Fitch: SFIG proposals on RMBS a ‘step in the right direction’SNL Financial Services Daily
By John Baguios
The Structured Finance Industry Group's proposals for standardizing and increasing transparency in residential mortgage-backed securities through its RMBS 3.0 initiative will help the industry gain investor confidence, according to Fitch.
The rating agency said weak investor demand, regulatory issues, varying representation and warranty frameworks continue to enfeeble the RMBS market despite the strong collateral supporting new issue RMBS transactions. Further, Fitch believes that best practices that focus on aligning interests and improving transparency foster scalability and sustainability in the RMBS market.
SFIG on Aug. 6 released the first set of preliminary recommendations focused on representations and warranties, breach enforcements mechanisms, and investor communication as part of its RMBS 3.0 project. Key areas included are standardization of fraud and compliance representations and related materiality factors, mandatory breach review triggers and make whole provisions, and expanded underwriting guideline and due diligence disclosure, according to the rating agency. Fitch said SFIG plans on proposing additional standards on a quarterly basis.