Call Now For a Free Consultation:
(614) 532-4576
Nationwide Representation

SEC Adopts New Disclosure and Review Requirements for Asset-Backed Securities

Last week, the SEC adopted two sets of new rules that will affect disclosure and review requirements for asset-backed securities (ABS), according to a Jan. 20 SEC press release.

Asset-backed securities are securities backed by bundled loans (i.e. student loans, mortgages, commercial loans, etc.) that are sold to investors. Problems arose during the financial crisis when many investors suffered significant losses from the securities and began to question the accuracy of the required “representations and warranties” made about the underlying loans. Typically, an ABS issuer or lender can be required to repurchase or replace a loan from the security if it turns out the loan does not meet the “representation of warranty” in the securities agreement.

To explain the need for the new rules, the press release quoted SEC Chairman Mary L. Schapiro: “At one time, the securitization market provided trillions of dollars of liquidity to virtually every sector of the economy. However, during the financial crisis, ABS investors suffered significant losses, causing the market for securitization to rapidly decline. These rational measures are designed to help revitalize the important asset-backed securities market by encouraging better disclosure for investors."

According to the release, the “Disclosure for Asset-Backed Securities Related to Representations, Warranties and Repurchase Histories” rule will require ABS issuers to:

  • File with the SEC a history of any requests received and repurchases made that are related to a currently outstanding ABS;
  • File quarterly reports with the SEC that lists the repurchase history for all outstanding ABS, including non-registered ABS transactions, and the history of all fulfilled and unfulfilled repurchase requests; and
  • Include in each ABS prospectus the recent three-year repurchase history for ABS of the same asset-class.

The second rule adopted last week is the “Issuer Review of Assets Underlying Asset-Backed Securities” rule. As reported in the release, the new rule will require issuers of ABS to conduct a review of they underlying assets of all registered asset-backed securities and to disclose both the nature of the review and the review’s conclusions to potential and current investors. Issuers are given the choice of whether to perform their own reviews or to hire a third-party to review the assets. Any information obtained during the review that indicates that an underlying loan differed from the loan underwriting criteria listed in the ABS prospectus, or that an underlying loan failed to meet the loan criteria listed and was still included in the security, must also be disclosed.

The new rules will take effect within 60 days of publication in the Federal Register.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

Share This Story
If you found the information provided by this article useful, consider sharing to your social media channels to help others in their search for reliable resources.
Consult with Our Legal Team
There is never a cost associated with a consultation
Atlanta Office

945 East Paces Ferry Road, Suite 2275
Atlanta, GA 30326
Columbus Office

614-224-6000
305 W. Nationwide Blvd
Columbus, OH 43215
Meyer Wilson
New Orleans Office

900 Camp Street 
Suite 337
New Orleans, LA 70130
Los Angeles Office

310-905-8688
2029 Century Park East,
Suite 400N
Los Angeles, CA 90067
Cleveland Office

216-600-1355
4781 Richmond Rd.
Suite 400
Warrensville Heights, OH 44128
Bloomfield Hills Office

248-817-8214
41000 Woodward Ave.,
Suite 350
Bloomfield Hills, MI 48304
Quick Links
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients of content from this site, clients or otherwise, should act or refrain from acting on the basis of any content included in the site without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient's state. Read More
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter.
Read More
chevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram