Loan securitizers are bracing for an invasion of backseat drivers. By Wednesday, June 2, issuers and rating agencies must comply with a Securities and Exchange Commission (SEC) rule designed to encourage more unsolicited opinions on ABS. The regulator wants to remove the conflicts of interest in the ratings process that led to inflated ratings in the past and contributed to the financial crisis.
Among the new requirements, when a firm is hired to rate an ABS security, it must notify rivals that did not get the job. The arranger of a security must give all raters — even those it has not tapped — detailed information on the underlying loans, something that previously only the agencies that got the assignment could see. And the agencies will have to rate at least 10% of all deals they inspect, whether or not they are paid to rate them.