Supplemental Disclosure Requirements (§§ 942 – 946)
In addition to the risk-retention requirement, the legislation requires more disclosure in the securitization process. Congress has directed the SEC to adopt regulations requiring ABS issuers to disclose—for each tranche or class of security—information regarding the specific assets backing that security. To enable investors to compare data across securities in similar types of asset classes, the SEC is required to establish standardized disclosure formats. At a minimum, the SEC rules must require ABS issuers to disclose asset-level or loan-level data necessary for investors independently to perform due diligence, including:
- the identity of the loan broker or originator
- the extent and nature of the broker’s or originator’s compensation
- the amount of risk retained by the securitizer and the originator
The legislation instructs the SEC to promulgate regulations regarding the use of representations and warranties in the ABS market to require any securitizer to disclose fulfilled and unfulfilled repurchase requests across all the securitizer’s securitizations, such that investors may be able to identify originators with underwriting deficiencies. Finally, the SEC is required to issue rules relating to the registration statement that ABS issuers are required to file, which will require the issuer to perform a due diligence analysis of the assets underlying the ABS and disclose the nature of that analysis to potential investors. With these provisions, Congress seeks to ensure that investors will be provided with sufficient disclosures to make an informed decision regarding an ABS investment.
The regulations issued under this part of the legislation are to become effective with respect to residential mortgage ABS one year after final rules are published and with respect to all other ABS two years after final rules are published.