06/19/2009 | By Allen Kenney
Among his proposals for wide-ranging changes to financial regulation, President Barack Obama is calling for new approaches to the origination and sale of commercial mortgage-backed securities (CMBS).
The White House's plan, released June 17, included measures intended to overhaul regulation of asset-backed securities (ABS), such as CMBS, by: refining incentive structures; improving transparency; enhancing the performance of credit rating agencies; and discouraging over-reliance on credit ratings in general.
One proposal addresses the financial stakes ABS originators have in their products, as the Administration contended that lenders and securitizers need better incentives to perform adequate due diligence on the loans underlying the securities. The measure calls for lenders or sponsors to retain 5 percent of securities' risk exposures, as well as prohibiting originators from hedging or transferring that risk.
Obama also offered measures designed to tie compensation for ABS providers more directly to their products' performance. These include changing accounting standards for originators to delay revenue recognition on sales of securities and potentially reducing originators' fees if their securities underperform.
"The plan the President unveiled today is a comprehensive proposal that provides a good launching point for the coming debate," said Mortgage Bankers Association (MBA) Chairman David G. Kittle.
"As the discussion around regulatory modernization moves forward, we will work with Congress and the administration to ensure that the new regulatory structure does not create conflicting and contradictory regulatory regimes that further confuse both lenders and borrowers," said John A. Courson, MBA's president and CEO.