Oct. 30, 2019
Public Input from Investors and Other Market Participants Welcomed
Securitization plays a critical role in the U.S. capital markets and can enhance liquidity in important sectors of the economy. In particular, residential mortgage-backed securities (“RMBS”) play a significant role in enhancing liquidity in the residential mortgage market and thereby facilitating capital formation in the U.S. housing sector. The Commission originally addressed the registration, disclosure and reporting requirements for asset-backed securities (“ABS”), including RMBS, in 2004 when it adopted new rules and amendments under the Securities Act and the Exchange Act. In 2014, following the financial crisis, the Commission adopted significant revisions to its ABS regulations. The 2014 revisions included new rules for registered ABS offerings of certain asset classes, including RMBS. These new RMBS rules require issuers to disclose a wide array of data on each asset (i.e., each mortgage) in the underlying pool at the time of an offering and on an ongoing basis.
Since the financial crisis, activity in the SEC-registered RMBS space has been very limited and since the Commission revised its ABS rules in 2014, no SEC-registered RMBS offerings have taken place. By contrast, in the five years ended June 30, 2019, Fannie Mae and Freddie Mac have issued an aggregate of approximately $4.47 trillion in face amount of RMBS.
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. For example, the Commission’s rules require 270 data points for each asset (i.e., mortgage) in an SEC-registered RMBS offering. In contrast, RMBS offerings by Fannie Mae and Freddie Mac generally have approximately 100 data points for each asset. In addition, potential issuers of SEC-registered RMBS have expressed concerns regarding the scope and interpretation of these asset-level disclosure requirements.
Recently, the U.S. Department of the Treasury published a housing reform plan. This plan recommended that the Commission review the RMBS asset-level disclosure requirements to assess the number of required reporting fields and to clarify the defined terms for SEC-registered private-label securitization issuances.
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. To facilitate the staff’s assessment, a and email box are now available for the public to make their input known on these issues. In this regard, public input from investors, issuers and other market participants on the following questions, as well as other information the public believes to be relevant to a consideration of these issues, are welcome. Importantly, any proposed revisions should ensure appropriate investor protection, including access to information material to an investment decision.
Questions for Consideration
The State of the RMBS Market
- Considering the state of the post-crisis RMBS market and the housing market more generally, why have there been no SEC-registered RMBS offerings since 2013?
- To what extent, if any, are the Commission’s asset-level disclosure requirements adopted in 2014 a contributing factor to the lack of SEC-registered RMBS issuances?
- To what extent have other factors, such as the dominance of Freddie Mac, Fannie Mae, Ginnie Mae and other governmental entities and government-sponsored enterprises in the residential mortgage securitization market, the risk retention requirements and/or other filing requirements for registration, contributed to the absence of any SEC-registered RMBS offerings?
The RMBS Asset-Level Disclosure Requirements
The asset-level disclosure requirements the Commission adopted for RMBS in 2014 were meant to standardize asset-level information to ease an evaluation of the ongoing credit quality of a particular asset, risk layering of assets and overall risks in the underlying asset pool. The Commission developed the disclosure requirements by taking into account various industry and regulatory standards developed for collection and/or presentation of asset-level data about residential mortgages, as well as suggestions by various commenters.
- Have circumstances in the RMBS market changed since both the lead-up to the 2008 financial crisis and the adoption of the rule revisions in 2014 and, if so, how?
- In light of any such changes in the market, should the asset-level disclosure requirements that the Commission adopted in 2014 be reconsidered?
- Should the asset-level disclosure requirements be conformed to the practices of private-label RMBS issuers offering securities in the Rule 144A exempt markets?
- Recognizing that there are differences in the structure of the securities being offered and the nature of the markets, how should the Commission consider the asset-level disclosures provided in RMBS offerings by Fannie Mae and Freddie Mac?
- Are there other standards that should be considered as benchmarks for RMBS asset-level disclosure requirements? If so, which ones and why? For example, should one or more asset-level data points be revised to better align with MISMO standards? If so, how should they be revised and why?
