New Disclosure Rules Intended to Revitalize Securitization Market

To improve transparency in asset-backed securities ("ABS") in the wake of significant losses suffered by investors during the financial crisis, the SEC has adopted new rules that require expanded issuer disclosure of information regarding the underlying assets.  The requirements and new Form ABS-15G that were adopted in the Final Rule implement the requirements of Section 943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and also conform disclosure requirements for prospectuses and ongoing reports for ABS sold in registered transactions. 

The final rules require ABS issuers to file with the SEC, in tabular format, the history of the requests they received and asset repurchases they made relating to their outstanding ABS.  The table will provide comparable disclosures so that investors may identify originators with clear underwriting deficiencies.  Specifically, issuers are required to disclose the last three years of repurchase history in an initial filing on EDGAR due by Feb. 14, 2012, and additional disclosures will be required quarterly thereafter. 

Disclosures also will be required in prospectuses for new ABS.  Each prospectus must include the repurchase history for the last three years for the issuer’s ABS of the same asset class as the offered securities.  This requirement also is effective Feb. 14, 2012.  In its ongoing reports, an issuer will be required to provide updated repurchase history for the particular, related asset pool beginning with distribution reports required to be filed on Form 10-D after Dec. 31, 2011.

In addition, the final rules require Nationally Recognized Statistical Rating Organizations (NRSROs) to provide a description of the representations, warranties and enforcement mechanisms available to investors in an ABS offering, and to disclose how these differ from those of similar ABS.  NRSROs will be required to make the disclosures in any report accompanying a credit rating, including in presale reports that are distributed prior to the sale of the security.  NRSROs will be required to provide this information for any report issued on or after six months after the effective date of the rules (which is 60 days after their publication in the Federal Register.)