SEC seeks public input on reviving mortgage-backed securities market

The Securities and Exchange Commission is seeking public comment on potential changes to its rules governing residential mortgage-backed securities and other asset-backed securities, as it examines ways to resuscitate a public market that has been dormant for more than a decade.

In a concept release published Friday, the SEC noted that there have been no public offerings of residential mortgage-backed securities since 2013, despite their importance in broadening access to mortgage funding and reducing reliance on any single source of liquidity.

A statement from the SEC said the regulator is asking market participants and the public to weigh in on whether current regulations are hindering the return of public RMBS offerings, and if so, what changes might be needed.

Among the topics open for comment are whether certain disclosure requirements should be revised, how sensitive information about underlying mortgage loans can be shared with investors while protecting privacy, and whether the regulatory definitions of asset-backed securities should be updated. The SEC is also inviting suggestions on other regulatory revisions that could help facilitate access to the public market.

“Home ownership has long been the cornerstone of the American Dream. Yet, this dream remains out of reach for too many Americans today due, in part, to mortgage costs,” said SEC Chairman Paul S. Atkins. He added that a “vibrant public market for RMBS can have downstream effects of reducing these costs and benefitting the US housing sector.”

The move comes as the private-label RMBS market remains largely confined to unregistered offerings, with most activity taking place under Rule 144A.

The RMBS market's record isn't exactly spotless, with numerous large financial institutions agreeing to pay penalties in the millions or billions to put years-old charges of faulty issuance, underwriting, and mis-selling behind them.

Read more: BMO Capital Markets to pay $40M in SEC settlement

Read more: UBS to pay $1.4B to settle mortgage-backed securities case

In a separate statement on Friday, SEC Commissioner Mark Uyeda said more than $145 billion in privately offered RMBS were issued in 2024, while the registered market has seen no activity since the adoption of stricter disclosure requirements in 2014. In contrast, other asset-backed securities, such as those backed by auto loans and credit cards, continue to see robust public issuance.

Uyeda said the drought in public RMBS offerings “strongly suggests that the Commission’s current approach does not work.” He pointed to the potential benefits of securitization for both lenders and borrowers, noting that asset-backed securities “may offer attractive yields and an opportunity to diversify fixed-income portfolios with a range of credit quality.”

He also emphasized the need for a regulatory balance that provides sufficient transparency without imposing unnecessary burdens on issuers.

But in a dissenting statement, Commissioner Caroline Crenshaw questioned whether the market’s current state is truly the result of SEC rules, or if it reflects ongoing investor wariness and other market dynamics.

Crenshaw encouraged commenters to “question the premise driving the release,” and suggested that “depressed interest is a symptom of continued investor wariness around the asset class.”

She also cautioned against removing requirements that provide transparency and support market integrity, urging investors to share their views on what information is most helpful for analyzing these securities.

[I]t is worth asking if this a good use of our dwindling resources," Crenshaw said. "I urge commenters to think broadly in formulating their suggestions, and not simply acquiesce in the deregulatory zeitgeist."

The SEC’s public comment period will remain open for 60 days following publication of the request in the Federal Register. The agency said it welcomes feedback on costs, burdens, and benefits that could result from possible regulatory changes, as well as suggestions for alternative approaches.