Asset-Backed Securities Disclosure and Registration

Federal RegisterSep 24, 2014

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 230, 232, 239, 240, 243, and 249

[Release Nos. 33-9638; 34-72982; File No. S7-08-10]

RIN 3235-AK37

Asset-Backed Securities Disclosure and Registration

AGENCY:

Securities and Exchange Commission.

ACTION:

Final rule.

SUMMARY:

We are adopting significant revisions to Regulation AB and other rules governing the offering process, disclosure, and reporting for asset-backed securities (“ABS”). The final rules require that, with some exceptions, prospectuses for public offerings under the Securities Act of 1933 (“Securities Act”) and ongoing reports under the Securities Exchange Act of 1934 (“Exchange Act”) of asset-backed securities backed by real estate related assets, auto related assets, or backed by debt securities, including resecuritizations, contain specified asset-level information about each of the assets in the pool. The asset-level information is required to be provided according to specified standards and in a tagged data format using eXtensible Markup Language (“XML”). We also are adopting rules to revise filing deadlines for ABS offerings to provide investors with more time to consider transaction-specific information, including information about the pool assets. We are also adopting new registration forms tailored to ABS offerings. The final rules also repeal the credit ratings references in shelf eligibility criteria for ABS issuers and establish new shelf eligibility criteria.

DATES:

Effective Date:

November 24, 2014.

Compliance Dates:

Offerings on Forms SF-1 and SF-3:

Registrants must comply with new rules, forms, and disclosures no later than November 23, 2015.

Asset level Disclosures:

Offerings of asset-backed securities backed by residential mortgages, commercial mortgages, auto loans, auto leases, and debt securities (including resecuritizations) must comply with asset-level disclosure requirements no later than November 23, 2016.

Forms 10-D and 10-K:

Any Form 10-D or Form 10-K that is filed after November 23, 2015 must comply with new rules and disclosures, except asset-level disclosures.

FOR FURTHER INFORMATION CONTACT:

Rolaine S. Bancroft, Senior Special Counsel, Michelle M. Stasny, Special Counsel, M. Hughes Bates, Attorney-Advisor, or Kayla Florio, Attorney-Advisor, in the Office of Structured Finance at (202) 551-3850, Division of Corporation Finance, U.S. Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION:

We are adopting amendments to Items 512

and 601

of Regulation S-K;

Items 1100, 1101, 1102, 1103, 1104, 1105, 1108, 1109, 1110, 1111, 1112, 1113, 1114, 1119, 1121, and 1122

of Regulation AB

(a subpart of Regulation S-K); Rules 139a, 167, 190, 193, 401, 405, 415, 424, 430B, 430C, 433, 456, and 457,

and Forms S-1 and S-3

under the Securities Act of 1933 (Securities Act);

Rules 11, 101, 201, 202, and 305

of Regulation S-T;

and Rules 3a68-1a, 3a68-1b, 15c2-8, 15d-22, 15Ga-1, and 17g-7

and Forms 8-K, 10-K, and 10-D

under the Securities Exchange Act of 1934;

and Rule 103

of Regulation FD.

We also are adding new Items 1124 and 1125

to Regulation AB, and Rule 430D,

Form SF-1,

Form SF-3,

and Form ABS-EE

under the Securities Act.

17 CFR 229.512.

17 CFR 229.601.

17 CFR 229.10

et al.

17 CFR 229.1100, 17 CFR 229.1101, 17 CFR 229.1102, 17 CFR 229.1103, 17 CFR 229.1104, 17 CFR 229.1105, 17 CFR 229.1108, 17 CFR 229.1109, 17 CFR 229.1110, 17 CFR 229.1111, 17 CFR 229.1112, 17 CFR 229.1113, 17 CFR 229.1114, 17 CFR 229.1119, 117 CFR 229.1121, and 17 CFR 229.1122.

17 CFR 229.1100 through 17 CFR 229.1124.

17 CFR 230.139a, 17 CFR 230.167, 17 CFR 230.190, 17 CFR 230.193, 17 CFR 230.401, 17 CFR 230.405, 17 CFR 230.415, 17 CFR 230.424, 17 CFR 230.430B, 17 CFR 230.430C, 17 CFR 230.433, 17 CFR 230.456, and 17 CFR 230.457.

17 CFR 239.11 and 17 CFR 239.13.

15 U.S.C. 77a

et seq.

17 CFR 232.11, 17 CFR 232.101, 17 CFR 232.201, 17 CFR 232.202, and 17 CFR 232.305.

17 CFR 232.10

et seq.

17 CFR 240.3a68-1a, 17 CFR 240.3a68-1b, 17 CFR 240.15c2-8, 17 CFR 240.15d-22, 17 CFR 240.15Ga-1, and 17 CFR 240.17g-7.

17 CFR 249.308, 17 CFR 249.310, and 17 CFR 249.312.

15 U.S.C. 78a

et seq.

17 CFR 243.103.

17 CFR 243.100

et seq.

17 CFR 229.1124 and 17 CFR 229.1125.

17 CFR 230.430D.

17 CFR 239.44.

17 CFR 239.45.

17 CFR 249.1500.

Table of Contents

I. Executive Summary

A. Background

B. Problems in the ABS Markets

C. Summary of Final Rules

1. Asset-Level Disclosure

2. Other Disclosure Requirements

3. Securities Act Registration

(a) Certification

(b) Asset Review Provision

(d) Investor Communication

(e) Other Shelf Offering Provisions

4. Other Changes to ABS Rules

5. Proposed Rules Not Being Adopted at This Time

II. Economic Overview

A. Market Overview and Economic Baseline

B. Economic Motivations

C. Potential Effects on the ABS Market

D. Potential Market Participants' Responses

III. Asset-Level Disclosure

A. Asset-Level Disclosure Requirement

1. Background and Economic Baseline for the Asset-Level Disclosure Requirement

(a) Proposed Rule

(b) Comments on Proposed Rule

2. Specific Asset-Level Data Points in Schedule AL

(a) Disclosure Requirements for All Asset Classes and Economic Analysis of These Requirements

(b) Asset Specific Disclosure Requirements and Economic Analysis of These Requirements

(1) Residential Mortgage-Backed Securities

(2) Commercial Mortgage-Backed Securities

(3) Automobile Loan or Lease ABS

(4) Debt Security ABS

(5) Resecuritizations

3. Asset-Level Data and Individual Privacy Concerns

(a) Proposed Rule

(b) Comments on Proposed Rule

4. Requirements Under Section 7(c) of the Securities Act

(a) Section 7(c)(2)(B)—Data Necessary for Investor Due Diligence

(b) Section 7(c)(2)(B)(i)—Unique Identifiers Relating to Loan Brokers and Originators

(c) Section 7(c)(2)(B)(ii)—Broker Compensations and Section 7(c)(2)(B)(iii)—Risk Retention by Originator and the Securitizer of the Assets

B. Asset-Level Filing Requirements

1. The Timing of the Asset-Level Disclosure Requirements

(a) Timing of Offering Disclosures

(1) Proposed Rule

(2) Comments on Proposed Rule

(3) Final Rule and Economic Analysis of the Final Rule

(b) Timing of Periodic Disclosures

(1) Proposed Rule

(2) Comments on Proposed Rule

(3) Final Rule and Economic Analysis of the Final Rule

2. The Scope of New Schedule AL

(a) Proposed Rule

(1) Offering Disclosures

(2) Periodic Disclosures

(b) Comments on Proposed Rule

3. XML and the Asset Data File

(a) Proposed Rule

(b) Comments on Proposed Rule

4. Asset Related Documents

(a) Proposed Rule

(b) Comments on Proposed Rule

5. New Form ABS-EE

(a) Proposed Rule

(b) Comments on Proposed Rule

6. Temporary Hardship Exemption

(a) Proposed Rule

(b) Comments on Proposed Rule

C. Foreign ABS

IV. Other Prospectus Disclosure

A. Transaction Parties

1. Identification of the Originator

(a) Proposed Rule

(b) Comments on Proposed Rule

2. Financial Information Regarding a Party Obligated To Repurchase Assets

(a) Proposed Rule

(b) Comments on Proposed Rule

3. Economic Interest in the Transaction

(a) Proposed Rule

(b) Comments on Proposed Rule

4. Economic Analysis Related to the Rules Regarding Transaction Parties

B. Prospectus Summary

1. Proposed Rule

2. Comments on Proposed Rule

3. Final Rule and Economic Analysis of the Final Rule

C. Modification of Underlying Assets

1. Proposed Rule and Comments on Proposed Rule

2. Final Rule and Economic Analysis of the Final Rule

D. Disclosure of Fraud Representations

E. Static Pool Disclosure

1. Disclosure Required

(a) Proposed Rule

(b) Comments on Proposed Rule

2. Amortizing Asset Pools

(a) Proposed Rule

(b) Comments on Proposed Rule

3. Filing Static Pool Data

(a) Proposed Rule

(b) Comments on Proposed Rule

F. Other Disclosure Requirements That Rely on Credit Ratings

V. Securities Act Registration

A. Background and Economic Discussion

B. New Registration Procedures and Forms for ABS

1. New Shelf Registration Procedures

(a) Rule 424(h) and Rule 430D

(1) Proposed Rule

(2) Comments on Proposed Rule

(3) Final Rule and Economic Analysis of the Final Rule

(a) Rule 424(h) Filing

(b) New Rule 430D

2. Forms SF-1 and SF-3

(a) Proposed Rule

(b) Comments on Proposed Rule

3. Shelf Eligibility for ABS Offerings

(a) Shelf Eligibility—Transaction Requirements

(1) Certification

(a) Proposed Rule

(b) Comments on Proposed Rule

(i) Paragraph One

(ii) Paragraph Two

(iii) Paragraph Three

(iv) Paragraph Four

(v) Paragraph Five

(vi) Signature Requirement

(vii) Date of the Certification

(viii) Opinion by an Independent Evaluator Alternative

(2) Asset Review Provision

(a) Proposed Rule

(b) Comments on Proposed Rule

(i) Triggers for Review

(a) Delinquency Prong

(b) Investor Vote Prong

(ii) Scope of the Review

(iii) Report of the Findings and Conclusions

(iv) Selection of the Reviewer

(3) Dispute Resolution Provision

(a) Proposed Rule

(b) Comments on Proposed Rule

(4) Investor Communication

(a) Proposed Rule

(b) Comments on Proposed Rule

(b) Shelf Eligibility—Registrant Requirements

(1) Annual Compliance Check Related to Timely Exchange Act Reporting

(a) Proposed Rule

(b) Comments on Proposed Rule

(2) Annual Compliance Check Related to the Fulfillment of the Transaction Requirements in Previous ABS Offerings

(a) Proposed Rule

(b) Comments on Proposed Rule

4. Continuous Offerings

(a) Proposed Rule

(b) Comments on Proposed Rule

5. Mortgage Related Securities

(a) Proposed Rule

(b) Comments on Proposed Rule

C. Exchange Act Rule 15c2-8(b)

1. Proposed Rule

2. Comments on Proposed Rule

3. Final Rule and Economic Analysis of the Final Rule

D. Including Information in the Form of Prospectus in the Registration Statement

1. Presentation of Disclosure in Prospectuses

(a) Proposed Rule

(b) Comments on Proposed Rule

2. Adding New Structural Features or Credit Enhancements

(a) Proposed Rule

(b) Comments on Proposed Rule

E. Pay-as-You-Go Registration Fees

1. Proposed Rule

2. Comments on Proposed Rule

3. Final Rule and Economic Analysis of the Final Rule

F. Codification of Staff Interpretations Relating to Securities Act Registration

1. Fee Requirements for Collateral Certificates or Special Units of Beneficial Interest

2. Incorporating by Reference Subsequently Filed Exchange Act Reports

(a) Proposed Rule

(b) Comments on Proposed Rule

VI. Filing Requirements for Transaction Documents

A. Proposed Rule

B. Comments Received on Proposed Rule

C. Final Rule and Economic Analysis of the Final Rule

VII. Definition of Asset-Backed Security

A. Proposed Rule

B. Comments on Proposed Rule

1. The Master Trust Exception

2. The Revolving Period Exception

3. The Prefunding Exception

C. Final Rule and Economic Analysis of the Final Rule

VIII. Exchange Act Reporting

A. Distribution Reports on Form 10-D

1. Delinquency Presentation

(a) Proposed Rule

(b) Comments on Proposed Rule

2. Identifying Information and Cross-References to Previously Reported Information

3. Changes in Sponsor's Interest in the Securities

(a) Proposed Rule

(b) Comments on Proposed Rule

B. Annual Report on Form 10-K

1. Servicer's Assessment of Compliance With Servicing Criteria

(a) Proposed Rule

(b) Comments on Proposed Rule

2. Codification of Prior Staff Interpretations Relating to the Servicer's Assessment of Compliance With Servicing Criteria

C. Central Index Key Numbers for Depositor, Sponsor and Issuing Entity

IX. Transition Period

A. General Transition Period

B. Transition Period for Asset-Level Disclosure Requirements

C. Compliance Dates

X. Paperwork Reduction Act

A. Background

B. Summary of Comment Letters on the PRA Analysis

C. Revisions to Proposals

D. PRA Reporting and Cost Burden Estimates

1. Form ABS-EE

2. Form S-3 and Form SF-3

3. Form S-1 and Form SF-1

4. Form 10-K

5. Form 10-D

6. Form 8-K

7. Regulation S-K and Regulation S-T

E. Summary of Changes to Annual Burden of Compliance in Collection of Information

XI. Regulatory Flexibility Act Certification

XII. Statutory Authority and Text of Rule and Form Amendments

I. Executive Summary

A. Background

The Commission addressed the registration, disclosure, and reporting requirements for asset-backed securities in 2004 when it adopted new rules and amendments under the Securities Act and the Exchange Act.

