The SEC will have to monitor the dissemination of data so it isn’t obtained by brokers who sell personal information about consumers, said Pam Dixon, executive director of the World Privacy Forum. The regulator also should scotch its original idea of requiring that the data include reasons why a borrower fell behind on payments, including whether the person was ill or had gone through a divorce, she said.
“The first proposal was the most flawed proposal we had ever seen,” Dixon said. “It’s very important this data not become a new source for unregulated consumer scores about individuals.”
The new SEC requirements would apply to the $750 billion market for private mortgage-backed securities. The private market, which imploded in 2008, financed just one percent of new mortgages in 2013, according to a report last month by Goldman Sachs Group Inc.
Fannie Mae
The rules wouldn’t affect issuers of government-backed mortgage bonds, including Fannie Mae and Freddie Mac, which dominate the market. Those sellers provide information that helps investors judge borrowers’ ability to repay loans. The disclosures include states of residence, credit scores and debt- to-income ratio, but aren’t as extensive as the ones proposed by the SEC.
Sponsors of securities linked to auto loans haven’t disclosed details of individual loans in the past. Instead, investors typically received indicators showing the performance and quality of loans made during different months and years. Outstanding securitized auto debt stood at $168 billion through March, according to the Securities Industry and Financial Markets Association.
Industry groups, including auto-finance firms such as Ford Motor Credit Company LLC and General Motors Financial Company LLC, have previously opposed the SEC’s call for disclosure of loan-level data. “Even though there have been no material changes to disclosure practices specifically for Auto ABS, the Auto ABS markets continue to be robust and active,” a group of 17 auto lenders including Ford and GM wrote in August 2012.
In first proposing the rules four years ago, the SEC said it wanted to ensure debt sellers don’t avert new disclosure rules by using the private market. The crisis that followed wide-scale home-loan defaults threw cold water on the assumption “that sophisticated investors do not need the types of protections that come” with SEC rules, then-SEC Chairman Mary Schapiro said at the time.