DBRS Sees Marriage of Banking, Securitization Initiatives

A recommendation recently proposed by the Mortgage Bankers Association regarding an industry-wide standard loan purchase and sale agreement will work with an initiative in the securitization market to “level the playing field for investors and issuers,” according to market commentary by Canadian independent rating agency DBRS. The Mortgage Bankers Association’s (MBA) request for comment on the recommended agreement comes as part of its initiative to boost liquidity and efficiency in the non-conforming residential mortgage market. The MBA’s proposed agreement standardizes the structure of mortgage sale and servicing agreements, which DBRS says will save both time and money. It also incorporates standard procedures for servicing non-conforming residential mortgage loans. DBRS said in a US structured finance newsletter that it hopes purchase and sales agreement “will become the standard form for industry participants to use voluntarily for whole loan purchases and sales, made with an eye toward potential securitization.” The proposal arrives in concert with the American Securitization Forum‘s “Project RESTART,” an initiative in the secondary market geared toward restoring investor confidence in mortgage- and asset-backed securities. Recent actions within Project RESTART include a final release of residential MBS disclosure and reporting packages. “By increasing data and standardizing available information, institutional investors will be able to better distinguish pools of high quality loans from those of a lesser quality,” DBRS says in the commentary. “The resulting differentiation will produce greater market discipline, as market forces will serve to reward originators who deliver higher quality packages of mortgage and consumer loans, while penalizing those originators who do not.” The DBRS commentary adds, “[T]he differentiation will also enable more complete and accurate valuations of existing transactions backed by these loans — a necessary condition for generating much needed secondary market liquidity.” Write to Diana Golobay.

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