In 2014, the Commission determined not to adopt a “provide-or-explain” regime as recommended by some commenters. Under a provide-or-explain regime, if an issuer omits any asset-level data point, the issuer would be required to identify the omitted field and explain why the data was not disclosed. In rejecting a provide-or-explain regime, the Commission noted that, among other things, such a regime could lead to less comparability among the data provided by ABS issuers and therefore limit the usefulness of such data. In addition, and as noted in the 2014 Adopting Release, the existing rules permit issuers to omit information that is not applicable or is unknown and issuers may omit information under Securities Act Rule 409 or Exchange Act Rule 12b-21 if it is unknown or not reasonably available.
- Should the Commission reconsider a “provide-or-explain” regime under which issuers could choose the data they will provide, and omit data points, with the condition that an explanation be included? Should “provide-or-explain” apply to all data points or should it be limited to certain data points (e.g., data points not generally included in offerings by Fannie Mae and Freddie Mac and Rule 144A issuers)? If so, which data points are appropriate and why?
- Would permitting issuers to omit responses in such a way detrimentally reduce the comparability and standardization of the asset-level data points for RMBS? Should the Commission address this lack of comparability and, if so, how?
- Should the Commission provide RMBS issuers with a provide-or-explain regime if the same flexibility is not available for other ABS asset classes that are required to comply with asset-level disclosure requirements?
Request for Feedback on Existing Requirements
The asset-level disclosure requirements adopted in 2014 consist of specific categories of data points with a significant level of detail.
- Should one or more data points be revised? If so, which specific data points should be revised and why?
- Should any data points be eliminated, and if so, why? Does the Commission’s rationale for adopting certain of the data points articulated in the 2014 Adopting Release remain valid in today’s market? Should the revision or elimination of certain data points be time related? For example, should the Commission identify a set of data points that could be eliminated or subject to a “provide-or-explain” process after the asset (1) has been outstanding for more than one year, (2) is performing and (3) has not been non-performing since origination?
- Would the elimination of any of the data points be reasonably expected to adversely affect investors’ ability to analyze the quality and performance of the underlying assets? If so, which specific data points should be retained and why?
- Are there any specific data points that are unclear or confusing? If so, how should they be revised? Is there any interpretive guidance that the Commission or staff could provide to help clarify these issues?
- Are the responses to these questions different for the data provided in initial filings at the time of the offering versus the data provided in ongoing filings (i.e., at the time of filing each Form 10-D)?
Available Asset-Level Data and Individual Privacy Concerns
One of the data points our rules require is the 2-digit zip code for the mortgaged property. The Commission adopted the 2-digit zip code requirement to give investors enough information regarding a property’s geographic location to assess local market risk while reducing the likelihood that a specific property could be identified and therefore sensitive information about an obligor’s personal financial status could be revealed. The staff understands, however, that issuers provide 5-digit zip codes to investors in unregistered transactions and address privacy concerns by requiring end-user agreements or otherwise limiting the use and dissemination of the information.
- Are issuers foregoing SEC-registered RMBS offerings because they are unable to provide more granular zip code information to investors due to privacy concerns that such information would be made publicly available on EDGAR?
- What level of geographic information do investors believe is necessary to perform adequate risk and return analysis on the underlying assets and the securities offered? What level of geographic information do investors receive in unregistered transactions? Is this level of information sufficient to ensure that investors receive all asset level information that would reasonably be expected to affect an investment decision in the securities offered?
- Are there alternative ways to present this information that would minimize re-identification risk yet still satisfy investors’ needs, such as using other geographic indicators or providing aggregated data or ranges? If so, how should the data be aggregated, and why would those groupings or ranges be appropriate?
How to Provide Feedback
Members of the public interested in making their input known on these or other related matters are invited to submit that input via the webform or e-mail address linked below. To the extent that you are responding to a particular question(s) above, please identify such question(s) in your submission.
The Commission will post submissions on the Commission’s Internet website. Submissions received will be posted without change; the Commission does not edit personal identifying information from submissions. You should only make submissions that you wish to make available publicly.
In addition to, or in lieu of, making a written submission, staff in the Division of Corporation Finance would be happy to meet with members of the public to discuss their feedback on these and other related matters. Please contact: Office of Structured Finance at (202) 551-3850.
Submit Input: | E-mail
 See Asset-Backed Securities, Release No. 33-8518 (Jan. 7, 2005) [70 FR 1506].
