ASF: Premium Capture Rule is Lethal to ABS

While testifying before the House Subcommittee on Capital Markets and Government Sponsored Enterprises today, American Securitization Forum (ASF) Executive Director Tom Deutsch advised policy makers to thoroughly analyze how the implementation of the Dodd-Frank Act’s various rules will cause cumulative harm to the securitization market.

In a release published today, ASF singled out one regulation in particular: the premium capture rule, which requires a securitizer to create a cash reserve account that comprises the premium received by the securitizer at issuance.

“Some rules like the premium capture rule are so lethal to the residential and commercial-backed securities markets that these markets are predicted to become relegated to history if the rules are put in place as proposed,” the ASF wrote.

Likewise, in his testimony, Paul Vanderslice, president of the Commercial Real Estate Finance Council (CREFC), added that although the premium capture cash reserve account (PCCRA) is intended to boost the retention regime, it would hinder borrowers by curbing credit availability and up borrowing costs.

He also said that PCCRA would shrink the volume of CMBS to the point where investors wouldn’t have the sufficient risk diversification and yield to meet such obligations as life insurance and pension payments.

In a survey conducted by the CREFC, 92% of issuer respondents answered that the imposition of the PCCRA would lower loan origination volume from present levels. Almost 62% said the drop in volume  would exceed 50%, with some predicting reductions as high as 90%-100%.

Although the implementation of the Dodd-Frank Act was intended to improve the securitization process, ASF stated that the “layer upon layer of regulations” approach will instead deeply interrupt securitization.