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No single action or combination of actions the industry can take is likely to be sufficient, in the near-term, to return the securitization market to a normal level of functionality, the report issued by SIFMA, the ASF, the ESF and the Australian Securitisation Forum finds. Banks may fail to meet $2 trillion of demand for credit origination over the next three years in the absence of well-functioning securitization markets, the report states.
The volumes at the height of the market in 2006 and early 2007 were likely excessive and should not be the gauge for success in returning the markets to health, the report states and proposes four priorities for immediate action by the industry, namely:
Ø Improve disclosure of information on underlying assets for RMBS
Ø Enhance transparency with regard to underwriting and origination practices
Ø Restore the credibility of CRAs
Ø Improve confidence in valuations, methodologies and assumptions
The industry groups identified multiple factors as contributing to the current crisis. These include:
Ø deteriorating loan underwriting standards,
Ø over-reliance on credit ratings,
Ø growth of complex,
Ø highly leveraged positions,
Ø misjudgement of liquidity risk,
Ø lack of a sense of shared responsibility, and
Ø rising losses in the
The report offers eight recommendations for restoring confidence in the securitization markets:
(1) Increase and enhance initial and on-going pool information on
(2) Establish core industry-wide market standards of due diligence disclosure and quality assurance practices for RMBS.
(3) Strengthen and standardize core representations and warranties as well as repurchase procedures for RMBS.
(4) Develop industry-wide standard norms for RMBS servicing duties and evaluating servicer performance.
(5) Expand and improve independent, third-party sources of valuations and improve the valuation infrastructure and contribution process for specified types of securitization and structured products.
(6) Restore market confidence in the CRAs by enhancing transparency into the CRA process.
(7) Establish a Global Securitization Markets Group to report publicly on the state of the market and changes in market practices.
(8) Establish and enhance educational programs aimed at directors and executives with oversight over securitized and structured credit groups, as well as at investors with significant exposure to these products.