The National Association of Insurance Commissioner is sharing too little information about a proposal that could change the way regulators treat residential mortgage-backed securities, according to the Center for Economic Justice.
The CEJ, Austin, Texas, says it has sent state insurance commissioners a letter urging them to reject an insurance proposal for changing the way RMBS are handled.
Today, insurers are supposed to use RMBS credit ratings when adjusting the value of RMBS holdings to reflect the riskiness of the holdings.
Insurers say the current system means that even a minor default can wipe out the risk-adjusted value of an RMBS, even if the RMBS is likely to pay out most of what an insurer had expected to receive. Insurers have asked the NAIC, Kansas City, Mo., to hire a firm to develop a new RMBS risk scoring system designed for use in adjusting the value of insurance assets for risk.
If the NAIC wants to change way securities, it should change the system for all securities, or all comparable types of securities, not just for RMBS, CEJ Executive Director Birny Birnbaum writes in the letter.
In the current proposal, securities backed by auto loans, credit card loans and commercial mortgages are not addressed, Birnbaum writes.