Among other changes, the 2004 rules updated and clarified the Securities Act registration requirements for asset-backed securities offerings and allowed modified Exchange Act reporting tailored to asset-backed securities offerings. In April 2010, we proposed revisions to the registration, disclosure, and reporting requirements for ABS offerings in an effort to improve investor protection and promote more efficient asset-backed markets.

See Asset-Backed Securities,

Release No. 33-8518 (Jan. 7, 2005) [70 FR 1506] (the “2004 ABS Adopting Release”).

See Asset-Backed Securities,

Release No. 33-9117 (Apr. 7, 2010) [75 FR 23328] (the “2010 ABS Proposing Release” or the “2010 ABS Proposal”).

In the 2010 ABS Proposing Release we noted that the financial crisis highlighted that investors and other participants in the securitization market did not have the necessary information and time to be able to fully assess the risks underlying asset-backed securities and did not value asset-backed securities properly or accurately. This lack of understanding and the extent to which it impacted the U.S. and global economy prompted us to revisit several aspects of our regulation of asset-backed securities.

To address these issues, we proposed to require that, with some exceptions, prospectuses for public offerings of asset-backed securities and ongoing Exchange Act reports contain specified asset-level information about each of the assets in the pool in a standardized tagged data format. Further, we proposed a rule that asset-backed issuers provide investors with more time to consider transaction-specific information about the pool assets. We also proposed to require asset-backed issuers to file a computer program modeling the flow of funds, or waterfall, provisions of the transaction to help investors analyze the offering and monitor ongoing performance. For offerings of asset-backed securities that qualify for shelf registration, we proposed investor protection-focused shelf eligibility and offering requirements that would indicate which types of offerings qualify for delayed shelf eligibility and also proposed to remove the investment-grade ratings requirement.

Finally, we proposed to require disclosure provisions in unregistered ABS transaction agreements as a condition to certain safe harbors for exempt offerings and resales of ABS.

See

the 2010 ABS Proposing Release at 23329.

In this Release, we also refer to such offerings as shelf offerings.

In July 2010, subsequent to the 2010 ABS Proposing Release, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”),

which directed the Commission to prescribe several ABS related rules, some of which were included in the 2010 ABS Proposals and others of which were not. Two of the proposed shelf eligibility requirements—risk retention and continued Exchange Act reporting—were addressed by provisions of the Dodd-Frank Act. After taking the Dodd-Frank requirements into account, and considering comments received in connection with the 2010 ABS Proposing Release, in 2011 we re-proposed some of the 2010 ABS Proposals, including the shelf eligibility requirements. In that same release, we also sought additional comment on asset-level disclosure, including comment on how best to implement Section 7(c) of the Securities Act, as added by Section 942(b) of the Dodd-Frank Act, which directed the Commission to adopt regulations to require asset-level information.

Public Law 111-203, 124 Stat. 1376 (July 21, 2010).

See Re-Proposal of Shelf Eligibility Conditions for Asset-Backed Securities,

Release No. 33-9244 (July 26, 2011) [76 FR 47948] (the “2011 ABS Re-Proposing Release” or the “2011 ABS Re-Proposal”).

In February 2014, the Commission re-opened the comment period

on the 2010 ABS Proposals and the 2011 ABS Re-Proposals to permit interested persons to comment on an approach for the dissemination of asset-level data, which is described in a staff memorandum, dated February 25, 2014, that was posted to the public comment file.

See Re-Opening of Comment Period for Asset-Backed Securities,

Release No. 33-9552 (Feb. 25, 2014), [79 FR 11361] (“the 2014 Re-Opening Release”).

See

Memorandum from the Commission's Division of Corporation Finance (Feb. 25, 2014),

available at http://www.sec.gov/comments/s7-08-10/s70810.shtml

(the “2014 Staff Memorandum”).

B. Problems in the ABS Markets

The financial crisis highlighted a number of concerns about the operation of our rules in the securitization market.

The failures of credit ratings to accurately measure and account for the risks associated with certain asset-backed securities have been well documented by lawmakers, market observers, and academics.

The collapse of these “investment-grade” rated securities was a major contributor to the financial crisis, and demonstrated the risks to investors of unduly relying on these securities' credit ratings without engaging in independent due diligence.

Although academic

research suggests that some investors might have been able to price ABS credit risk beyond what the ratings implied, there is also evidence that investors in triple-A rated tranches were less informed than investors in lower tranches.

For a more detailed discussion of the issues mentioned in this section and other economic problems that affected the ABS market, see Section II.B Economic Motivations below.

See, e.g.,

H.R. Rep. No. 4173 (2010) (Conf. Rep.) (Dodd-Frank Wall Street Reform and Consumer Protection Act—Conference Report) (noting that the performance of credit rating agencies, particularly their ratings of asset-backed securities, contributed significantly to the financial crisis); John Griffin & Dragon Tang,

Did Subjectivity Play a Role in CDO Credit Ratings?,

67 J. Fin. 1293-1328 (2012) (discussing discretionary out-of-model adjustments to collateralized debt obligation (“CDO”) ratings made by one nationally recognized statistical rating organization); Adam Ashcraft, Paul Goldsmith-Pinkham & James Vickery,

MBS Ratings and the Mortgage Credit Boom

(2010 Working Paper Federal Reserve Bank of New York) (arguing, among other things, that MBS ratings did not fully reflect publicly available data).

See

the 2011 ABS Re-Proposal.

See also

Federal Reserve, Report to Congress on Risk Retention 49-66 (2010) (documenting the extent of the collapse of the investment-grade ABS market); Efraim Benmelech & Jennifer Dlugosz,

The Credit Rating Crisis,

in 24 NBER Macroeconomics Ann. 161-207 (Daron Acemoglu, Kenneth Rogoff & Michael Woodford, eds., Univ. of Chicago Press, Apr. 2010) (2009) (arguing that credit rating agency models did not adequately anticipate how poorly the assets underlying many structured finance products performed during economic downturns, that the ratings models failed to account for the correlation among underlying assets (e.g., residential home prices) at the national level, and that “ratings shopping” by issuers exacerbated the severity of the poor performance of structured finance products during the economic downturn); Patrick Bolton, Xavier Freixas & Joel Shapiro,

The Credit Ratings Game,

67(1) J. Fin. 85-111 (2012) (arguing that credit rating agency competition can reduce the efficiency of credit ratings, as it facilitates “ratings shopping,” and that ratings are more likely to be inflated during economic booms and when investors are more trusting).

See

Manuel Adelino,

How Much Do Investors Rely on Ratings? The Case of Mortgage-Backed Securities,

(2009 Working Paper Dartmouth College) (suggesting that investors in certain RMBS triple-A rated tranches relied more on ratings because they were less informed about the quality of the underlying assets than investors in lower tranches based on a comparison between yield spreads at securitization and actual defaults).

But see

Jie Jack He, Jun QJ Qian & Philip E. Strahan,

Are All Ratings Created Equal? The Impact of Issuer Size on the Pricing of Mortgage-Backed Securities,

67 J. Fin. 2097-2137 (2012) (suggesting that investors did not over rely on ratings by arguing that investors were able to price the risk of large RMBS issuers receiving more inflated ratings by comparing yields on RMBS sold by large issuers against the yields on RMBS sold by small issuers).

In addition, investors have expressed concern about a lack of time to analyze securitization transactions and make informed investment decisions.

Time to analyze an offering is necessary if investors are being encouraged to perform their own diligence and to not over rely on credit ratings. While the Commission has not generally built waiting periods into its shelf offering registration process,

and instead has believed investors can take the time they believe is adequate to analyze securities (and refuse to invest if not provided sufficient time), investors have indicated that this is not generally possible in the ABS market, particularly in a heated market.

See

discussion in Section V.B.1.a) Rule 424(h) and Rule 430D below.

See, e.g.,

Section IV.A. of

Securities Offering Reform,

Release No. 33-8591 (July 19, 2005) [70 FR 44722] (the “Securities Offering Reform Release”) (adopting significant revisions to registration, communications and offering process under the Securities Act and stating that Rule 159 would not result in a speed bump or otherwise slow down the offering process).

See

discussion in Section V.B.1.(a) Rule 424(h) and Rule 430D below.

Investors and others have also expressed concerns about other aspects of the securitization market, including concern about a lack of effective oversight by the principal officers of the ABS issuer.

In particular, investors have been concerned that these officers have not conducted sufficient due diligence when reviewing the pool assets and designing the securitization structure. Additionally, investors have noted that the mechanisms for enforcing the representations and warranties contained in the securitization transaction documents are weak, and thus they are not confident that even strong representations and warranties provide them with adequate protection.

They have also noted that difficulties in locating fellow ABS investors have prevented them from exercising rights under the transaction agreement, including requirements that an originator or sponsor repurchase an asset if it does not comply with the representations and warranties.

See, e.g.,

letters from Better Markets dated Oct. 4, 2011 submitted in response to the 2011 ABS Re-Proposing Release (“Better Markets”), CFA Institute dated Nov. 9, 2011 submitted in response to the 2011 ABS Re-Proposing Release (“CFA II”), Securities Industry and Financial Markets Association dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“SIFMA I”) (expressed views of investors only), and Vanguard dated Aug. 27, 2010 submitted in response to the 2010 ABS Proposing Release (“Vanguard”).

See

letters from Metropolitan Life Insurance Company dated Oct. 4, 2011 submitted in response to the 2011 ABS Re-Proposing Release (“Metlife II”), Prudential Investment Management, Inc. dated Oct. 4, 2011 submitted in response to the 2011 ABS Re-Proposing Release (“Prudential II”), and Securities Industry and Financial Markets Association, Asset Management Group dated Oct. 4, 2011 submitted in response to the 2011 ABS Re-Proposing Release (“SIFMA II-investors”) (stating that they do not believe the ABS market will recover without a mechanism to enforce breaches of representations and warranties).

See also

Section V.B.3.a)(2) Asset Review Provision below.

See

letters from CFA II and Investment Company Institute dated Oct. 4, 2011 submitted in response to the 2011 ABS Re-Proposing Release (“ICI II”).

Market participants have also expressed a desire for expanded disclosure about the assets underlying securitizations in order to conduct an analysis of the offering.

The financial crisis underscored that the information available to investors about ABS may not have provided them with all the information necessary to fully understand and correctly gauge the risks underlying the securities. As a result, investors may not have been able to accurately value those securities.

See

discussion in Section III.A.1 Background and Economic Baseline for the Asset-Level Disclosure Requirement below.

See

Sheila Bair, Bull by The Horns: Fighting to Save Main Street From Wall Street and Wall Street From Itself 52 (2012) (noting that, based on data analysis conducted by the FDIC, ABS investors did not look at the quality of the individual loans in the asset pools and lacked detailed loan-level information and adequate time to analyze the information before making an investment decision).

See also

footnote 882 and discussions in Section III.A.1 Background and Economic Baseline for the Asset-Level Disclosure Requirement and Section V.B.1.a) Rule 424(h) and Rule 430D below.

C. Summary of Final Rules

We are adopting significant revisions to the rules governing disclosure, reporting, registration, and the offering process for asset-backed securities. The revised rules are designed to address the problems discussed above and to enhance investor protection in the ABS market.

