Mortgage investors are urging detailed reform of the asset-backed securities (ABS) market that would ensure private sector demand for mortgages in a post-Fed market. The Federal Reserve today completes $1.25trn of agency mortgage-backed securities (MBS), stirring industry fears mortgage bond spreads to Treasuries could blow out again if private investor demand fails to replace the Fed’s significant demand. The Association of Mortgage Investors, a group representing institutional investors and asset managers, sent a letter (download here) to Congress and regulators this week detailing “guideline principals” for reforming the ABS market. The letter recommended issuers be required to provide loan-level information that investors, rating agencies and regulators can use to evaluate collateral and its expected economic performance, both at pool underwriting and continuously over the life of a securitization. The letter also suggested a required “cooling off” period when ABS are offered so investors have time to review and analyze loan-level information before making investment decisions. The association recommended that deal documents for all ABS and structured finance securities be made publicly available to market participants and regulators. The letter also urged Congress and regulators to directly address conflicts of interest arising when servicers have economic interests adverse to those of investors. “Investors provide the capital that make securitization markets work yet the lessons learned over the last three years demand greater transparency and empowerment of investors for them to be comfortable buying mortgage products in the future,” said Micah Green, association spokesperson and partner at regulatory law firm Patton Boggs, in a press statement. Green added: “It is important for the government to consider the policy recommendations of investors, whose participation and capital are needed for there to be a viable mortgage-backed securities market, particularly if the role of Government in the mortgage market could change in the future.” Write to Diana Golobay.

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