A New Start for Mortgage Backed Securities
One of the biggest problems with mortgage backed securities prior to the financial market meltdown was the fact that many of the “pools” of mortgage backed securities were murky. A certain percentage of high risk mortgages were mixed in with good quality home mortgage loans, but the ratings did not reflect these risks. Many investors thought they were investing only in high grade home mortgage loans, when, in fact, they also held a certain amount of risk that they were not aware of. Naturally, when the subprime mortgage crash began, and many of these mortgage backed securities turned out to be exposed to risk, there was a massive attempted exodus from these investments.
However, mortage backed securities are an important part of the mortgage industry. They represent a needed secondary market that helps provide continued capital for the housing industry. So efforts have been underway since the middle of last year to overhaul mortgage backed securities. Julie Messina reports in the Examiner on the thrust of new mortgage backed securities regulations:
Senior industry policy makers and ASF professional staff are developing transparency, disclosure, and due diligence standards for new Residential Mortgage Backed Securities (RMBS). On July 15, 2009 the ASF issued the Final Release of the ASF RMBS Disclosure and Reporting Packages. If you look at the loan level data fields that begin on page 37 of this document you will have a better appreciation for how the industry is holding industry participants accountable for the accuracy and integrity of the mortgages that make up a pool of loans. There is no room for error. Those looking for a loophole to profit financially at the expense of others will not be able to do so.
For now, disclosure is a major part of the new regulations. Indeed, many of the new investing rules are centered around disclosure. It is important for investors to be able to make informed decisions about their investments, so that they understand the risks involved.
