ASF Proposes Risk Retention

erican Securitization Forum (ASF) is requesting comments on its new Model Residential Mortgage-Backed Securities (RMBS) [link=http://www.americansecuritization.com/uploadedFiles/ASF_RESTART_Representations_RFC_071509.pdf][u]Representations and Warranties[/u][/link], which are guidelines designed to enhance the alignment of incentives of originators with those of investors in mortgage loans. The ASF has also released its final ASF RMBS [link=http://www.americansecuritization.com/uploadedFiles/ASF_Project_RESTART_Final_Release_7_15_09.pdf][u]Disclosure and Reporting Package[/u][/link]. The package will standardize and expand existing issuer disclosure to investors and credit rating agencies, particularly on mortgage loan-level information, the group says. Together, the two announcements represent the next phase of ASF Project RESTART, an industry-developed initiative begun in February 2008 to help rebuild investor confidence in mortgage and asset-backed securities and restore capital flows to the securitization markets. "The two components of the project issued today offer expanded disclosure to investors, as well as assurances that originators of mortgage loans will stand behind and retain appreciable risk inherent in packages of loans sold to investors," says Tom Deutsch, deputy executive director of the ASF. "Taken together, these steps will offer investors more critical data than previously available and shift some risk from the investor back to the mortgage originator, thus offering investors more confidence in securitization transactions." Representations and warranties are used to allocate the risk of defective mortgage loans among mortgage originators, issuers of securities and investors who purchase them. The ASF has sought to address risk retention techniques in future securitization transactions by enhancing and standardizing the representations and warranties, as well as by developing stronger repurchase obligation provisions that allow investors to enforce buybacks of defective mortgages. The ASF's request for comments includes a new provision covering fraud by any party to the mortgage loan origination (e.g., originators, borrowers, appraisers), which was not previously a universal representation. The proposed guidelines also cover the qualifications and independence of the person performing a property appraisal and due diligence tests for verification of income, employment and assets on loans with less than full documentation. Comments on the ASF's model are due by Sept. 4. The final ASF RMBS Disclosure and Reporting Package, meanwhile, will enable investors to more easily compare loans and transactions across all issuers and perform necessary and sufficient loan-level analysis to evaluate RMBS transactions on the basis of the features and performance of the underlying mortgage loans. The same loan-level detail will aid credit rating agency evaluations by enhancing the quality, consistency and comparability of information relating to securitized assets upon which the agencies make qualitative judgments of the likelihood that investors will receive promised payments of principal and interest in accordance with the terms of the securities. As part of its RMBS Disclosure and Reporting Packages, ASF also announced that it is partnering with Standard & Poor's Fixed Income Risk Management Services (FIRMS), an analytics unit separate from Standard & Poor's ratings business, to implement an industry-wide unique mortgage loan identification system and mortgage loan database. The loan identification would include information about the loan, such as asset type, country code and origination date, while ensuring compliance with federal privacy laws. SOURCE: American Securitizatio

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