In adopting these changes, we have taken into consideration the comments and recommendations made by commenters in connection with the 2010 ABS Proposing Release, the 2011 ABS Re-Proposing Release and the 2014 Re-Opening Release, which are reflected in the changes made in the final rules.

We received a total of 240 comment letters in connection with the 2010 ABS Proposals, 2011 ABS Re-Proposal and the 2014 Re-Opening Release.

The rules do not affect the applicability of the Investment Company Act (15 U.S.C. 80a-1

et seq.

) to ABS issuers, including the availability of exclusions from such Act.

See, e.g.,

Section 3(c)(1) or Section 3(c)(7) (15 U.S.C. 80a-3(c)(1) and 80a-3(c)(7)) (for unregistered transactions); Rule 3a-7 [17 CFR 270.3a-7] (for registered and unregistered transactions).

The 2014 Re-Opening Release provided for a thirty-day comment period. In response to commenters' requests, on March 28, 2014, we extended the comment period until April 28, 2014.

The final rules are intended to provide investors with timely and sufficient information, reduce the likelihood of undue reliance on credit ratings, and provide mechanisms to help to enforce the representations and warranties made about the underlying assets. These revisions are comprehensive and although they will impose new burdens on issuers, we believe they will protect investors and promote efficient capital formation. The rules cover the following areas:

• Securities Act and Exchange Act disclosures, including new requirements for certain asset classes to disclose standardized asset-level information;

• Revisions to the shelf offering process, eligibility criteria, and prospectus delivery requirements; and

• Several changes to the Asset-Backed Issuer Distribution Report on Form 10-D, the Annual Report on Form 10-K, and the Current Report on Form 8-K.

See

Section I.C.5 Proposed Rules Not Being Adopted At This Time for a list of proposed rules that we are not adopting at this time.

In addition, we are adopting clarifying, technical, and other changes to the current rules. Some of the rules we are adopting are designed to address and improve areas that we believe have the potential to raise issues similar to those highlighted in the financial crisis. Furthermore, some of the rules we are adopting respond to Sections 939A and 942(b) of the Dodd-Frank Act.

1. Asset-Level Disclosure

Investors, other market participants, academics, and policy makers have increasingly noted that asset-level information is essential to evaluating an asset-backed security.

We believe that

all investors and market participants should have access to the information they need to assess the credit quality of the assets underlying a securitization at inception and over the life of a security. In 2010, we proposed to require standardized asset-level information in prospectuses and on an ongoing basis in periodic reports. The 2010 ABS Proposals called for ABS issuers to disclose standardized asset-level information for most asset classes.

See, e.g., The Private Mortgage Market Investment Act, Part I, Hearing on H.R. 3644 Before the Subcomm. on Capital Mkts. & Gov't Sponsored Enters. of the H. Comm. on Fin. Servs.,

112th Cong.

3 (2011) (statement of Rep. Scott Garrett, Chairman, Subcomm. on Capital Mkts. & Gov't Sponsored Enters.) (stating “in regards to transparency and disclosure, investors should be empowered, if you will, and enabled to do their own analysis of the assets underlying the securities that they are investing in. So by disclosing more detailed loan level data, while at the same time protecting the privacy of the borrowers, and by allowing more time for the investors to study that additional information, investors will be able to conduct more due diligence and lessen their reliance on rating agencies”);

Securitization of Assets: Problems & Solutions Hearing Before the Subcomm. on Secs., Ins., & Inv. of S. Comm. on Banking, Housing & Urban Affairs,

111th Cong. 39 (2009) (statement of Patricia McCoy, law professor at the University of Connecticut School of Law) (recommending that “[t]he SEC should require securitizers to provide investors with all of the loan-level data they need to assess the risks involved” and “should require securitizers and servicers to provide loan-level information on a monthly basis on the performance of each loan and the incidence of loan modifications and recourse”).

See also

letters from Moody's Investors Service dated Aug. 31, 2010 submitted in response to the 2010 ABS Proposing Release (“Moody's I”) (suggesting increased ABS data information will restore confidence in the structured finance market), Prudential Investment Management, Inc. dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“Prudential I”) (supporting the SEC's proposal for investors to have access to asset-level data in order to provide investors with a better understanding of risk), and SIFMA I (suggesting that asset-level data is important to an investor's investment decision and is needed to restore investor confidence).

We are adopting standardized asset-level disclosure requirements because we believe this information will allow an investor to better conduct his or her own evaluation of the ongoing credit quality of a particular asset, risk layering of assets, and overall risks in the pool underlying the ABS. In our discussion below, we refer to each individual asset-level disclosure requirement as an asset-level data point. The asset-level data will be provided at the time of the offering and on an ongoing basis. The disclosures are required to be provided in a standardized XML format, so that they are more useful to investors and markets. We have revised the required data points to address commenters' concerns about a variety of topics that we discuss further below, such as the availability of data, market practice, need for increased transparency and privacy concerns. While we are adopting asset-level disclosure requirements for ABS where the underlying assets consist of residential mortgages, commercial mortgages, auto loans, auto leases and resecuritizations of ABS that include these asset types, or of debt securities,

we are continuing to consider the best approach for requiring more information about underlying assets for the remaining asset classes covered by the 2010 ABS Proposal.

Under the proposal, this asset class was titled “corporate debt.” However, we are using the term “debt security ABS” to provide clarification because, as we discuss below, the same set of requirements will also apply to resecuritizations.

While the 2010 ABS Proposal applied across asset classes, we had also proposed specific requirements for equipment loans and leases, student loans, floorplan financings, and credit card receivables. As discussed below, Section 7(c) of the Securities Act [15 U.S.C. 77g(c)] also requires, in relevant part, that the Commission adopt regulations requiring an issuer of an asset-backed security to disclose, for each tranche or class of security, information about the assets backing that security, including asset-level or loan-level data, if such data is necessary for investors to independently perform due diligence.

We have modified some of the proposed data points in response to comments. The new disclosure requirements include the following standardized data points:

• Data points about the payment stream related to a particular asset, such as the contractual terms, scheduled payment amounts, basis for interest rate calculations and whether and how payment terms change over time;

• Data points that allow for an analysis of the collateral related to the asset, such as the geographic location of the property, property valuation data and loan-to-value (“LTV”) ratio;

• Data points about the performance of each asset over time, for example, data about whether an obligor is making payments as scheduled; and

• Data points about the loss mitigation efforts by the servicer to collect amounts past due and the losses that may pass on to the investors.

Other key data points we are adopting will provide data about the extent to which income and employment status have been verified, mortgage insurance coverage, and lien position.

We have also made modifications from the 2010 ABS Proposal in light of privacy concerns. As we discuss below, many commenters were concerned with the privacy implications of asset-level disclosure, particularly the risk that the information could be combined with other publicly available information to discover, or “re-identify,” the identities of the obligors in ABS pools, thereby revealing potentially sensitive personal and financial information about an obligor. In light of these concerns, we are omitting or modifying certain asset-level disclosures for RMBS and securities backed by auto loans and leases (collectively, “Auto ABS”) to reduce the potential risk that the obligors could be re-identified. We refer to this risk throughout the release as “re-identification risk”. Additionally, in response to commenters' suggestions, we have sought and obtained guidance from the Consumer Financial Protection Bureau (“CFPB”) on the application of the Fair Credit Reporting Act (“FCRA”)

to the required disclosures. We believe these steps implement the statutory mandate of Section 7(c) and will provide investors with the asset-level information they need while reducing concerns about the potential re-identification risk associated with disclosing consumers' personal and financial information.

15 U.S.C. 1681 et seq. FCRA generally regulates the use of “consumer reports” furnished by a “consumer reporting agency,” as those terms are defined in the statute. The CFPB has authority to interpret FCRA.

15 U.S.C. 77g(c).

2. Other Disclosure Requirements

We are also adopting other amendments to the prospectus disclosure requirements, which will require:

• A summary of statistical information about the pool of underlying assets in the prospectus summary;

• A description of the provisions in the transaction agreements about modification of the terms of the underlying assets;

• More explanatory language about the static pool disclosures and standardized delinquency presentation and, for static pool filings on Form 8-K, a new separate Form 8-K item and exhibit number;

• Expanded disclosure about transaction parties; and

• Filing of the transaction documents, by the date of the final prospectus, which is a clarification of the current rules.

3. Securities Act Registration

ABS issuers have emphasized their desire to access the capital markets quickly through shelf registration. ABS shelf registration offers significant flexibility and timing benefits to issuers, but these interests must be balanced against investors' need for adequate information and time to make informed investment decisions. Investors have expressed concerns about not having adequate time to review the prospectus in order to make a well-informed investment decision, especially in an

active market.

This lack of time to adequately review the transaction contributed to investors placing undue reliance on the investment-grade ratings of these securities.

Consequently, we are adopting a requirement that ABS issuers using a shelf registration statement on new Form SF-3 file a preliminary prospectus under new Rule 424(h) containing transaction-specific information at least three business days in advance of the first sale of securities in the offering.

The preliminary prospectus will give investors additional time to analyze the specific structure, assets, and contractual rights regarding each transaction. We had originally proposed that any material change to the preliminary prospectus, other than offering price, would require the filing of a new preliminary prospectus and re-starting the waiting period. In response to commenters' concerns, we are requiring, instead, that issuers file material changes in a prospectus supplement that provides a clear description of how the information has changed at least 48 hours before the first sale.

See

the 2010 ABS Proposing Release at 23334, including footnote 80, and the 2011 ABS Re-Proposal at 47950, including footnote 19.

See also

the discussion in Section V.B.1.a)(1), below (discussing investors' concerns about the lack of adequate time).

See, e.g., Securitization of Assets: Problems & Solutions Hearing Before the Subcomm. on Sec., Ins., & Inv. of the S. Comm. on Banking, Housing & Urban Affairs,

111th Cong. 71 (2009) (statement of William W. Irving, Portfolio Manager at Fidelity Investments) (noting “high demand [for ABS] put investors in the position of competing with each other, making it difficult for any of them to demand better underwriting, more disclosure, simpler product structures, or other favorable terms”).

We use the term “preliminary prospectus” to mean the Rule 424(h) preliminary prospectus; similarly we use the term “final prospectus” to mean the Rule 424(b)(2) or (5) prospectus.

As noted above, while we recognize that ABS issuers have expressed the desire to use shelf registration in order to access the capital markets quickly, we believe that the shelf eligibility requirements should be designed to help ensure a certain quality and character for asset-backed securities eligible for delayed shelf registrations given the speed of these offerings. Prior to today, one of the shelf eligibility requirements for offerings of asset-backed securities was that the securities were investment-grade securities—meaning that at least one of the nationally recognized statistical rating organizations (“NRSRO”) rated them in one of its generic rating categories that signifies investment grade and is typically one of the four highest categories. As noted above, the financial crisis revealed that credit rating agencies had generally not appropriately evaluated the credit risk of the securities and that some investors may have placed too much reliance on these ratings without conducting their own analysis.

We proposed to replace the investment-grade ratings requirement with alternative shelf eligibility criteria. These proposals were part of a broad ongoing effort to remove references to NRSRO credit ratings from our rules in order to reduce the risk of undue reliance on ratings and also to eliminate the appearance of an imprimatur that such references may create.

Additionally, Section 939A of the Dodd-Frank Act requires us to review and eliminate the use of credit ratings as an assessment of creditworthiness in our rules.

Consequently, we are adopting four transaction requirements for ABS shelf eligibility to indicate which types of offerings qualify for shelf registration, and we are removing the prior investment-grade ratings requirement. The four new transaction requirements are:

See

footnote 31.

See also

Tom Hals & Al Yoon,

Mortgage Investors Zeroing in on Subprime Lender

, Thomson Reuters, May 9, 2011 (noting that gathering the requisite number of investors needed to demand accountability for faulty loans pooled into investments is a “laborious” task).

(d) Investor Communication

The aftermath of the financial crisis has demonstrated that investors have also encountered difficulty in locating other investors in order to enforce rights collectively under the terms of the ABS transaction, especially those related to repurchase demands due to breaches of the representations and warranties.

Without an effective means for investors to communicate with each other, investors have told us that they are unable to utilize the contractual rights provided in the underlying transaction agreements. To address this concern, we are requiring as proposed that the underlying transaction agreements must include a provision to require that a request by an investor to communicate with other investors be included in ongoing distribution reports filed on Form 10-D.

See

Katy Burne,

Banker's Latest Bet: Teamwork on Bonds,

Wall St. J., Jan. 22, 2013 (illustrating the difficulty that investors encounter in attempting to communicate with one another and noting one investor's efforts to locate other RMBS investors by publishing advertisements in national newspapers).

