investors in the ABS.
ABS holders suffered significant losses during the 2008 financial crisis. The crisis revealed that many investors in the securitization market were not fully aware of the risks underlying the securitized assets and over-relied on ratings assigned by credit rating agencies, which in many cases did not appropriately evaluate the credit risk of the securities. The crisis also exposed a lack of transparency and oversight by the principal officers in the securitization transactions. The revised rules are designed to address these problems and to enhance investor protection.
The revised rules become effective 60 days after publication in the Federal Register. Issuers must comply with new rules, forms, and disclosures other than the asset-level disclosure requirements no later than one year after the rules are published in the Federal Register. Offerings of ABS backed by residential and commercial mortgages, auto loans, auto leases, and debt securities (including resecuritizations) must comply with the asset-level disclosure requirements no later than two years after the rules are published in the Federal Register.