Friday, October 28, 2011

House Legislation Reforming Mortgage Securitization Would Abolish Dodd-Frank Risk Retention Provisions

Legislation introduced by Rep. Scott Garrett (R-NJ) would abolish the Dodd-Frank risk retention provisions as part of a broad reform of the mortgage securitization process. The Private Mortgage Market Investment Act would also direct the Federal Housing Finance Administration, overseer of Fannie Mae and Freddie Mac, to develop standard and uniform securitization agreements and representations and warranties and to streamline the process for securities that meet the standard underwriting characteristics and securitization agreements to be sold to investors. The legislation would also authorize FHFA to ensure underwriting and securitization standardization compliance. Rep. Garrett is the Chair of the House Capital Markets Subcommittee. The subcmmittee will hold hearings on the legislation on November 3.

The legislation would require mandatory arbitration on disagreements between investors and issuers on representations and allow for the appointment of an independent third party to act for the benefit of investors in mortgage-backed securities.

In an effort to enhance transparency and disclosure around securitization of mortgages, the legislation would increase the quality of the loan level information and the disclosures that investors can use to evaluate the value of the mortgages. The measure would also increase transparency by mandating the disclosure of pricing history on securitization deals and requiring the creation of an individualized marker for each loan within a securitization. It would ensure that investors have sufficient time to review and analyze disclosed information before making investment decisions.