At the end of last month, the Commission announced that it issued a concept release soliciting input on the disclosure requirements for offerings of residential mortgage-backed securities (RMBS) and certain rules related to asset-backed securities (ABS) more generally. If this sounds familiar, as this Mayer Brown alert highlights, the SEC solicited feedback on issues impacting registered RMBS in October 2019, but that effort stalled.

Apparently, there have been no public RMBS offerings since 2013. Notably, this is just before the SEC’s adoption of Reg. AB II in 2014. So the SEC is considering how existing rules have contributed to the absence of these offerings — on the basis that these public offerings are an “important part of a healthy mortgage market.”  The release requests input on:

– How to revise Reg. AB requirements for asset-level disclosures about the underlying residential mortgages to enable public offerings of RMBS

– Potential approaches to address privacy concerns stemming from public disclosure of information about mortgage obligors, including credit scores and income

– Whether the definition of “asset-backed security” in Reg. AB should be harmonized with the definition in Section 3(a)(79) of the Exchange Act

The Mayer Brown alert describes this definitional discrepancy further:

The SEC’s adoption of Regulation AB in 2004 included a definition of “asset-backed security” that was intended to capture the securities and offerings to which the registration, disclosure and reporting requirements under the Securities Act of 1933 and the Exchange Act would apply . . . As part of the litany of laws, rules, and regulations adopted as a result of the global financial crisis of 2008, the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Exchange Act to include a separate, broader definition of “asset-backed security” . . .

The SEC recognizes that securitization transactions have become more diverse and complex, both structurally and in the types of assets that are securitized. As a result, transactions and structures that do not meet the requirements of an “asset-backed security” under Regulation AB are not able to take advantage of the SEC’s disclosure regime or utilize Form SF-1 (absent staff no-action letters or guidance permitting exceptions) or Form SF-3 to issue publicly registered securities.

The SEC also believes the competing definitions in Regulation AB and Exchange Act has caused market confusion with respect to the differences, overlap, and purpose of each definition. As a result, the SEC is seeking comment about whether it should amend the definition in Regulation AB to better align with the Exchange Act definition, and broaden the types of assets and transaction structures that can facilitate publicly registered transactions and use the SEC’s disclosure and reporting regime.

We’re posting memos and other resources in our “Asset-Backed Securities” Practice Area.

– Meredith Ervine