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Regulator Proposes Twice Yearly RMBS Modeling

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An official with the New York State Insurance Department is suggesting that managers of a mortgage-backed securities valuation program analyze the securities twice a year, at least for now.

Matti Peltonen of the New York State Insurance Department has written to recommend that the Valuation of Securities Task Force at the National Association of Insurance Commissioners, Kansas City, Mo., consider having residential mortgage-backed securities, commercial MBS, and similar classes of assets modeled twice a year, rather than once a year.

The task force decided in December 2009 to keep using a temporary approach to evaluating RMBS and similar securities while the NAIC is developing a permanent solution.

Life insurers lobbied for the NAIC to develop a homegrown approach to evaluating RMBS, arguing that the rating agencies have used an approach that is too hard on RMBS issuers that default on any obligations but appear to be likely to pay some or all of what they owe.

The NAIC has hired private firms to help it conduct MBS evaluations designed specifically for insurance regulatory matters.

Quarterly modeling of the securities would be too expensive, but annual modeling would not be enough, because the mortgage-backed securities market is still under stress, Peltonen writes.