Mortgage Pros Map Lobbying Campaign
In a bid to stimulate issuance of publicly offered mortgage securitizations, industry professionals are preparing to lobby the SEC to amend Regulation AB.
The effort would entail the formation of an alliance of mortgage-bond issuers, bankers and lawyers whose goal would be to convince the agency to relax several rules imposed under its 2016 update to Reg AB — in particular, extensive disclosures of loan data.
Changes to “Reg AB 2” are necessary, they argue, now that the Consumer Financial Protection Bureau has decided not to delay the January 2021 expiration of a “qualified-mortgage patch” for Fannie Mae and Freddie Mac. The CFPB long had been seen as likely to extend the patch, under which Fannie and Freddie can buy loans that don’t meet the regulator’s qualified-mortgage standards.
Private-label mortgage professionals argued against an extension. But at the same time, they expressed reservations about their ability to finance the billions of dollars of non-qualified loans that suddenly would become available to the non-agency market.
High among their concerns: How to boost securitization volume in the face of Reg AB 2.
“Collaborations are forming within the industry in order to bring firepower to the effort,” said Eric Kaplan, director of housing finance at the Milken Institute. “Public deals can really help this market grow. Reg AB 2 contains several impediments. We need a Reg AB 3 that fixes these impediments.”
Among those supporting the effort is Sifma, which maintains Reg AB 2 is “overly burdensome and has effectively shut down registered markets for non-agency residential mortgage-backed securities.”
Meanwhile, Redwood Trust is preparing a report urging industry pros to join forces in pressing for changes to Reg AB 2, which is unworkable in its current form, Redwood chief executive Christopher Abate said. “We plan to raise the discussions.”
From 1995 to the onset of the credit crisis in 2007, issuance of SEC-registered mortgage-bond offerings totaled $2.8 trillion, according to Asset-Backed Alert’s ABS Database. Since then, only Redwood has come to market with public offerings, issuing 17 deals totaling $6.9 billion from 2010 to 2013. But not a single public deal has been completed since Reg AB 2 took effect in December 2016.
Since then, Redwood and other mortgage-bond issuers limited their issuance to private deals under Rule 144A, which doesn’t require the same level of disclosure. The downside is that most institutional investors restrict themselves to investments in public securities, and won’t touch Rule 144A issues.
Redwood continues to be the only issuer with a Reg AB-compliant shelf.
Under the CFPB’s patch, Fannie and Freddie are permitted to issue mortgage bonds after disclosing about 90 data points. By comparison, Reg AB 2 requires non-agency issuers to disclose three times as much data for public offerings.
“The GSEs aren’t complying with the standard for any of their issuance,” one industry pro said. “The amount of data and compliance undertaken through their programs actually pales in comparison to Rule-144A private deals, much less public RMBS.”