Tuesday, April 22, 2008

MBA Comes Out Against New Rating Standards for Structured Securities

(Housing Wire) The Mortgage Bankers Association and the Commercial Mortgage Securities Association joined with the Real Estate Roundtable and the National Association of Realtors in expressing their opposition to recent proposals that would differentiate between ratings for structured finance products and ratings for other asset classes, such as corporate and municipal bonds.

Allow me to ask the obvious question here: what can the NAR possibly be thinking in sticking its nose into the secondary market for mortgages? Talk about mission creep — I don’t see the MBA opining on the merits of a unified MLS, do you?

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Nonetheless, in a letter to Senate Banking Committee Chairman Christopher Dodd and Ranking Member Richard Shelby on Tuesday, the organizations suggested that differentiating between ratings would only serve to further erode investor confidence and threaten an already fragile economy. The letter comes one day ahead of a scheduled Wednesday hearing on rating agencies.

“At a time when we need to restore liquidity and confidence in the market, the last thing we ought to be doing is be making the ratings process more complicated,” said Kieran P. Quinn, CMB, Chairman of MBA. “We recognize improving the ratings process is a key to getting players back in the market, and we want to work with Congress to find the best way to do that. This just isn’t it.”

The letter recommends educating investors about the risk associated with all securities, as opposed to focusing exclusively on structured securities. The letter also points out that the proposed change would require investors to revise their investment priorities and develop new processes to interpret the new ratings — something that the MBA and CSMA said would hurt, not help, investor confidence.

“CMSA supports efforts to ensure the quality of credit ratings but strongly opposes any proposals that would differentiate between structured finance products and corporate and municipal bonds,” said Dottie Cunningham, chief executive officer of CMSA.

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