(e) Other Shelf Offering Provisions

We are also adopting various other changes to the procedures and forms related to shelf offerings substantially as proposed, with some changes in response to comments, including:

• Limiting registration of continuous ABS shelf offerings to “all or none offerings.”

• Eliminating Rule 415(a)(1)(vii) that provided shelf eligibility to certain investment-grade mortgage related securities regardless of the registration statement form.

• Permitting a pay-as-you-go registration fee alternative, allowing ABS issuers to pay registration fees at the time of filing the preliminary prospectus, as opposed to paying all registration fees upfront at the time of filing the registration statement.

• Creating new Forms SF-1 and SF-3 for ABS issuers that will replace the usage of current Forms S-1 and S-3 in order to delineate between ABS filers and corporate filers and to tailor requirements for ABS offerings.

• Eliminating the ABS investment-grade exemptive provision in Rule 15c2-8(b) so that a broker or dealer will be required to deliver a preliminary prospectus at least 48 hours before sending a confirmation of sale.

• Revising the current practice of providing a base prospectus and prospectus supplement for ABS issuers and instead requiring that a single prospectus be filed for each takedown (except that it would be permissible to highlight material changes from the preliminary prospectus in a separate supplement to the preliminary prospectus).

4. Other Changes to ABS Rules

In addition to the prospectus disclosure changes and shelf requirements, we are also adopting other changes related to ABS. For example, we are adopting a revision to the prefunding exception provided in the definition of ABS, which will decrease the prefunding limit from 50% to 25% of the offering proceeds. Additionally, we are adopting several changes to Forms 10-D, 10-K and 8-K.

5. Proposed Rules Not Being Adopted At This Time

We are not adopting at this time, however, several rules that we proposed in the 2010 ABS Proposing Release or the 2011 ABS Re-Proposing Release. These proposals remain outstanding. They include:

• Requiring issuers to provide the same disclosure for Rule 144A offering as required for registered offerings;

• Making the general asset-level requirements applicable to all asset classes and asset-class specific requirements for equipment loans and leases, student loans, and floorplan financings;

• Requiring grouped-account disclosure for credit and charge card ABS;

• Filing of a waterfall computer program of the contractual cash flow provisions of the securities;

• Requiring the transaction documents, in substantially final form, be filed by the date the preliminary prospectus is required to be filed;

• Exempting ABS issuers from current requirements that the depositor's principal accounting officer or controller sign the registration statement and in lieu requiring an executive officer in charge of securitization sign the registration statement; and

• Revising when pool disclosure must be updated on Form 8-K.

II. Economic Overview

We are mindful of the economic consequences and effects, including costs and benefits, of our rules, and we discuss them throughout this release when we explain the new rules that we are adopting. Further, Section 2(b) of the Securities Act

and Section 3(f) of the Exchange Act

require the Commission, when engaging in rulemaking that requires it to consider whether an action is necessary or appropriate in the public interest, to consider, in addition to the protection of investors, whether the action would promote efficiency, competition, and capital formation. In addition, Section 23(a) of the Exchange Act requires the Commission, when making rules and regulations under the Exchange Act, to consider the impact a new rule would have on competition.

Section 23(a)(2) also prohibits the Commission from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act.

15 U.S.C. 77b(b).

15 U.S.C. 78c(f).

15 U.S.C. 78w(a).

15 U.S.C. 78w(a)(2).

To assess these economic consequences, we are using as our baseline the ABS market as it exists at the end of 2013, including applicable rules adopted by the Commission but excluding the rules adopted herein. Because activity in the ABS market has changed due to the financial crisis, we will refer to market statistics that encompass the pre-crisis period, the crisis period, and the current period as appropriate in order to provide a more comprehensive picture of the ABS market. To the extent that certain amendments are mandated by statute, the economic analysis considers the consequences and effects that stem from statutory mandates, as well as those that are affected by the discretion we exercise in implementing the mandates. We provide a qualitative, and whenever possible quantitative, discussion of the costs, benefits, and the effects on efficiency, competition, and capital formation of individual rule provisions in the corresponding sections of the release. We anticipate, however, that the elements of the rules will interact with each other and also with other regulations to generate combined economic effects. Thus, it is appropriate to expand the analysis to include disparate elements of the rule. While we make every reasonable attempt to quantify the economic impact of the rules that we are adopting, we are unable to do so for several components of the new rules due to the lack of available data.

We also recognize that several components of the new rules are designed to change existing market practices and as a result, existing data may not provide a basis to fully assess the rules' economic impact. Specifically, the rules' effects will depend on how issuers, their investors, and other parties to the transactions (e.g., trustees, underwriters, and other parties that facilitate transactions between issuers and investors) will adjust on a long-term basis to these new rules and the resulting evolving conditions. The ways in which these groups could adjust, and the associated effects, are complex and interrelated and thus we are unable to predict them with specificity nor are we able to quantify them at this time.

We note the lack of quantitative analysis provided by commenters about the impact of the proposals on the market. Some commenters did, however, provide us with some limited qualitative descriptions of potential impacts, which we took into consideration in adopting the final rules.

The new rules are designed to improve investor protections and promote a more efficient asset-backed market. The new transaction requirements for shelf eligibility should encourage ABS issuers to design and prepare ABS offerings with greater oversight and care and should incentivize issuers to provide investors with accurate and complete information at the time of the offering. It is these transactions that are appropriate to be offered to the public off a shelf without prior staff review. The new requirements for more asset-level information and more time for investors to review this information will provide more disclosure and greater transparency about the underlying assets. The effect of the increased disclosure on competition, efficiency, and capital formation will depend, in part, on the level of granularity and standardization of information currently available and disclosed. The remaining changes to Regulation AB that we are adopting are refinements to existing Regulation AB. We recognize that these new and amended rules that we are adopting may impose costs on asset-backed issuers, investors, servicers, and other transaction participants and may affect competition, efficiency, and capital formation. The effect of the refinements to existing Regulation AB will depend, in part, on issuers' current methods to comply with the existing rules. While we cannot predict or quantify precisely all effects the new rules will have on competition, efficiency, and capital formation, we believe that the rules we are adopting will improve the asset-backed securities market.

A. Market Overview and Economic Baseline

For many asset classes, the ABS market before the 2007-2009 financial crisis differed significantly from the one immediately after the crisis, and even from our baseline, the market that exists today, as illustrated in Figure 1. Private-label (non-U.S. agency) ABS issuers held $2.6 trillion in assets in 2004, which grew to $4.5 trillion in 2007, and declined to $1.63 trillion in 2013.

This distinction is most stark in the case of private-label residential mortgage-backed securities (“RMBS”), including home equity lines of credit. In 2004, prior to the crisis, new issuances of registered private-label RMBS totaled $746 billion.

The overwhelming majority of private-label RMBS deals issued before the crisis were registered offerings. In 2008, registered private-label RMBS issuance drastically dropped to $12 billion. Today, the private-label RMBS market remains exceptionally weak overall and consists

almost exclusively of unregistered RMBS offerings.

For 2013, new issuances of registered private-label RMBS totaled $4 billion, which represents 0.54% of the issuance level in 2004. Similarly, a drop in issuance level was evident with registered commercial mortgage-backed securities (“CMBS”), which totaled $74 billion in 2004, declined to $11 billion in 2008, and totaled $53 billion in 2013. The consumer finance ABS market, including credit card and auto securitizations, also declined drastically both in terms of number of deals and issuance volume after the financial crisis. For example, $85 billion of Auto ABS were issued in 2005, but after the crisis, in 2008, issuance plummeted to $32 billion. Unlike RMBS, consumer finance ABS, especially Auto ABS, has since 2008 steadily increased to $42 billion of issuance in 2011 and to $62 billion in 2013. Almost all ABS markets experienced historic downturns following the crisis, and the recovery of these markets has not been uniform.

BILLING CODE 8011-01-C

See

Federal Reserve Board, Financial Accounts of the United States: Flow of Funds, Balance Sheets, and Integrated Macroeconomic Accounts (published quarterly),

available at http://www.federalreserve.gov/releases/z1/.

Each report contains data for the previous five years; data for earlier years can be accessed through the Federal Reserve's Data Download Program,

available at http://www.federalreserve.gov/datadownload/Choose.aspx?rel=Z.1.

We use aggregate data for private mortgage pools, consumer credit, business loans, student loans, consumer leases, and trade credit securitization.

The figure and statistics in this section are based on the issuance data from AB Alert and CM Alert databases. The deals are categorized by offering year, underlying asset type, and offering type (SEC registered, Rule 144A, or traditional private offerings). Private-label RMBS include residential, Alt-A, and subprime RMBS, and ABS backed by home equity loans and lines of credit. Only private-label (non-GSE) RMBS deals sold in the United States and sponsors of such deals are counted. Auto loan ABS include ABS backed by auto loans, both prime and subprime, motorcycle loans, truck loans, and RV loans.

As of December 2013, roughly 99% of new residential mortgage-related securitizations were government sponsored (market statistics from the Securities Industry and Financial Markets Association (SIFMA)).

See also

Tracy Alloway, “Private-Label Mortgage Securities Take Root,” Fin. Times (Feb. 22, 2013) (noting a recent spurt in private-label RMBS issuances but also indicating that the volume of private-label RMBS is likely to remain suppressed for some time). The outstanding private-label RMBS market fell to $1.1 trillion in the last quarter of 2013, down from $1.4 trillion in 2011 and $2.3 trillion in 2007.

See

also Diana Olick, “Why Private Investors Are Staying Away From Mortgages,” CNBC (Aug. 6, 2012) (citing lack of investor confidence in the quality and ratings of RMBS).

ER24SE14.000

The number of sponsors in the registered ABS markets has undergone changes similar to the issuance activity described above. In 2004 there were 131 sponsors of registered ABS, while currently there are 61 sponsors of registered ABS.

The decline in the number of sponsors is most dramatic in the RMBS segment where only a single sponsor of private-label RMBS was issuing registered securities as of the end of 2013—down from 52 sponsors in 2004. In the RMBS market, private-label RMBS issuers encounter competitive pressure from government-sponsored enterprises, whose mortgage-backed securities are guaranteed and exempt from registration and reporting requirements. As private-label issuance has declined, issuance of agency RMBS has increased. Issuances of Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), and Government National Mortgage Association (“Ginnie Mae”) mortgage-related securities were $1.4 trillion in 2004, and grew to $1.9 trillion in 2013.

For a description of the data, see footnote 66. The 2004 numbers in this release have been revised from those provided in the 2010 ABS Proposal to include CMBS sponsors from the CM Alert database.

See

SIFMA, U.S. Mortgage-Related Issuance,

available at http://www.sifma.org/research/statistics.aspx.

Many factors contributed to the financial crisis, including some that involved mortgage-backed securities.

The low interest rate environment prior to the crisis drove investor demand for high-yield, high-credit rated products, including mortgage-backed securities.

Among the many factors relating to mortgage-backed securities that contributed to the financial crisis, mortgage originators largely exhausted the supply of traditional quality mortgages, and to keep up with investor demand for mortgage-backed securities, subprime lending became increasingly popular.

During the crisis, as the default rate for subprime mortgages soared, such securities, including those with high credit ratings, lost value (up to 95% for triple-B rated and 70% for triple-A rated subprime RMBS issued in 2006), making investors reluctant to purchase these securities.

Some of the decline in the value began to reverse in 2010 as housing prices started to stabilize and investors gained a better understanding of the mortgage modification process. This reversal has been concentrated in the subprime RMBS tranches that were highly rated. As indicated above, activity in some parts of the ABS market continues to remain weak.

A report by the U.S. Government Accountability Office (“GAO”) noted that subprime and near-prime mortgages increased dramatically in popularity during the 2000's, accounting for nearly 40% of mortgage originations by 2006. The high foreclosure and default rates of these mortgages contributed precipitously to the financial crisis.

See

U.S. Government Accountability Office,

Mortgage Reform: Potential Impacts of Provisions in the Dodd-Frank Act on Homebuyers and the Mortgage Market

(July 2011) at 11.

See, e.g.,

Eamonn K. Moran,

Wall Street Meets Main Street: Understanding the Financial Crisis,

N.C. Banking Inst. 7, 14 & 35 (2009) (“Low interest rates set by the Federal Reserve, as a result, led to low returns on traditionally safe U.S. Treasury bonds. Therefore, securitized investments, which yielded a premium but many of which carried AAA-ratings even if the underlying mortgages were dubious, were quite attractive to domestic and foreign investors.”).