 See Asset-Backed Securities Disclosure and Registration, Release No. 33-9638 (Sept. 24, 2014) [79 FR 57184] (the “2014 Adopting Release”).
 In 2004, prior to the crisis, new issuances of SEC-registered RMBS totaled $746 billion, which constituted the overwhelming majority of “private-label” RMBS (i.e., RMBS not issued or guaranteed by Freddie Mac, Fannie Mae, Ginnie Mae or other governmental entities or government-sponsored enterprises). See the 2014 Adopting Release at 57191-57192. In 2008, all private-label RMBS issuances, both SEC-registered and unregistered, markedly declined to roughly $52 billion and have continued to remain at low levels to date. In 2018, private-label RMBS issuances, all of which were unregistered, only amounted to roughly $181 billion. See “US Mortgage-Related Issuance and Outstanding,” Securities Industry and Financial Markets Association, available at https://www.sifma.org/resources/research/us-mortgage-related-issuance-and-outstanding/. While in 2004 there were 52 sponsors of SEC-registered RMBS offerings, between 2010 and 2013 only one sponsor issued registered RMBS, and that sponsor last conducted a SEC-registered RMBS offering in June 2013, which was over a year before the adoption of the 2014 revisions. See the 2014 Adopting Release at 57192.
 “Housing Reform Plan,” U.S. Department of the Treasury, September 2019, available at https://home.treasury.gov/system/files/136/Treasury-Housing-Finance-Reform-Plan.pdf. The report concluded that the disclosure requirements for SEC-registered RMBS adopted under the 2014 revisions “might also unduly restrict [private-label securitization] issuances” and that “[i]t is difficult to collect the required data for some of these fields – with the expense and burden of collection potentially outweighing the benefit to [private-label securitization] investors, particularly for seasoned mortgage loans – and some of the related regulatory definitions are ambiguous.” The report, however, also acknowledged that disclosing more loan-level data could enhance the ability of market participants to analyze and price mortgage credit risk.
 These standards included: (i) an investor disclosure and reporting package developed by the American Securitization Forum, which, at that time, was the primary securitization trade association; (ii) a data dictionary of standard definitions of mortgage related terms and XML formats developed by the Mortgage Industry Standards Maintenance Organization (“MISMO”) (the MISMO standards have been mapped to the relevant data in Schedule AL, available at http://www.mismo.org/standards-and-resources/additional-tools-and-resources/document-mappings/schedule-al-reg-ab-ii-mapping); (iii) information reported by sellers to Fannie Mae and Freddie Mac; (iv) information published by Fannie Mae, Freddie Mac and Ginnie Mae; and (v) data delivered to banking regulators.
 See the 2014 Adopting Release at 57205.
 Of the 270 data points required for RMBS, 165 are required to be provided only when certain specified conditions exist. For example, if the asset pool of residential mortgages consists only of fixed-rate mortgages, the data points related to adjustable rate mortgages need not be included in the data file. See the 2014 Adopting Release at 57210-11.
 See the 2014 Adopting Release at 57211.
 The 2014 Adopting Release summarized the following different categories of data points: (i) data points about the payment stream related to a particular asset, such as the contractual terms, scheduled payment amounts, basis for interest rate calculations and whether and how payment terms change over time; (ii) data points that allow for an analysis of the collateral related to the asset, such as the geographic location of the property, property valuation data and loan-to-value ratio; (iii) data points about the performance of each asset over time, for example, data about whether an obligor is making payments as scheduled; (iv) data points about the loss mitigation efforts by the servicer to collect amounts past due and the losses that may pass on to the investors; and (v) data points that provide data about the extent to which income and employment status have been verified, mortgage insurance coverage and lien position. See the 2014 Adopting Release at 57188.
 See the 2014 Adopting Release at 57231-41. In adopting the 2-digit zip code requirement, the Commission analyzed current disclosure practices as well as the likelihood that the asset-level disclosure requirements could result in re-identification of the obligor using various alternative geographic indicators. The Commission also obtained guidance from the Consumer Financial Protection Bureau (“CFPB”) on the application of the Fair Credit Reporting Act to the asset-level disclosure requirements. See letter from the CFPB dated August 26, 2014, available at https://www.sec.gov/comments/s7-08-10/s70810-306.pdf.