WASHINGTON Feb 25 U.S. regulators released a
scaled-back proposal on Tuesday that seeks to soothe industry
concerns over a plan to force issuers of asset-backed securities
to disclose sensitive loan-level data to investors.
The Securities and Exchange Commission had been poised to
vote on the new asset-backed disclosure rules earlier this
month, but abruptly yanked it from the public agenda with little
On Tuesday, the reasons for the delay became clear after SEC
staff released a 19-page memo that lays out a new and less-
onerous disclosure alternative that aims to strike a balance
between investor protection and privacy.
"Balancing privacy protections on consumer loans with the
need for disclosing more loan level data to investors continues
to be an extremely thorny set of issues for the SEC," said Tom
Deutsch, executive director of the American Securitization
Forum, in response to the SEC's revamped proposal.
The SEC wants issuers to provide greater information about
the quality of loans and other assets underlying securities,
after many investors were burned during the financial crisis by
financial products tied to bad mortgages.
Under the prior proposal, the SEC wanted to require
asset-backed issuers to file public financial reports containing
information such as the geographic locations, credit scores and
incomes and debt loads of borrowers.
In the proposal released on Tuesday, the SEC is seeking
comments on an alternative that would require asset-backed
issuers to make such asset-level data available to investors on
their websites in a less public fashion.
This approach, the SEC said, "would enable issuers to
address privacy concerns associated with such disclosures,
including through restricting access to potentially sensitive
A copy the SEC's memo laying out an alternative approach to
asset-backed disclosures can be found here:
The proposed loan-level disclosures are just one part of a
much broader plan by the SEC to beef up investor protections in
Once adopted, it will likely mark the biggest regulatory
overhaul of the asset-backed securities market since the
2007-2009 financial crisis.
The SEC has been working on rules governing disclosures and
sales practices for asset-backed securities for more than three
years, after investors suffered major losses on soured
In addition to requiring more disclosure about loan quality,
the SEC's plan also requires ABS issuers to conduct more due
diligence before they can take advantage of a speedier
registration designed to avoid delays by letting them raise
capital through multiple sales, without waiting for SEC approval
Asset-backed securities are comprised of bundled loans, such
as mortgages, student loans or auto loans.
The loans are often packaged by risk level, with holders of
low-risk loans like 30-year-fixed mortgages getting paid first,
and investors in high-risk assets such as subprime mortgages
During the crisis, however, many investors were unaware of
the risks posed by subprime mortgages, which have floating
interest rates that automatically reset.
When the rates went up, many homeowners were unable to
afford the higher payments and were forced into foreclosure,
leaving many investors in asset-backed securities holding the
Although auto makers and banks still rely on the ABS market
for funding, it took a dive during the crisis and has yet to