See id.

at 35 (noting “voracious demand exhausted the supply of prime mortgage loan securitizations and investment bankers began seeking subprime mortgage loans to continue to generate mortgage-backed securities”).

See, e.g.,

Board of Governors of the Federal Reserve System,

Report to the Congress on Risk Retention,

(Oct. 2010) at 50-51 (discussing the dramatic drop in the triple-A and triple-B ABX.HE 2006-2 index).

B. Economic Motivations

As described at the end of the previous section, during the financial crisis, many securitizations performed exceptionally poorly as investments. This has been attributed to the dual problems of moral hazard and asymmetric information.

In particular, many believe that originators and securitizers have more information about the credit quality and other relevant characteristics of the borrower than the ultimate investors; for example, they may have been aware that the underlying assets were of poor quality and, thus, presented greater risks. This leads to a potential moral hazard problem—the situation where one party (e.g., the loan originator or ABS sponsor) may have a tendency to incur risks because another party (e.g., investors) will bear the costs or burdens of these risks. Hence, when there are inadequate processes in place to encourage (or require) sufficient transparency to overcome concerns about informational differences, the securitization process could lead certain participants to maximize their own welfare and interests at the expense of other participants. Before and during the crisis, information regarding the quality of the underlying assets was not generally known by investors, and certain originators and sponsors were frequently able to transfer the financial consequences of poor origination decisions by packaging the assets in complex and often opaque securitization structures.

The incentives to maintain opacity were particularly acute for those securitizations where the originator and securitizer received full compensation for their services before investors could become informed about the loan quality of the underlying pool.

See,

Adam B. Ashcraft & Til Schuermann,

Understanding the Securitization of Subprime Mortgage Credit

(Staff Report, Fed. Reserve Bank of N.Y., Working Paper No. 318, 2008) (identifying at least seven different frictions in the residential mortgage securitization chain that can cause agency and adverse selection problems in a securitization transaction and explaining that given that there are many different parties in a securitization, each with differing economic interests and incentives, the overarching friction that creates all other problems at every step in the securitization process is asymmetric information).

See, e.g.,

Chris Downing, Dwight Jaffee & Nancy Wallace,

Is the Market for Mortgage-Backed Securities a Market for Lemons?,

22(7) Rev. Fin. Stud. 2457-94 (2009) (stating that the quality of the assets sold to investors through securitizations is lower than the quality of similar assets that are not sold to investors); Amiyatosh Purnanandam,

Originate-to-Distribute Model and the Subprime Mortgage Crisis,

24(6) Rev. Fin. Stud. 1881-1915 (2011) (stating that banks with high involvement in the originate-to-distribute market originated excessively poor-quality mortgages and noting that this evidence is consistent with the view that the originating banks did not expend resources to adequately screen the quality of their borrowers).

See also

Section C.2.b. Broad Economic Considerations of the

Credit Risk Retention,

Release No. 34-70277 (Aug. 28, 2013) [78 FR 57928] (the “2013 Risk Retention Re-Proposing Release”).

At that time, many investors unduly relied upon the major credit rating agencies for credit analysis of these structures rather than conducting their own due diligence, and these agencies often failed to accurately evaluate and rate the securitization structures.

Many observers believe that inflated and inaccurate credit ratings contributed to the financial crisis in a significant way.

Investment in securitizations has diminished substantially since the financial crisis, in part, because investors have significantly less trust that incentives are properly aligned among originators, securitizers, independent evaluators (rating agencies), and investors.

See

footnotes 30, 31 and 52.

Observers identified several weaknesses in the credit rating process, which in many instances contributed to inaccurate ratings and were made apparent in the aftermath of the financial crisis. One of the weaknesses is the availability of ratings shopping, whereby issuers can request and privately observe multiple ratings and then choose to disclose publicly only the most favorable. Complex assets that are difficult to rate and that are likely to generate differences in ratings can create incentives for issuers to shop for ratings and disclose only those ratings that are high. Competition among credit rating agencies can exacerbate the problem, by providing rating agencies with incentive to compete for business through favorable ratings and providing issuers with options to choose among the rating agencies—commonly referred to as a race to the bottom. As a result of these weaknesses in the credit rating process, overreliance on credit ratings of complex or potentially opaque assets, such as in the case with asset-backed securities, can lead to excess investment with poor risk/return characteristics.

See, e.g.,

Nat'l Comm'n on the Causes of the Fin. and Econ. Crisis in the U.S., The Financial Crisis Inquiry Report xxv, 43-44 (2011) (“Participants in the securitization industry realized that they needed to secure favorable credit ratings in order to sell structured products to investors. Investment banks therefore paid handsome fees to the ratings agencies to obtain the desired ratings.”); Vasiliki Skreta & Laura Veldkamp,

Ratings Shopping and Asset Complexity: A Theory of Ratings Inflation,

56 J. Monetary Econ. 678-95 (2009); Bo Becker & Todd Milbourn,

How Did Increased Competition Affect Credit Ratings?,

101 J. Fin. Econ. 493-514 (2011); John Griffin & Dragon Tang,

Did Subjectivity Play a Role in CDO Credit Ratings?,

67(4) J. Fin. 1293-1328 (2012).

Adam B. Ashcraft & Til Schuermann,

Understanding the Securitization of Subprime Mortgage Credit

(Staff Report, Fed. Reserve Bank of N.Y., Working Paper No. 318, 2008) (discussing the ways that market participants work to minimize informational frictions that arise among and between the different participants in the securitization process and providing thoughts and evidence on how this process broke down during the financial crisis); Joshua Coval, Jakub Jurek & Erik Stafford,

The Economics of Structured Finance,

23(1) J. Econ. Persp. 3-25 (2009) (providing a detailed assessment of the relative importance of rating agency errors, investor credulity, and perverse incentives and suspect behavior on the part of issuers, rating agencies, and borrowers).

The rules we are adopting apply to private-label RMBS securitizations, and do not apply to Government Sponsored Entities (GSEs) such as Fannie Mae and Freddie Mac, whose principal and interest on issued securities is currently guaranteed, while the GSEs remain in conservatorship,

and otherwise may be perceived by market participants to carry an implicit guarantee.

Private-label RMBS securitizations are not guaranteed by the federal government and had a much higher serious delinquency rate than GSE-purchased

loans, even after accounting for different underlying loan characteristics.

This historical performance-based evidence suggests that GSE underwriting standards offset the incentive to incur excess risk because of their capital support, at least in relation to the private-label securitizers that did not have such capital support. In particular, GSE purchased loans were six times less likely to default than private-label loans with similar characteristics.

The focus of the final rules is on private-label securitizations, which is the segment of the market where investors are more likely to experience losses.

In September 2008, Fannie Mae and Freddie Mac agreed to be placed under direct government control, through conservatorship.

N. Eric Weiss, Cong. Research Serv., R40800, GSEs and the Government's Role in Housing Finance: Issues for the 113th Congress (2013). For the estimates of the value of the implicit government guarantee, see Wayne Passmore,

The GSE Implicit Subsidy and the Value of Government Ambiguity,

33(3) Real Est. Econ. 465-86 (2005) (finding that GSE shareholders benefit substantially from the ambiguous government relationship, largely due to the fact that purchasers of the GSEs' debt securities believe the debt is implicitly backed by the U.S. government (despite the lack of a legal basis for such a belief)); Deborah Lucas & Robert McDonald, Valuing Government Guarantees: Fannie and Freddie Revisited, in Measuring and Managing Federal Financial Risk 131-154 (Deborah Lucas, ed., Univ. of Chicago Press, Feb. 2010) (2010) (estimating the value of the implicit guarantee on GSEs' debt issues to be approximately $28 billion).

See

Joshua White & Scott Bauguess, Qualified Residential Mortgage: Background Data Analysis on Credit Risk Retention, Division of Economic and Risk Analysis, U.S. Securities and Exchange Commission (Aug. 2013) (the “White-Bauguess Study”),

available at http://www.sec.gov/divisions/riskfin/whitepapers/qrm-analysis-08-2013.pdf

Id.

We note that the rules are intended to increase transparency about the potential risks in the ABS market through greater loan-level disclosure and to provide additional recourse for investors when issues arise, thus providing better tools for investors to evaluate their capital allocation decisions. These measures should lessen the risk of overreliance on credit ratings as investors will now be able to conduct their own due diligence using more transparent and fuller disclosures regarding the assets underlying a securitization. Disclosure of higher quality and more complete data regarding the loan characteristics of the underlying collateral should result in better capital allocation decisions, improved capital formation and, ultimately, lower capital costs by making the markets more informationally-efficient.

One key objective of the final rules is to eliminate the reliance on credit ratings in the determination of shelf eligibility of asset-backed securities. Replacing the investment-grade rating requirement for the purposes of shelf eligibility may result in securitizers finding it uneconomic or unnecessary to obtain credit ratings for their securitizations, thus lowering the demand for the services of third-party evaluators. The rules do not, however, preclude investors from utilizing credit ratings in their investment analysis and decision-making, and asset-backed securities issuers are not prohibited from having their offerings rated. Thus, if there is sufficient demand for ratings due to a perception of value in the ratings, then securitizers may continue to obtain ratings and credit rating agencies would suffer a relatively small decrease in the demand for their ratings services.

The rules we are adopting are designed to work with other regulations to provide additional disclosures, further align incentives in the securitization market, and restore confidence in the ABS market. Specifically, Section 941(b) of the Dodd-Frank Act requires regulations that mandate that certain securitizers have “skin in the game” through the retention of a meaningful risk exposure in securitizations (at least a 5% economic loss exposure).

The requirement that securitizers hold risk exposure is likely to affect their decisions regarding the quality of assets to include in such structures. While we expect that the risk retention rules required by the Dodd-Frank Act, when adopted, will result in better underwriting practices, we believe that further regulation is necessary to align incentives and facilitate credit evaluation in the securitization market.

See

15 U.S.C. 78o-11(b), (c)(1)(A) and (c)(1)(B)(ii).

See also

letters from Consumer Data Industry Association dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“CDIA”) (suggesting that the Commission require parties that want to access the data on EDGAR register to use the data, acknowledge the sensitive nature of the data and agree to maintain its confidentiality) and Epicurus Institute dated Aug. 1, 2010 submitted in response to the 2010 ABS Proposing Release (“Epicurus”) (stating that they believe “that the prospectus should contain a hypertext link (with instructions for accessing a Web site to obtain the data) . . . [and only] prospective investors should have traceable access to the data, and that they never have the opportunity to download . . . raw data in any format”).

To assess the economic consequences of these asset-level disclosure requirements, we are using as our baseline the ABS market as it existed at the end of 2013. Today, we note that for some types of ABS, issuers have begun or have continued to provide asset-level data. For instance, some registered RMBS issuers before the financial crisis provided asset-level disclosures, although the disclosures were not standardized. Since then, there have been a limited number of registered RMBS transactions. Those transactions have provided asset-level disclosures pursuant to recently developed industry standards.

101

Further, sellers of mortgage loans to Fannie Mae and Freddie Mac are required to deliver certain asset-level data in a standardized electronic form.

102

In turn, Fannie Mae and Freddie Mac provide investors loan-level disclosures about the assets underlying their securitizations.

103

For CMBS, we note that issuers commonly provide investors with asset-level disclosures at the time of securitization and on an ongoing basis pursuant to industry developed standards.

104

For other asset classes, we remain unaware of any publicly available data standards or instances where issuers have provided asset-level data.

101

Since 2010, only one sponsor has been publicly issuing private-label RMBS. This issuer has disclosed at the time of securitization asset-level data about the assets underlying the RMBS in a format developed by the American Securitization Forum (ASF). The ASF Project on Residential Securitization Transparency and Reporting (“Project RESTART”) published a disclosure and reporting package for residential mortgage-backed securities.

See

American Securitization Forum RMBS Disclosure and Reporting Package Final Release (July 15, 2009),

available at http://www.americansecuritization.com/

. ASF is a securitization trade association that represents issuers, investors, financial intermediaries, rating agencies, legal and accounting firms, trustees, servicers, guarantors, and other market participants.

102

See

Fannie Mae Uniform Loan Delivery Dataset

available at https://www.fanniemae.com/singlefamily/uniform-loan-delivery-dataset-uldd

See also

Freddie Mac Uniform Loan Delivery Dataset

available at http://www.freddiemac.com/singlefamily/sell/uniform_delivery.html

103

See

Section III.A.2.b)(1) Residential Mortgage-Backed Securities for a discussion of loan-level disclosures provided by Fannie Mae and Freddie Mac.

