The American Securitization Forum has released recommended best practices for the presentation and description of home equity trigger mechanisms. These best practices are aimed at promoting better disclosure of different collateral-based performance trigger mechanisms that change the allocation of cashflows in these types of deals, said the ASF in a release. The ASF believes that these improvements will increase the awareness as well as understanding of how these trigger mechanisms work, thus promoting more efficiency in the secondary market for home equity mortgages.
The best practices make recommendations that are focused on offering materials and ongoing investor reporting through remittance reports, and take the form of both statements that manifest best practices and questions the offering materials and remittance reports should answer. The best practices were developed by the ASF's home equity loan ABS triggers task force that includes representatives from dealer, investor, issuer, rating agency and other ASF member firms. The task force circulated a draft of recommended standards late last year and incorporated industry feedback into the final best practices.
George Miller, executive director at the ASF, said that the recommended best practices were made to improve disclosure and, in turn, enhance the understanding of how these performance triggers are constructed and how they are performing. Miller added that the motivation for the proposals came from within the ASF membership as they recognized the widespread use of home equity performance triggers. They also realized that the presentation and description of these trigger mechanisms and their performance could be improved in the operating agreements, pooling and servicing indenture, and in post-issuance investor reporting. "There is a lot of variation in the scope and quality of disclosure about these triggers and people recognized that the ASF could play a useful role in the improvement of information disclosure and distribution," said Miller. He also mentioned that there is an "ongoing and healthy debate about which types of triggers are effective." However, he said that the ASF only aims to provide better information flow on whatever trigger mechanisms are used to enable market participants to make those kinds of judgments. "Our goal is to make recommendations that would increase transparency regardless of which trigger mechanism is used," Miller said.
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