Posted on Friday, January 21, 2011
WASHINGTON — Federal regulators are requiring firms selling securities tied to mortgages, credit cards and student loans, which froze during the financial crisis, to publicly report information on the loans that back them.
The Securities and Exchange Commission adopted new rules Thursday requiring firms selling the securities to make a thorough review of the loans backing them and then to report the findings of the review to the public. The markets for securities backed by bundles of mortgages, auto and student loans, and credit cards have remained weak since the crisis, largely because investors are unsure about the quality of the loans.
The rules are required by the financial overhaul law enacted last summer. They will apply to offerings of asset-backed securities starting next Jan. 1.
The rules are intended "to restore investor confidence" in the markets for asset-backed securities, SEC Chairman Mary Schapiro said before the 3-2 vote.
The two Republican SEC commissioners, Kathleen Casey and Troy Paredes, voted against the new rules.
When the housing bubble burst in 2007 and defaults on home mortgages began to soar, securities tied to high-risk subprime mortgages became toxic and investors in them, such as big Wall Street banks, lost billions. The distress spread to the markets for other types of securities as investors lost confidence in their value. Banks were unable to continue selling the securities and using the proceeds to make loans available to commercial companies and other borrowers, and the pipeline for credit froze.
Last year about $110 billion in new asset-backed securities were offered for sale, according to the SEC. That's a dramatic decline from around $750 billion at the markets' peak in 2006.
By MARCY GORDON, THE HUFFINGTON POST