Alert March 25, 2008

Administration Recommends Market and Regulatory Changes to Mortgage Securitization Process

The U.S. Treasury, FRB, SEC and the Commodity Futures Trading Commission issued a joint policy statement recommending market and regulatory changes to the mortgage securitization process from origination to mortgage-related derivatives valuation. The recommendations include: (1) requiring nationwide licensing standards for mortgage brokers, (2) regulatory steps to encourage asset managers to develop an independent view of the risk characteristics of mortgage backed financial instruments, and (3) reform of the ratings process used by the credit ratings agencies, including requiring underwriters of asset backed securities to represent the level and scope of due diligence performed on the underlying securities. The statement also urges the FRB to implement final rules under the Home Ownership and Equity Protection Act once comments have been considered. Click here for a copy of the statement.