According to market reports, the Center for Economic Justice (CEJ) and the Consumer Federation of America (CFA) are opposing an effort to change the way residential mortgage-backed securities are graded.
The American Council of Life Insurers, has asked the National Association of Insurance Commissioners (NAIC), to have an independent firm to create a quantitative “analytical measure” of RMBS safety, and replace reliance on current rating agency RMBS ratings with reliance on the analytical measure.
According to reports, two separate panels of state insurance regulators have voted in favor of the proposal..The proposal to create the high-profile assignment still has to clear the full NAIC, with a vote expected within several weeks.
The CEJ and the CFA, Washington, have filed a joint comment calling the proposal “yet another bald attempt by life insurers to change the rules – rules the life insurers once championed – to provide capital relief to insurers at the expense of consumer protection.”
The proposal would provide insurers with alternative ratings of RMBS in order to reduce the amount of capital required under risk-based capital rules to support the poorly-performing securities, explained the CEJ and CFA. The ACLI stated that keeping the current rules will require $11 billion in additional capital contributions.
“It is inconceivable that regulators would consider capital relief for these very risky securities given projections for continued high unemployment, mortgage defaults and mortgage foreclosures,” the CEJ and CFA said in a joint statement.
The ACLI says in response to the CEJ and CFA comment that it is submitting the RMBS proposal because the economic crisis exposed a flaw in the way RMBS have been rated for risk-based calculation purposes.
"ACLI seeks a methodology that produces the most accurate possible rating for RMBS," the ACLI says. "Life insurers invest primarily in AAA rated bonds."