104

The CRE Finance Council's Investor Reporting Package includes data points on loan, property and bond-level information for CMBS at issuance and while the securities are outstanding. Materials related to the CRE Finance Council Investor Reporting Package are available at

http://www.crefc.org/

. The CRE Finance Council is a trade organization for the commercial real estate finance industry.

We also note that prudential regulators in other jurisdictions require asset-level data about certain ABS in certain instances. For instance, the European Central Bank requires asset-level information for ABS accepted as collateral in the Eurosystem credit operations.

105

Additionally, the Bank of England requires that asset-level information be provided for certain ABS submitted as collateral against transactions with the Bank of England.

106

Some asset-level data is available today through third-party data providers who collect asset-level information about agency and non-agency mortgage loans and provide, for a fee, access to the data.

107

In addition, many third-party data providers have

developed products to analyze and model asset-level data.

108

105

See

details about the European Central Bank's loan-level for ABS accepted as collateral in Eurosystem credit operations

available at http://www.ecb.europa.eu/paym/coll/loanlevel/html/index.en.html

106

See the market notices from the Bank of England discussing its eligibility requirements for RMBS and covered bonds backed by residential mortgages, CMBS, small-medium enterprise loan backed securities and asset-backed commercial paper, and asset-backed securities backed by consumer loans, auto loans, and leases that are delivered as collateral against transactions in the Bank's operations at:

http://www.bankofengland.co.uk/markets/Documents/marketnotice121002abs.pdf, http://www.bankofengland.co.uk/markets/Documents/marketnotice111220.pdf,

and

http://www.bankofengland.co.uk/markets/Documents/marketnotice121217.pdf

107

See, e.g.,

Blackbox Logic (providing RMBS loan-level data aggregation and processing services allowing clients to analyze both current and historical RMBS trends),

http://www.bbxlogic.com/,

Core Logic (providing data and analytic services),

http://www.corelogic.com/,

LPS McDash Online (providing access to loan-level data),

http://www.lpsvcs.com/Products/CapitalMarkets/LoanData/Products/Pages/McDashOnline.aspx

and Lewtan (providing data and analytic services),

http://www.lewtan.com/

108

See, e.g.,

Experian Credit Horizons (providing products to analyze consumer mortgage and non-mortgage assets),

https://www.experian.com/capital-markets/credithorizons-product.html

and Kroll Factual Data (providing data on credit, income collateral, employment, etc.),

http://www.krollfactualdata.com/Industry/Lending/Mortgage

After considering the comments received, the ABS market and the availability and use of asset-level data regarding ABS as they exist today, we are adopting, with modifications, the proposed asset-level disclosure requirements for ABS where the underlying assets consist of residential mortgages, commercial mortgages, auto loans or auto leases, resecuritizations of ABS that include these asset types, or of debt securities.

109

We provide detail on the final rules below.

109

In the 2010 ABS Proposing Release, the debt security asset class was categorized as “Corporate Debt.”

As noted above, the proposed asset-level data requirements were to apply to all asset types, except ABS backed by credit cards, charge cards and stranded costs. For ABS backed by credit or charge card receivables, we proposed that issuers provide standardized grouped-account disclosures about the underlying asset pool instead of asset-level disclosures.

Asset-level information should provide investors with information that allows them to independently perform due diligence and make informed investment decisions; however, each asset class presents its own unique considerations. The response to our proposal was mixed, with some commenters supporting asset-level disclosure across asset classes and some commenters suggesting that alternative forms of disclosure were more appropriate for certain asset classes. We believe that the mix of information needed for analysis varies from asset class to asset class, and as we discuss in greater detail below, we have tailored the requirements for each asset class. While we are adopting requirements for only certain asset classes, we continue to consider the appropriate disclosure requirements for other asset classes and those proposals remain unchanged and outstanding.

110

See

footnote 46 and accompanying text and Section I.C.5 Proposed Rules Not Being Adopted At This Time.

(a) Proposed Rule

To augment our current principles-based, pool-level disclosure requirements, we proposed to require that issuers disclose standardized asset-level information about the assets underlying the ABS at the time of offering and on an ongoing basis in Exchange Act reports.

111

Proposed Item 1111(h) and Schedule L of Regulation AB enumerated all of the data points that were to be provided for each asset in the asset pool at the time of offering. Proposed Item 1121(d) and Schedule L-D enumerated all of the data points that were to be provided in periodic reports required under Sections 13 and 15(d) of the Exchange Act. These requirements contained data points requiring general information or item requirements applicable to all asset types underlying an ABS transaction and specialized item requirements applicable to only certain asset types. For instance, the proposal included specialized data points for ABS backed by the following: residential mortgages, commercial mortgages, auto loans, auto leases, equipment loans, equipment leases, student loans, floorplan financings, and debt securities and also for resecuritizations. Each proposed data point contained a title, definition, and a standardized response. The standardized response could be a date, number, text, or coded response.

112

Finally, in order to facilitate investors' use of the asset-level data, we proposed that the data be filed with the Commission on EDGAR in a standardized tagged data format using XML.

111

See

Section III of the 2010 ABS Proposing Release.

112

If a data point required a “coded response,” we proposed a set of predefined responses that were coded with a number that an issuer could select in providing the information.

(b) Comments on Proposed Rule

Support for requiring asset-level disclosures varied across asset types, and in some cases, between issuers and investors. Some commenters, mainly investors, generally indicated broad support for asset-level disclosure across asset types.

113

In general, these commenters suggested that asset-level disclosures would lead to better informed investment decisions,

114

better evaluation of the risk profile of the securities,

115

better pricing,

116

more transparency with respect to loan servicing operations,

117

and a broader range of opinions and analysis available with respect to ABS.

118

Certain commenters noted that the disclosure of

asset-level data is an existing market practice,

119

and some commenters noted that asset-level disclosure requirements already exist in other jurisdictions.

120

Some commenters requested that the Commission require additional asset-level data fields,

121

and one commenter noted that asset-level data is necessary for implementation of the Commission's proposed waterfall computer program.

122

While most investors supported requiring asset-level disclosure across asset types,

123

some commenters, mainly issuers or entities representing issuers, generally limited their support for asset-level disclosures to RMBS and CMBS.

124

Some commenters expressed concern about whether the materiality of the information that was proposed to be required has been considered or shown to affect the performance of the securities or the pricing of securities.

125

Some commenters suggested that we address this concern by either adopting industry standards

126

or adopting a “provide-or-explain” type regime.

127

113

See, e.g.,

letters from Appraisal Institute dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“AI”), Association of Mortgage Investors dated July 31, 2010 submitted in response to the 2010 ABS Proposing Release (“AMI”), American Securitization Forum, Auto Issuer Subforum and Auto Investor Subcommittee dated Aug. 31, 2010 submitted in response to the 2010 ABS Proposing Release (“ASF II”) (expressed views of loan-level investors only), California Public Employees' Retirement System dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“CalPERS”), The Beached Consultancy dated July 8, 2010 submitted in response to the 2010 ABS Proposing Release (“Beached Consultancy”), Martha Coakley, Massachusetts Attorney General dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“Mass. Atty. Gen.”), Metropolitan Life Insurance Company dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“MetLife I”), Prudential I, SIFMA I (expressed views of investors only), Vanguard, Americans for Financial Reform dated Apr. 21, 2014 submitted in response to the 2014 Re-Opening Release (“AFR”) (suggesting that asset-level disclosure should be required for all ABS ultimately backed by loans, including non-public ABS), Committee on Capital Markets Regulation dated Apr. 28, 2014 submitted in response to the 2014 Re-Opening Release (“CCMR”), Council of Institutional Investors dated Mar. 26, 2014 submitted in response to the 2014 Re-Opening Release (“CII”), CRE Finance Council dated Mar. 2, 2014 submitted in response to the 2014 Re-Opening Release (“CREFC III”), Lewtan dated Mar. 28, 2014 submitted in response to the 2014 Re-Opening Release (“Lewtan”), Prudential Investment Management, Inc. dated Apr. 28, 2014 submitted in response to the 2014 Re-Opening Release (“Prudential III”) (noting that loan-level data (e.g., current asset balance, next interest rate, current delinquency status, remaining term to maturity) will allow investors to better estimate the timing of the principal and interest cash flows of the collateral pool, which will in turn allow investors to better estimate the cash flow of the securitization and be more confident in their risk/reward consideration of the security), Allison Schwartz dated May 21, 2014 submitted in response to the 2014 Re-Opening Release (“A. Schwartz”), Securities Industry and Financial Markets Association/Financial Services Roundtable dated Mar. 28, 2014 submitted in response to the 2014 Re-Opening Release (“SIFMA/FSR I-dealers and sponsors”), Vantage Score Solutions LLC dated Apr. 17, 2014 submitted in response to the 2014 Re-Opening Release (“Vantage II”) (supporting industry efforts to align asset-level disclosure reporting for GSEs and private label securities), and Wells Fargo & Co. dated Mar. 28, 2014 submitted in response to the 2014 Re-Opening Release (“Wells Fargo III”).

But see

letters from ASF II (indicating that, for ABS backed by automotive loans and leases, part of their investor membership supported loan-level and part of their investor membership supported grouped account data and for ABS backed by floorplan receivables their investor members supported grouped account data), and American Securitization Forum dated Nov. 2, 2011 submitted in response to the 2011 ABS Re-Proposing Release (“ASF IV”) (indicating that for ABS backed by equipment loans and leases part of their investor membership supported loan-level, another portion supported grouped-account disclosures, and another portion supported additional pool-level disclosure).

114

See, e.g.,

letters from CDIA, Investment Company Institute dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“ICI I”), MetLife I, and MSCI Inc. dated July 27, 2010 submitted in response to the 2010 ABS Proposing Release (“MSCI”).

115

See

letter from AMI (stating that the disclosures described in Schedule L and L-D are essential for investors to properly evaluate the risk profile of securities offered for purchase).

116

See

letter from Vanguard.

117

See

letter from MetLife I (referring to the loan-level templates for RMBS).

118

See

letters from Moody's I and Moody's Investor Service dated Apr. 28, 2014 submitted in response to the 2014 Re-Opening Release (“Moody's II”).

119

See

letters from Lewtan, R&R Consulting dated Mar. 25, 2014 submitted in response to the 2014 Re-Opening Release (“R&R”), A. Schwartz (noting Fannie Mae has disclosed asset-level data and stating that such data is available from many commercial vendors and has not compromised borrower privacy), and SIFMA/FSR I-dealers and sponsors (noting, however, that the proposed requirements represent a dramatic departure from the type and amount of asset-level information issuers provide to investors and others under past industry asset-level practices).

120

See, e.g.,

letters from American Bar Association dated May 6, 2014 submitted in response to the 2014 Re-Opening Release (“ABA III”) (noting that the Bank of England requires the disclosure of anonymized loan-level data and the European Securities and Market Authority (“ESMA”) recently published a consultation paper that included draft templates for asset-level disclosures for asset-backed securities), AFR (noting that other jurisdictions, such as the European Union and the United Kingdom, are already providing asset-level information to investors), and Global Financial Markets Association/Australian Securitisation Forum dated Apr. 28, 2014 submitted in response to the 2014 Re-Opening Release (“GFMA/AusSF”) (noting that the Bank of England, the European Central Bank, ESMA and the Reserve Bank of Australia already currently require, will soon require, or are in the process of developing templates to require asset-level disclosure at some point in the future).

121

See

letters from the Structured Finance Industry Group dated February 18, 2014 submitted in response to the 2011 ABS Re-Proposing Release (“SFIG I”), Jeremy Calva dated Mar. 21, 2014 submitted in response to the 2014 Re-Opening Release (“J. Calva”) (suggesting that certain asset-level data also be required in Form ABS-15G filings to identify repurchase request activity), CCMR (supporting additional disclosures, including more detailed information about obligors), and Vantage II (requesting updated credit scores and requesting that the rules not specifically refer to the FICO brand credit score or, in the alternative, refer to FICO and other credit score types, such as Vantage Score).

122

See

letter from A. Schwartz.

123

See

footnote 113.

124

See, e.g.,

letters from American Securitization Forum dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“ASF I”) (indicating support for asset-level disclosures for RMBS), Bank of America dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“BoA I”), Citigroup Global Markets dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“Citi”) (supporting transparency and meaningful disclosure in connection with the issuance of ABS), J.P. Morgan Chase & Co. dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“J.P. Morgan I”), Wells Fargo & Co. dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“Wells Fargo I”), Marc Joffe dated Mar. 27, 2014 submitted in response to the 2014 Re-Opening Release (“M. Joffe”) (suggesting asset-level requirements only for RMBS), and R&R (stating that asset-level information is necessary only for asset classes that are resecuritized, such as RMBS).

