The American Securitization Forum (ASF) today just issued a model set comprising repurchase principles for RMBS.
This forms part of the trade group's ongoing Project RESTART that is aimed at rebuilding investor confidence in these securities, according to a release from the ASF.
According to the release, the new principles lists steps for investigating and resolving disputes that occur between issuers and investors on representations and warranties that are made regarding securities contained in these pools.
The ASF further said that these principles impose "powerful risk retention requirements on issuers" such as "skin in the game" that are more suitable for RMBS and more effective than those under the Dodd-Frank Act.
"The risk retention rules proposed by regulators are not sufficiently tailored to different asset classes and will likely cause a host of negative unintended consequences," Tom Deutsch, executive director of the ASF, said. "Instead, we believe that skin in the game for RMBS would be better implemented through appropriate representations and warranties that issuers provide with respect to securitized loans coupled with an effective repurchase framework like the one spelled out in our new model."
The ASF explained that the principles were developed by its broad membership and actually make up a consensus recommendation by both issuer and investor members.
The release said that without exception originator, issuer and investor members see appropriate representations and warranties and effective enforcement provision as considerable risk retention for deals in this asset class.
Furthermore, the ASF thinks that risk retained in this way results in an even greater amount of skin in the game versus the 5% risk retention that is mandated by Dodd-Frank since a repurchase would actually be a 100% of a loans unpaid principle balance.
"Our issuer and investor members strongly agree that model repurchase principles effectively establish economic incentives for originators and issuers to create and fund mortgage loans that conform to stated underwriting standards and do so in a more direct manner than the proposed risk retention rules," Deutsch said.