American Securitization Forum (ASF) Executive Director Tom Deutsch testified today before the capital markets subcommittee of the House Financial Services Committee.
In his testimony, he called securitization the key to reducing the government's role in the U.S. housing market. For a full copy of Deutsch's testimony, please click
However, the ASF official said that an "overwhelming" number of proposed new regulation that are mostly from the Dodd-Frank Act has seriously threatened securitization's return to RMBS.
Instead, Deutsch said that the trade group supports several aspects of new legislation offered by Representative Scott Garrett called the Private Mortgage Market Investment Act. These proposals, the ASF thinks, would help facilitate the return of private capital into the the country's mortgage finance system.
"The large number and high cost of these regulatory initiatives threaten ongoing paralysis of the securitization market, as many current market participants and potential new entrants are choosing to sit on the sidelines while, policymakers take years to re-form the size and shape of the full regulatory scheme," Deutsch said. "It is almost literally 'death by a thousand cuts.'"
According to Deutsch, Garrett's legislation would strike the risk retention provisions of the Dodd-Frank Act and, in turn, the proposed regulations based on the Act.
The regulatory proposals now on the table and proposed by the Joint Regulators, who are charged with implementing the Dodd-Frank Act, have missed the mark in various key areas.
These rules have also failed to achieve the suggestions of the risk retention studies that were mandated under the Act, Deutsch reiterated.
The current proposals would significantly limit a healthy private securitization market, specifically for residential mortgages, he said
The ASF believes that a re-proposal is necessary to ensure that the Joint Regulators get the final risk retention rules right.
The regulators also need to remove their proposed Premium Capture rule that goes beyond the mandate and legislative intent of the Dodd-Frank Act. This rule adds an extra 5% risk retention requirement to the entire value of an ABS issued in a securitization over par.
The proposal effectively takes out an issuer's entire return and ability to regain the transaction's associated costs. It can also add up to four percentage points of interest on top of a borrower's mortgage, the trade group head said.
Additionally, the very conservative Qualified Residential Mortgage (QRM) definition will most likely limit the availability and make mortgage credit more expensive for consumers, particularly those with low or moderate incomes, Deutsch testified.
Less than a third or 30.52% of the mortgages bought by the GSEs, including Fannie Mae and Freddie Mac, in 2009 can meet the current QRM requirment. This subjects the rest of the mortgages to the full risk retention regime.
"Securitization is key to restarting the private mortgage market and that won't happen until there are sensible regulations in place," Deutsch said. "Further, given the size of the housing market, it is difficult to see how the broader US economy can significantly improve until the uncertainties around these issues are resolved and secu-ritization returns."
