Investors vs. Securitization Trustees: Battle of the White Papers

First, in March, the Association of Mortgage Investors published a white paper making recommendations for investor protection in securitization markets. For example, the paper recommended
1. Provide loan-level information that investors, ratings agencies and regulators canuse to evaluate collateral and its expected economic performance, both at pool underwriting and continuously over the life of securitization.
2. Require a “cooling off” period when asset-backed securities are offered so that investors have sufficient time to review and analyze loan-level information before making investment decisions.
3. Make deal documents for all asset-backed securities and structured finance securities publicly available to market participants and regulators.
4. Develop, for each asset class, standard PSAs with model representations and warranties as a non-waivable industry minimum legal standard.
5. Develop clear standard definitions for securitization markets.
6. Directly address conflicts of interest of servicers that have economic interests adverse to those of investors, by imposing direct fiduciary duties to investors and/or mandatory separation of those economic interests, and standardize servicer accounting and reporting for restructuring, modification or workout of collateral assets.**********
7. Just as the Trust Indenture Act of 1939 requires the appointment of a suitably independent and qualified trustee to act for the benefit of holders of corporate debt securities, model securitization agreements must contain substantive provisions to protect asset-backed security holders.
8. Asset-backed securities should be explicitly made subject to private right of action provisions of anti-fraud statutes in securities law and to appropriate Sarbanes-Oxley disclosures and controls.
9. Certain asset-backed securities could be simplified and standardized so as to encourage increased trading in the secondary market on venues such as exchanges, where trading prices are more visible to investors and regulators.
10. Ratings agencies need to use loan-level data in their initial ratings and to update their assumptions and ratings as market conditions evolve and collateral performance is reported.

Now, this all seems pretty reasonable to me. Some of it even seems like “weren’t they supposed to already be doing that?”

Well, according the American Bankers ASsociation Corporate Trust Committee, no. It was number 7 that trustees went ape shit over in their Nov. 9, 2010 white paper because it analogizes the trustee’s role to a board of directors of a company and the servicer as functional management, and sought more protection for investors.

This new white paper is a study in ass covering and blame deflection, where the trustees disclaim all responsibility for anything and shift all blame to the servicers, sponsor/sellers, depositors, underwriters, anyone but them. Duty? What, me?  White paper style. So have a read, if you are feeling wonky.  11 12 10 ABA TRUSTEE whitepaper           AMI White Paper ABS

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