MBA Calls for SEC to Approve Uniform Ratings Symbols

MBA (7/28/2008 ) Vasquez, Jason
The Mortgage Bankers Association, in comments submitted Friday to the Securities and Exchange Commission, said while recent SEC proposed amendments to its regulations governing nationally recognized statistical rating organizations promote transparency, accountability and credibility, MBA strongly opposes different ratings symbols to be used for structured finance versus other investment products.
"Recent events have shed light on the important role of credit ratings agencies in the housing finance system," MBA Chairman Kieran Quinn, CMB. "We commend the SEC and the ratings agencies themselves for their efforts to restore investor confidence and bring stability back to the market. Nevertheless, it is MBA's view that implementing different ratings symbols for structured and non-structured securities will only increase confusion and fuel disruption to secondary market transactions. We recognize that improvements can be made to the ratings process, and we are committed to working with the SEC to find the best solution."

MBA's letter notes that structured finance transactions are a vital segment of the capital markets. However the success or failure of a securitization is attributable to the quality of its underlying assets, not its structure. Consolidating all structured securities under a single unique identifier could cause investors to focus on the structure of the security rather than its asset quality. Consequently, the proposal could reinforce the very behavior it seeks to extinguish.

The SEC proposal also significantly increases the scope and depth of disclosures by requiring rating agencies to publish the information they use to assign a rating to a structured product. Rating agencies would also be required to disclose their level of reliance on the due diligence performed by third parties to verify the assets underlying a structured product.

The proposal also includes measures designed to limit opportunities for ratings agency conflicts of interest by prohibiting ratings agencies from structuring the same products that they rate. MBA has long supported efforts to increase the transparency of credit ratings. Requiring ratings agencies to disclose confidential qualitative information however could foster reluctance by those who provide the information in order to avoid the public disclosure of proprietary information.

In April MBA submitted a letter to Senate Banking Committee Chairman Christopher Dodd, D-Conn., and Ranking Member Richard Shelby, R-Ala., opposing proposals to differentiate between ratings for structured finance products and ratings for other asset classes, such as corporate and municipal bonds. The letter also warned that differentiating between ratings would only serve to further erode market confidence and threaten an already fragile economy.

"We are hopeful that the SEC will reach the conclusion that its assumptions about the perceived benefits associated with a unique structured securities identifier are vastly outweighed by both the resultant implementation costs and market uncertainty," said MBA Senior Vice President of Commercial/Multifamily Jan Sternin.