NEW YORK--(BUSINESS WIRE)--The Structured Finance Industry Group (SFIG) proposal to increase standardization and transparency in the residential mortgage-backed securities (RMBS) is a positive step forward for the industry, Fitch Ratings says. On Wednesday August 6, SFIG, as part of its RMBS 3.0 initiative, released the first set of preliminary recommendations focused on representations and warranties, breach enforcements mechanisms, and investor communication.
Post-crisis RMBS remains a niche market with very limited issuance. Weak RMBS economics, open regulatory issues, and thin investor demand have all weighed on the market's restart. While collateral underlying new issue RMBS transactions remains strong, varying rep and warranty frameworks have also emerged with mixed investor views. Fitch believes that the establishment of best practices that focus on aligning interests and increasing transparency can only improve market confidence and drive a more sustainable and scalable market.
SFIG efforts through Project RMBS 3.0 are a step in the right direction and could help improve structural and disclosure standards that should ultimately help increase investor confidence. Key topics covered included the standardization of fraud and compliance reps and related materiality factors, mandatory breach review triggers and make whole provisions, and expanded underwriting guideline and due diligence disclosure. SFIG plans to put forth additional proposed standards on a quarterly basis.
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