RMBS scrutiny could be loosened in US

The US Securities and Exchange Commission (SEC) has issued a call for input from investors and market participants on the asset-level disclosure requirements for residential mortgage-backed securities (RMBS).

SEC chairman Jay Clayton explained that the SEC adopted significant revisions to its reporting requirements for asset-backed securities, including RMBS, in 2014 following the global financial crisis.

Prior to that, disclosures and reporting requirements for such asset-backed securities had not been updated since 2004.

Clayton said: "Since the financial crisis, activity in the SEC-registered RMBS space has been very limited."

Since the revised asset-backed securities disclosure rules were put in place no SEC-registered RMBS offerings have taken place.

"By contrast, in the five years ended 30 June 2019, Fannie Mae and Freddie Mac have issued an aggregate of approximately $4.47 trillion in face amount of RMBS," Clayton said.

"While there are a number of factors that may be contributing to the absence of SEC-registered RMBS offerings, I am interested in receiving feedback on whether any portion of the Commission's 2014 ABS rules are a significant contributing factor to this absence."

The SEC rules require 270 data points for each asset (in the case of RMBS offerings each mortgage).

The Fannie May and Freddie Mac offerings mentioned by Clayton have approximately 100 data points for each asset.

Clayton has asked the SEC to review RMBS asset-level disclosure requirements with a view to allow more SEC-registered RMBS offerings to exist in a compliant manner.

Public input from investors has been requested.

A recent US Department of Treasury housing reform plan recommended that the SEC review RMBS asset disclosure requirements.

In Australia, RMBS issuance is a major source of funding for residential mortgages.

In a speech last year Reserve Bank of Australia assistant governor (financial markets) Christopher Kent said: "Last year, RMBS issuance was at its highest level since the global financial crisis. Non-banks' issuance was in line with the high levels issued by this sector in the mid-2000s."

He explained that the increase in RMBS issuance by non-banks in Australia was in line with tighter supervision and regulation of mortgage lending by banks.

The RBA said that it, along with the Council of Financial Regulators (which includes ASIC and APRA), is monitoring the growth of non-bank lenders for possible emerging financial stability risks.

"The Reserve Bank's liaison indicates that non-banks have been lending to some borrowers who may otherwise have obtained credit from banks in the absence of the regulatory measures," Kent said at the time.

Read more: SECExchange CommissionFreddie MacUS SecuritiesJay ClaytonReserve Bank of AustraliaChristopher KentFannie MaeFannie MayUS Department of Treasury
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