Wall Street groups pan SEC's asset-backed securities draft plan

Mon Mar 31, 2014 1:40pm EDT
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By Sarah N. Lynch

WASHINGTON (Reuters) - Two major Wall Street trade groups have criticized a plan floated last month by U.S. regulators to force issuers to disclose more sensitive loan-level data to investors, saying it could make companies more vulnerable to lawsuits.

In a joint letter to the U.S. Securities and Exchange Commission late Friday, the two groups asked the regulator to scrap its asset-backed securities (ABS) draft plan and start fresh.

"We ... urge the commission to re-propose the ABS releases, including the portion relating to asset-level disclosure," wrote the Securities Industry and Financial Markets Association and the Financial Services Roundtable.

"Any such re-proposal should provide definitive, coordinated federal guidance as to whether an issuer's compliance with the commission's requirements fully satisfies the other federal laws that may be implicated by the disclosure of such asset-level information."

The SEC has been considering major reforms to the asset-backed securities market for more than three years, after investors suffered losses on soured mortgages during the 2007-2009 financial crisis.

Asset-backed securities, comprised of bundled loans such as mortgages, were at the center of the crisis.

Many investors who bought them were unaware that the subprime loans underlying the securities were often made to people who could not afford to buy homes. Once the floating interest rates on those subprime loans spiked to higher levels, many homeowners defaulted and were forced into foreclosure.

The SEC is trying to adopt a new rule set for the asset-backed securities market to prevent similar problems from happening again.   Continued...

The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst