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October 13, 2009 at 08:00 PM
The Center for Economic Justice and the Consumer Federation of America are opposing an effort to change the way residential mortgage-backed securities are graded.
The American Council of Life Insurers, Washington, has asked the National Association of Insurance Commissioners, Kansas City, Mo., to have an independent firm to create a quantitative “analytical measure” of RMBS safety, and replace reliance on current rating agency RMBS ratings with reliance on the analytical measure.
The CEJ, Austin, Texas, and the CFA, Washington, have filed a joint comment calling the proposal “yet another bald attempt by life insurers to change the rules – rules the life insurers once championed – to provide capital relief to insurers at the expense of consumer protection.”
The ACLI itself has asserted that keeping the current rules will require $11 billion in additional capital contributions, the CEJ and the CFA say.
“Insurers want alternative ratings of RMBS to reduce the amount of capital required under risk-based capital rules to support these poorly-performing securities,” the groups say.
“It is inconceivable that regulators would consider capital relief for these very risky securities given projections for continued high unemployment, mortgage defaults and mortgage foreclosures,” the CEJ and CFA say.
Insurers say the rating agencies have conflicts of interest, but the company that came up with the proposed RMBS grades also would face a conflict of interest, because it would face pressure to come up with results that would give the investors it served higher reported gains, the consumer groups say.