125

See, e.g.,

letters from BoA I (suggesting that while some investors may suspect that the asset-level information would be helpful, the “lack of any historic reliance on some of this data suggests that it may be per se immaterial”), Citi, and SIFMA I (expressed views of dealer and sponsors only) (stating that while they support the disclosure of data that facilitates an informed investment decision, requiring information that is not material merely increases the costs to issuers of providing that information without a corresponding benefit).

126

See, e.g.,

letters from American Bar Association dated Aug. 17, 2010 submitted in response to the 2010 ABS Proposing Release (“ABA I”), BoA I, CMBS.Com dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“CMBS.com I”), CoStar Group dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“CoStar”), CRE Finance Council dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“CREFC I”), Mortgage Bankers Association dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“MBA I”), MERSCorp, Inc. dated July 30, 2010 submitted in response to the 2010 ABS Proposing Release (“MERS”), MetLife I (supporting the use of an existing CMBS industry standard), Mortgage Industry Standards Maintenance Organization dated July 30, 2010 submitted in response to the 2010 ABS Proposing Release (“MISMO”), Real Analytics dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release, Vanguard, and Wells Fargo I.

127

See

letters from BoA I, Citi, SIFMA I (expressed views of dealer and sponsors only), and Securities Industry and Financial Markets Association, Dealers and Sponsors dated Oct. 4, 2011 submitted in response to the 2011 ABS Re-Proposing Release (“SIFMA III-dealers and sponsors”). These commenters suggested that under a provide-or-explain regime if an issuer omits any asset-level data point the issuer would be required to identify the omitted field and explain why the data was not disclosed. These commenters seemed to suggest that a provide-or-explain regime should apply to any asset type required to provide asset-level data.

In addition to comments indicating general support or opposition to the proposal, as discussed further below, we also received comments expressing more specific concerns about the proposal, such as the costs to provide the disclosures, the value of the disclosure to investors, the liability for errors in the data, individual privacy issues, the potential release of proprietary data, and whether asset-level disclosures were necessary to evaluate ABS involving certain asset classes.

Both investors and issuers noted that the disclosure requirements will impose costs and burdens on ABS issuers. Investors, however, also believed asset-level information is necessary to properly analyze ABS, and some investors believed that the concerns about the costs and burdens of providing such data may be exaggerated. For instance, the investor membership of one trade association acknowledged that requiring asset-level disclosures will impose costs and burdens on ABS issuers, but believed the information is a “necessary and key element of restoring investor confidence in the ABS markets.”

128

Another investor acknowledged that the proposed asset-level disclosures, among other proposed reforms, would increase costs, but the investor believed the reforms would “instill stronger origination and servicing of securitized assets, allow for more complete investor reviews and foster a more stable securitization market, which is a benefit to all borrowers, lenders and investors.”

129

One investor noted that the additional costs allegedly arising from some of the proposed reforms, including asset-level disclosures, may be “greatly exaggerated.”

130

This investor suggested that the deficiencies in “governance and transparency have dramatically increased the costs of securitization in the current market.” The investor also noted that asset-level disclosures are routinely provided in various global securitization sectors, such as U.S. CMBS and Australian CMBS, and these markets have not shut down.

128

See

letter from SIFMA I (expressed views of investors only).

129

See

letter from Prudential II.

130

See

letter from MetLife II.

Several commenters did not support asset-level requirements for certain asset classes, noting that the value of the disclosures to investors or market participants may not justify the potential costs and burdens derived from the disclosures.

131

Commenters

expressed these concerns with respect to specific asset types, such as Auto ABS,

132

student loan ABS,

133

equipment ABS

134

or credit card ABS.

135

One commenter stated that for Auto ABS the proposed disclosure requirements would require significant reprogramming and technological investment.

136

Another commenter noted that the proposal would require sponsors to gather and present data in ways that differ from the way sponsors currently maintain and evaluate data.

137

This commenter also believed the preparation of such information would likely impose burdens upon sponsors' systems, auditing costs and create management oversight burdens that it believed the Commission had significantly underestimated. This commenter, however, did not quantify the amount that the Commission had underestimated these costs and burdens or provide its own estimate of these costs.

138

Also without providing a cost estimate, another commenter suggested that the Commission had not evaluated the entire cost of ongoing reporting for RMBS.

139

Another commenter expressed concern that if the new standards are not well integrated with existing industry practices, the data may be less reliable because reformatting data leads to a greater possibility for errors in the data.

140

Some commenters advised that the costs to implement the changes necessary to comply with the requirements may drive certain issuers from the market.

141

A few commenters suggested, without referencing a particular asset type, that the proposed disclosures may overwhelm investors

142

and a few commenters raised a similar concern solely with respect to the disclosures applicable to Auto ABS.

143

131

See, e.g.,

letters from ABA I, ABA III, American Financial Services Association dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“AFSA I”), American Financial Services Association dated Mar. 28, 2014 submitted in response to the 2014 Re-Opening Release (“AFSA II”), American Bankers Association/ABA Securities Association dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“ABAASA I”), Capital One Financial Corporation dated Apr. 28, 2014 submitted in response to the 2014 Re-Opening Release (“Capital One II”), J.P. Morgan I (stating that the asset-level and grouped-account disclosures will impose significant costs on issuers and may, for most asset classes other than

RMBS and CMBS, only provide incremental value to investors relative to what is currently disclosed), SIFMA I (expressed views of dealers and sponsors only), Equipment Leasing and Finance Association, dated Apr. 28, 2014 submitted in response to the 2014 Re-Opening Release (“ELFA II”), IPFS Corporation dated Mar. 28, 2014 submitted in response to the 2014 Re-Opening Release (“IPFS II”), Structured Finance Industry Group dated Apr. 28, 2014 submitted in response to the 2014 Re-Opening Release (“SFIG II”), and Wells Fargo III.

132

See, e.g.,

letters from AmeriCredit Corp. dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“AmeriCredit”), ASF II (expressed views of dealers and sponsors only), Capital One II, Financial Services Roundtable dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“FSR”), VABSS I, Vehicle ABS Sponsors dated Nov. 8, 2010 submitted in response to the 2010 ABS Proposing Release (“VABSS II”), VABSS III, and Wells Fargo I.

133

See

letter from Student Loan Servicing Alliance dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“SLSA”).

134

See, e.g.,

letters from Equipment Leasing and Finance Association dated July 22, 2010 submitted in response to the 2010 ABS Proposing Release (“ELFA I”), CNH Capital America LLC dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“CNH I”), Navistar Financial Corporation dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“Navistar”), and Wells Fargo I.

135

See, e.g.,

letters from BoA I, Capital One Financial Corporation dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“Capital One I”), Discover Financial Services dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“Discover”), and J.P. Morgan I.

136

See

letter from BoA I.

137

See

letter from ABA I.

138

See

letter from ABA I (expressing concerns about the costs or even the ability to verify certain data, such as property appraisals, residual value estimates, status of occupancy of the property, the effect on competition from the public release of proprietary data, which, for some asset classes, may deter securitizations, restrict capital formation and eliminate market access for some issuers and affect the availability of consumer and business credit without providing additional benefits to investors).

139

See

letter from MBA I (suggesting that the Commission has not identified any costs associated with (1) initially establishing the new fields; (2) the cost of redefining many of the fields already in existence; (3) the labor cost of collecting and inputting significant new data elements into the servicing systems; (4) the costs to validate the new data on an ongoing and operational basis; (5) the cost for controls needed to ensure the data is accurate and complete; (6) the need for servicers and their data providers to build functionality within the project, to test and verify the new ongoing reporting; (7) introducing new elements not listed in proposed L-D, such as updated credit scores).

140

See

letter from eSignSystems dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“eSign”).

See also

letter from ABA I (stating that data point descriptions may not be entirely consistent with how information about obligors is captured or comparable to other similarly styled information and issuers should be able to provide narrative analysis of this data in order to ensure their disclosure is meaningful and not misleading).

141

See, e.g.,

letters from ABAASA I (noting, without further explanation, that the competitive impact on business models and potential legal risks in providing asset-level data may drive issuers from the market or make them pass these costs on to investors and borrowers) and BoA I.

See also

SIFMA I (expressed views of dealers and sponsors only) (expressing concern about the effect on small originators and that if small originators leave the securitization market, the value of portfolio of assets would drop due to lower liquidity).

142

See

letters from CFA Institute dated Aug. 20, 2010 submitted in response to the 2010 ABS Proposing Release (“CFA I”) and Epicurus.

143

See

letters from AmeriCredit and VABSS I.

Commenters also raised concerns about liability for inaccuracies.

144

Some commenters expressed concern that there will inevitably be errors in documents including typographical errors, information entered incorrectly (or not at all) into the files and other errors.

145

One concern was that some data may be difficult to objectively verify,

146

which one commenter referred to as “soft data.”

147

This commenter defined soft data as data that “is often self-reported by obligors, cannot be verified by issuers at a reasonable cost, cannot be confirmed by auditors, may not be consistent with (or comparable to) information obtained or presented by other issuers and may reflect subjective judgments.”

148

A few commenters noted that some soft data is used to calculate the response to other item requirements

149

and one of these commenters suggested issuers should have the discretion to include or exclude soft data from their disclosures.

150

In general, these commenters suggested that the materiality of individual data points should be determined on an aggregate basis across the entire asset portfolio, rather than at the level of the individual loan. Further, these commenters stated that even if an inaccuracy is material to a particular loan, the inaccuracy should not subject the issuer to the potential remedy of rescission of the entire issuance. The commenters urged that liability be based on the aggregate materiality in the context of the entire asset pool, the full offering disclosures and whether the securitization structure and documentation provide adequate remedies. Another commenter echoed this point.

151

144

See, e.g.,

letters from ASF I, ABA I, and ABAASA I.

145

See

letters from ABA I and ABAASA I.

146

See, e.g.,

letters from ABA I and ABAASA I.

See also

BoA I (noting that numerous disclosure items in proposed Schedule L relate to information that is obtained from borrowers and verified to the extent provided by an originator's underwriting policies and procedures in the application and underwriting process and such information is not subsequently updated or verified by originators or servicers in the normal course of business).

147

See

letter from ABA I (suggesting that the proposal contained some data points requiring empirically verifiable data, such as outstanding balances, scheduled payments, interest rates and pre-payment penalties, while other data points require data which may not be verifiable because they are “factual representations” or “subjective judgments,” such as property appraisals, residual value estimates, or status of occupancy of the property).

148

See

letter from ABA I.

149

See

letters from ABA I and ABAASA I.

150

See

letter from ABA I (suggesting that the Commission provide issuers the discretion to include or exclude soft data from their disclosures and, where such information is included, it should be described as information obtained from third parties and allow issuers to disclaim liability absent actual knowledge by the issuer that such information is materially incorrect).

See also

letter from ABAASA I (suggesting that the Commission clarify that for liability purposes soft data is not part of the prospectus or registration statement).

151

See

letter from ASF I (suggesting that the extent to which the data in any individual field or group of fields is material to a particular transaction should remain a factual matter, based on the facts and circumstances of the transaction, the underlying loans, the securities and the individual circumstances of the investor).

As noted above, some commenters did not support requiring asset-level disclosures for certain asset types. For example, several commenters, mainly

issuers of ABS backed by automobile loans or leases,

152

equipment loans or leases,

153

floorplan financings,

154

and student loans,

155

opposed asset-level disclosures requirements for these asset types because the disclosures would raise individual privacy concerns, result in the release of proprietary data, and the disclosures would be of limited value to investors. To alleviate these concerns, some of these commenters suggested grouped-account disclosure or a combination of grouped account and standardized pool-level disclosures.

156

For equipment ABS, some commenters suggested standardized pool-level data was sufficient.

157

As discussed below, individual privacy concerns were also raised with respect to the proposed asset level disclosures for RMBS

158

and with respect to the Web site approach described in the 2014 Staff Memorandum.

159

152

See, e.g.,

letters from ABA I, American Bar Association dated Nov. 16, 2011 submitted in response to the 2011 ABS Re-Proposing Release (“ABA II”), AmeriCredit, ASF II (expressed views of a portion of their investor membership only), BoA I, Capital One I, VABSS I, and Wells Fargo I.

153

See, e.g.,

letters from CNH I, ELFA I, FSR, Navistar, and VABSS I.

