SEC Seeks Commentary on Disclosure Rules and RMBS

The U.S. Securities and Exchange Commission (SEC) is seeking feedback on disclosure rules regarding SEC-registered residential mortgage-backed securities (RMBS). Reuters reports that the (SEC) wants to know if disclosure rules are discouraging RMBS issuance.

SEC Chairman Jay Clayton said that he had asked agency officials to review SEC disclosure requirements for RMBS introduced in 2014 in a bid to revitalize offerings for these products and help boost capital formation in the housing market.

According to Reuters, with the future privatization of Frannie Mae and Freddie Mac, the RMBS market will likely shrink and decrease funding available for home loans without changes.

“Potential issuers of SEC-registered RMBS have expressed concerns regarding the scope and interpretation of disclosure requirements,” Clayton said in a statement. “In light of the absence of SEC-registered RMBS offerings, I have asked SEC staff to review our RMBS asset-level disclosure requirements with an eye toward facilitating SEC-registered offerings.”

The review was recommended by the U.S. Treasury Department in its blueprint for removing the GSEs from conservatorship. The SEC said it was seeking comment on, among other issues, whether the SEC should implement a “provide-or-explain regime,” which would allow an issuer to omit any asset-level data point, as long as the issuer identifies the omitted field and explains why it cannot provide the information.

According to the American Enterprise Institute, the non-QM market is the fastest-growing segment of non-agency residential mortgage-backed securities in the U.S., despite still being a relatively small slice of the pie. The non-QM market is on track to double, or even triple, last year's securitization issuance within this year.

S&P found that there have been 20 odd transactions year-to-date, totaling over $6 billion in issuance, which is already almost double 2017's full-year volume. S&P also notes that, when compared to other RMBS categories, non-QMs have prepaid quicker, often soon after loan origination. The report found a conditional prepayment rate (CPR) 35%.