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Politics : View from the Center and Left
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From: Dale Baker6/15/2009 4:40:28 PM
   of 542464
 
US To Propose Tougher Rules For Securitization Markets
Last update: 6/15/2009 4:13:17 PM

By Jessica Holzer
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--The Obama administration will propose revamping rules governing the securitization markets as part of its rewrite of financial regulation.

Loan originators would have to retain 5% of the credit risk of loans sold off to securitizers, according to a summary of the proposals obtained by Dow Jones Newswires.

In addition, originators would be barred from directly or indirectly hedging that credit risk, under the administration's proposal.

"Strengthening the supervision of securitization markets is a critical step in modernizing our regulatory framework and addressing the root causes of this financial crisis," the document said.

The administration is expected to unveil its complete plan for overhauling financial market rules Wednesday. Treasury spokesman Andrew Williams confirmed the document on securitization was authored by Treasury officials.

Issuers of asset-backed securities would have to adhere to tougher disclosure rules, under the administration's proposal. They would have to share information with investors and with credit-rating agencies about individual loans as well as compensation paid to brokers, originators and sponsors.

Credit-rating agencies would have to write "robust" policies and procedures for managing and disclosing conflicts of interest.

Fees paid to mortgage brokers and lenders would have to be disbursed over time and could be reduced if a loan turns out to be poorly underwritten.
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