The Securities and Exchange Commission (SEC) is considering rules that would require ABS issuers to perform a review of the assets underlying the securities, and to disclose information relating to the review.
The SEC's proposed rules would complement the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the Commission to adopt rules regarding the review of assets, such as loans, underlying the securities no later than 180 days after enactment.
Under the proposed rules, issuers of ABS registered under the Securities Act would be required to conduct a review of the assets underlying the ABS. This requirement, which would implement Section 945 of the new law, would apply to all registered ABS, regardless of the assets that comprise the bundle. However, the level and type of review may vary depending on such circumstances as the nature of the assets being securitized.
The rule would permit issuers to perform the review themselves or hire a third party to perform the review provided the third party is named in the registration statement and consents to being named as an “expert” under the federal securities laws.
ABS issuers would also be required to disclose the nature of the review performed to satisfy the review requirements, as well as the findings and conclusions of such review.
Issuers would also be required to disclose: information about how the loans in the pool differ from the disclosure in the prospectus about the underwriting criteria; information about loans that did not meet the disclosed underwriting criteria; and information about the entity that made the determination that such loans should be included in the pool, despite not having met the disclosed underwriting standards.
Issuers and underwriters would also be required to disclose the findings and conclusions of any review performed by a third party that was hired to conduct such a review. This requirement would implement Section 932 of the new law and would apply to issuers and underwriters of both registered and unregistered offerings of ABS.