154

See, e.g.,

letters from ABA I and ASF II.

See also

memorandum to comment file dated Mar. 8, 2011 regarding staff's telephone call with members of the Financial Services Roundtable with letter attached from the Captive Commercial Equipment ABS Issuers Group (“Captive Equipment Group”), and VABSS I.

155

See, e.g.,

letters from ABA I, Sallie Mae, Inc. dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“Sallie Mae I”), and SLSA.

156

See, e.g.,

letters from ASF II, Navistar, Sallie Mae I, and VABSS I.

157

See, e.g.,

letters from Captive Equipment Group, CNH I, and ELFA I.

158

See, e.g.,

letters from ABA I, ASF I, Consumers Union dated Aug. 2, 2010 submitted in response to the 2010 ABS Proposing Release (“CU”), MBA I, and World Privacy Forum dated Aug. 2010 submitted in response to the 2010 ABS Proposing Release (“WPF I”).

159

See, e.g.,

letters from ABA III, CCMR, Mortgage Bankers Association dated Mar. 28, 2014 (“MBA IV”), SIFMA/FSR I-dealers and sponsors (noting that “[t]his puts issuers in an untenable position—the more carefully an issuer protects customer data by restricting access to its Web site, the more risk it bears of an investor suit for failing to disclose all material information”), and SFIG II.

See also

Section III.A.3 Asset-Level Data and Individual Privacy Concerns.

As noted above, the public availability of asset-level information has historically been limited. In the past, some transaction agreements for securitizations required issuers to provide investors with asset-level information, or information on each asset in the pool backing the securities.

160

Such information is sometimes filed as part of the pooling and servicing agreement or as a free writing prospectus; however, the information provided varied from issuer to issuer and was not standardized.

161

We believe, however, that all investors and market participants should have access to information to analyze the risk and return characteristics of ABS offerings and that asset-level information about the assets underlying a securitization transaction at inception and over the life of a security provides a more complete picture of the composition and characteristics of the pool assets and the performance of those assets than pool-level information alone, and forms an integral part of ABS investment analysis.

162

Therefore, we are adopting, with modifications, a requirement that standardized asset-level data be provided, for certain asset types, in the prospectus and in Exchange Act reports. We are also adopting a requirement that the required asset-level disclosures be provided in XML, a machine-readable format.

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This usually included, for example, information about the principal balance at the time of origination, the date of origination, the original interest rate, the type of loan (e.g., fixed, ARM, hybrid), the obligor's debt-to-income (“DTI”) ratio, the documentation level for origination of the loan, and the LTV ratio.

161

Under our current requirements the servicing agreement should be filed as an exhibit to the registration statement.

See

Item 601 of Regulation S-K and Section III.B.3.c of the 2004 ABS Adopting Release.

See also

Item 1108(c)(1) of Regulation AB. We remind registrants that the pooling and servicing agreement that is filed must contain all parts of the pooling and servicing agreement, including, but not limited to, any schedules, exhibits, addendums or appendices, unless a request for confidential treatment was submitted and granted to allow for the redaction of such information.

See, e.g.,

Securities Act Rule 406 [17 CFR 230.406], Exchange Act Rule 24b-2 [17 CFR 240.24b-2], and Division of Corporation Finance Staff Legal Bulletins Nos. 1 (Feb. 28, 1997) and 1A (July 11, 2001).

162

Others have noted the importance of loan-level data to investors.

See, e.g.,

footnote 44.

At this time, we are adopting asset-level requirements for ABS where the underlying assets consist of residential mortgages, commercial mortgages, auto loans or leases, and resecuritizations of ABS, or of debt securities and we continue to consider whether asset-level disclosure would be useful to investors across other asset classes. Prior to the financial crisis, RMBS and CMBS had historically represented a large portion of the registered ABS market while Auto ABS represents a large portion of the current registered ABS market. Accordingly, these disclosures should benefit the largest number of investors, especially as greater numbers of RMBS and CMBS are issued. Although comments about the asset-level requirements for Auto ABS were mixed, with some opposing any asset-level requirements for Auto ABS, Auto ABS investors have indicated in comment letters that they believe that asset-level data will strengthen the Auto ABS market and make it more resilient over the long term.

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We also note that the European Central Bank recently began requiring the disclosure of standardized asset-level data for all Auto ABS accepted as collateral in the Eurosystem credit operations.

164

For these reasons, we prioritized our efforts to develop asset-level requirements for these asset classes.

163

See

letters from ASF II (expressed views of loan-level investors only) and Prudential III.

164

See

details about the European Central Bank's Auto ABS loan-level requirements at

http://www.ecb.europa.eu/paym/coll/loanlevel/html/index.en.html.

We have sought to address cost concerns raised by Auto ABS issuers through our changes to the Auto ABS requirements, as discussed below.

The asset-level disclosure requirements for debt security ABS are relatively limited in scope and primarily consist of information that should be readily available to issuers. These disclosures, while consisting of only the basic characteristics of the debt security, will provide useful information to investors, such as the cash flows associated with the debt security, and identifiers, such as the SEC file number of the debt security. Using the SEC file number of the debt security, investors will be able to access other disclosures filed with the Commission about the debt security. No commenters specifically opposed these requirements.

We are also adopting asset-level disclosure requirements for resecuritization ABS. In an ABS resecuritization, the asset pool is comprised of one or more ABS. The new rules require disclosures about the ABS in the pool and, if the ABS in the asset pool is an RMBS, CMBS or Auto ABS, issuers are also required to provide asset-level disclosures about the assets underlying the ABS. We are requiring disclosures about the ABS being resecuritized for the same reasons we are requiring disclosure for debt security ABS, which is to provide investors with information about the ultimate source of cash flows of assets underlying the resecuritization. As a result, we believe investors in resecuritization ABS should derive the same benefits as investors in other ABS.

Under current requirements the securities being resecuritized must be registered or exempt from registration

under Section 3 of the Securities Act.

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As a result, all disclosures for a registered offering are required. Therefore, requiring asset-level data for the assets underlying resecuritizations of RMBS, CMBS, Auto ABS or debt security ABS is consistent with our current disclosure requirements, which also prevents issuers from circumventing our asset-level requirements for these asset classes. We also note that over the past several years there have been no registered resecuritizations of RMBS, CMBS or Auto ABS. We recognize, however, that such a requirement could increase the disclosure costs of resecuritizations relative to disclosure costs of ABS backed by other assets should an issuer choose to do a resecuritization of RMBS, CMBS or Auto ABS in the future because sponsors may need to collect information about underlying assets from additional sources. We have made some revisions to the proposal to address some of those costs. To the extent that the pass-through of required asset level disclosures imposes costs above that required for the original securitization, this could limit the benefits of resecuritizations and potentially inhibit the issuance of resecuritizations.

165

See

Securities Act Rule 190 [17 CFR 230.190]. An asset pool of an issuing entity includes all instruments which support the underlying assets of the pool. If those instruments are securities under the Securities Act, the offering must be registered or exempt from registration if the instruments are included in the asset pool as provided in Securities Act Rule 190, regardless of their concentration in the pool.

See

Securities Act Rule 190(a) and (b).

See also

Section III.A.6.a of the 2004 ABS Adopting Release.

We also believe the same benefits will accrue to investors in resecuritization ABS as to investors in RMBS, CMBS, Auto ABS or debt security ABS. Similar to a direct investment in an RMBS, CMBS, Auto ABS or debt security ABS, access to this information should provide further transparency about the assets underlying the security or securities underlying the resecuritization ABS. This additional information should allow investors to analyze the collateral supporting the security being resecuritized, the cash flows derived from each asset underlying the security being resecuritized, and the risk of each asset underlying the security being resecuritized.

We acknowledge commenters' concerns about other asset classes, which we think warrant further consideration. For instance, we continue to consider commenters' concerns about how asset-level disclosures should apply where there is lack of uniformity amongst the types of collateral or terms of the underlying contracts,

166

there is a large volume of assets in a pool,

167

and there are unique features to the ABS structure.

168

For those asset classes where we are deferring action, we will continue to consider the best approach for providing more information about underlying assets to investors, including possibly requiring asset-level data in the future.

166

See

letter from ELFA I.

167

See

letters from Sallie Mae I and ASF I.

168

See

letters from ABA I and ABA III.

We also believe that, for most investors, the usefulness of asset-level data is generally limited unless the asset-level data requirements, which include the following components, are standardized: The definitions of each data point, the format for providing the asset-level data (e.g., XML), and the scope of the information required, such as what data is required about each obligor, the related collateral, and the cash flows related to each asset. We believe that standardizing the asset-level disclosures facilitates the ability to compare and analyze the underlying asset-level data of a particular asset pool as well as compare that pool to other recent ABS offerings involving similar assets.

169

Over time, asset-level information about past ABS offerings, including asset-level information about the performance of those offerings, will be available to further facilitate the ability for issuers to assess expected performance of a new offering based on the performance of past offerings involving similar assets.

169

See

Statement of Former Federal Reserve Governor Randall S. Kroszner at the Federal Reserve System Conference on Housing and Mortgage Markets, Washington, DC, Dec. 4, 2008 (stating that a necessary condition for the potential of private-label MBS to be realized going forward is for comprehensive and standardized loan-level data covering the entire pool of loans backing MBS be made available and easily accessible so that the underlying credit quality can be rigorously analyzed by market participants).

The asset-level data required will, in general, include information about the credit quality of the obligor, the collateral related to each asset, the cash flows related to a particular asset, such as the terms, expected payment amounts, indices and whether and how payment terms change over time and the performance of each asset over the life of a security. This information should allow investors to better understand, analyze, and track the performance of ABS. We believe the final requirements we are adopting for RMBS, CMBS, Auto ABS, debt security ABS and resecuritizations will implement the requirements of Section 7(c) for these asset classes.

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Some commenters expressed concern that the proposed data points require more information than necessary for investor due diligence and could increase re-identification risk.

171

As discussed in further detail below, we have modified the proposed data set for RMBS and Auto ABS in response to these concerns. We believe these modifications will help to reduce re-identification risk without materially affecting investors' ability to evaluate ABS. We believe that the disclosure requirements that we are adopting will provide investors with information they need to independently perform due diligence and make informed investment decisions.

170

See

Section III.A.4 Requirements under Section 7(c) of the Securities Act for a discussion regarding Section 7(c) and the requirements applicable to RMBS, CMBS, debt security ABS and resecuritizations.

See

Section III.A.2.b)(3) Automobile Loan or Lease ABS for a discussion regarding Section 7(c) of the Securities Act and the requirements applicable to Auto ABS.

171

See

letters from ABA III and MBA IV (with respect to RMBS).

As noted above, we believe the usefulness of the asset-level information is further increased by our formatting requirements. We believe providing standardized data definitions and requiring the data to be in a machine-readable format will provide investors the ability to download the data into software tools that can promptly analyze the asset pool. While some investors may need to obtain the software or other tools needed to analyze the data, we believe such costs would be offset by a reduction or elimination of the costs investors would incur to convert non-machine-readable data into a format that makes analyzing it easier. As a result, this should reduce the time investors need to analyze the offering. We also believe requiring the data to be in a machine-readable format addresses concerns that investors will be overwhelmed by the granularity of the data, because investors can quickly extract the data most relevant to their analysis. Section 7(c) also requires that we set standards for the format of the data provided by issuers of an asset-backed security, which shall, to the extent feasible, facilitate the comparison of such data across securities in similar types of asset classes.

The requirements of standardized asset-level information in a machine-readable format coupled with, as we discuss in Section V.B.1.a Rule 424(h) and Rule 430D, more time to consider transaction-specific information provided through the new preliminary prospectus and three-day offering

period rules that we are adopting

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are aimed at addressing concerns, highlighted by the recent financial crisis, that investors and other participants in the securitization market may not have had the necessary time and information to be able to understand and analyze the risk underlying those securities and may not have valued those securities properly or accurately.

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Taken together, standardized asset-level information in a machine-readable format and more time to consider the information should enable investors to analyze offerings more effectively and efficiently to better understand and gauge the risk underlying the securities. This, in turn should lead to better pricing, a reduced need to rely on credit ratings and a greater ability of investors to match their risk and return preferences with ABS issuances having the same risk and return profile. These benefits should improve allocative efficiency and facilitate capital formation.

172

See

Section V.B.1a) Rule 424(h) and Rule 430D [17 CFR 230.430D].

173

See

footnote 40.

Providing investors access to such information should reduce their cost of information gathering because they will not need to purchase the data from intermed

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