“There’s a volume of rulemaking around securitization that is unprecedented right now that is occurring in Washington . . . and it’s critical for the securitization industry to be able to effectively provide feedback to those regulators who are engaging in that rulemaking,” said Tom Deutsch, the group’s executive director.
The group represents firms at the heart of the financial markets, including businesses blamed for helping to bring the system to the brink of collapse in 2008. What these companies have in common is an interest in the packaging of debt — such as mortgages, car loans and credit-card receivables — into securities for sale to investors. The group includes banks, law firms, accounting firms and credit-rating agencies, among others. It also includes investment firms such as hedge funds that buy debt securities.
The group favors curbing the power of Fannie Mae and Freddie Mac, wards of the government that dominate the mortgage market and hold advantages over private competitors. The group nonetheless lists Fannie and Freddie as members of the ASF.
The organization’s agenda is focused largely on shaping the way regulators implement the landmark financial regulation bill that Congress approved last year to reduce the risk of future market meltdowns.
One of the measures that most concerns the group — a requirement that securitizers retain some stake in the securities they sell — is up for consideration this week at agencies such as the Federal Deposit Insurance Corp. and the Securities and Exchange Commission.
During the housing market’s bubble years, financial firms profited upfront from pooling mortgages into securities. But by the time the securities imploded, someone else owned them and the securitizers were insulated from the losses. Lawmakers concluded that the disconnect made it easier for Wall Street to sell investments of dubious quality.
To prevent a repeat, Congress mandated that securitizers keep what is colloquially called “skin in the game”— at least a minimum ownership stake in the securities they sell.
The ASF has argued that the requirement should not apply to transactions known as corporate debt repackagings, which involve the resale of previously issued corporate bonds.
Mortgages that meet certain standards would be exempt from the skin-in-the-game requirement. A key question is how big the borrower’s downpayment should be on those loans. The ASF opposes efforts to require downpayments of more than 20 percent on “qualified residential mortgages.”
The group is also trying to preserve a role for credit-rating agencies. They were criticized for giving top grades to securities that later proved flawed, and Congress called on regulators to end their reliance on ratings as regulatory standards.
Another objective of the American Securitization Forum is for the government to pave the way for Wall Street to issue a class of securities known as covered bonds, which would be backed by assets. Securitizers argue that the government should make clear that if the firms issuing the bonds became insolvent the FDIC could not seize the assets backing the bonds.
The group says it is trying to assure the availability of needed credit.
But analyst Christopher Whalen of Institutional Risk Analytics said Wall Street is trying to recapture some of the freedom of its go-go years.
“I think The Street is trying very hard to find a way to restart the marketplace for nonprime debt of all descriptions,” he said.
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