SEC Proposes Changes in ABS Regulation

speech at the April 7 “SEC Open Meeting”

As the Chairman noted, “the benefits of better alignment of the interests of issuers and investors through a retention or ‘skin in the game’ requirement,” are fundamentally important.

The proposal includes requirements for “granular” and “timely” information about loans backing the securities; and that issuers and distributors, “for the first time give investors a minimum period of time–specifically five business days–to consider transaction-specific information, including the loan level data, before an ABS investment decision needs to be made.” It also requires that issuers provide the SEC with the “waterfall” information for the securities: “The waterfall is essentially the rules that dictate how the borrowers’ loan payments are distributed to investors in the ABS, how losses or lack of payment on those loans is divided among the investors, and when administrative expenses (such as servicing fees), are paid to service providers,” Schapiro explained in her speech.