Moody's Investors Service is giving the Federal Deposit Insurance Corp.'s (FDIC) new "Safe Harbor" rule the thumbs-up due to the protections private-label MBS investors can rely on if the issuing bank fails.

"As part of the final rule, the (FDIC) consented to continuing making payments or servicing the assets as required by the transaction documents," Moody’s says.

The final rule also grants expedited consent to allow secured parties to exercise rights against the FDIC arising from failure to pay or apply collections, according to the credit rating agency.

These safe harbor protections apply only to mortgage-backed securities and other private-label securities — if the issuing bank retains 5% of the credit risk and meets other FDIC requirements.  Critics claim the FDIC requirements for residential MBS are tougher than other asset-backed securities, making it uneconomical for FDIC-insured banks to sponsor RMBS.

But the credit rating agency is mainly concerned with the safe harbor protections for investors.

An earlier FDIC safe harbor proposal would have forced the credit rating agency to rely more on the financial strength of the bank issuer in rating a securitization.

"Moody's finds the revised [final] rule credit neutral whereas the credit rating agency deemed the original proposal credit-negative for bank-sponsored ABS," Moody’s said.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.