The Securities and Exchange Commission has released its telephone interpretations on Item 122 of Regulation AB. These were released after Paula Dubberly, SEC associate director, gave a preview on the Commission's stance on this item at the recently concluded American Securitization Forum conference held in Las Vegas.
In its updated telephone interpretations, the SEC has allowed servicers to assume responsibility for assessing vendor compliance under the servicing criteria enumerated in Item 1122 (d) of Reg AB.
ABS market participants welcomed this move by the SEC. "Although the Commission modified some language, the punch line is substantially similar," said Tom Deutsch, associate director at the ASF.
The ASF, along with the Mortgage Bankers Association, in December 2006 submitted a letter to the SEC asking for clarification on item 1122 as well as Rules 13a-18 and 15d-18 of the Securities and Exchange Act of 1934. These provisions relate to the registration, disclosure and reporting requirements for ABS transactions - specifically compliance by servicers and the third-party service providers that these servicers hire.
The updated telephone interpretations, according to Deutsch, "fundamentally will save the industry millions of dollars in reporting costs while, at the same time, still remaining true to Reg AB's aim of providing investors the protection of a responsible entity reporting the required information."
Aside from asking for clarification on Item 1122, the ASF is also waiting on a response from the SEC regarding Reg AB Item 1115, which relates to disclosure by derivative counterparties. The SEC response on this request could be a week or two away, sources said.
John Hitt, a partner at Chapman and Cutler, said that the SEC's updated telephone interpretations "was great news" considering the deadline for issuers to file 10-Ks is coming up at the end of March.
"I think once the SEC comes out with its guidance on credit support/swap providers, then the SEC will have answered the major questions that I have heard in the industry," Hitt said.
However, as market participants are coming up with their assessments and attestations for their 10-Ks, Hitt anticipates that there would still be questions on reporting requirements. Although these questions would probably not rise to the level of needing SEC guidance, many market participants would likely try to figure things out on their own, or look at what majority of the market is doing to comply with reporting requirements under Reg AB.
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