Media Release New Eligibility Criteria for Residential Mortgage Backed Securities
The Reserve Bank is introducing new criteria for eligibility of residential mortgage backed securities (RMBS) in its operations. Issuers of RMBS will be required to provide more detailed information than is currently the case. The new information, which will have to be kept up to date, covers both transaction-related data as well as information on the underlying assets.
Currently, the information required by the Reserve Bank for RMBS to be eligible for repurchase agreement (repo) is largely about the core attributes of the security. This includes the information memorandum and high-level data relating to the asset pools underpinning the securities, such as the share of prime domestic full-doc and low-doc residential mortgages. A AAA credit rating from a recognised credit rating agency (CRA) is also required.
When the Reserve Bank's Committed Liquidity Facility (CLF) is introduced in 2015, RMBS will potentially comprise a significant share of the securities that authorised deposit-taking institutions (ADIs) will hold to access the facility. The additional information requirements announced today will allow the Bank to more precisely value these securities and assess their risk. As discussed below, these data will also be made available to the public, thereby benefitting the broader market by providing more transparency to Australian RMBS.
The specific information required by the Reserve Bank is set out in reporting templates, drafts of which are available on the Bank's website. The following summarises the new information requirements:
- Transaction information will identify the key features of a securitisation as generally disclosed in an investor prospectus. Examples of such information include the counterparties involved in the securitisation and the relationships between them, the terms and conditions applying to the securities issued (for example, the coupon payment date and the original credit ratings) and any enhancement and support facilities provided.
- Securities information will include technical details which help identify the securities (such as the ISIN code), the payment streams across the different tranches (e.g. coupon and principal payment dates) as well as the cash flow waterfall, that is, how the cash flows are allocated and in what priority.
- Pool information will provide summary data on the pool of mortgages backing the securities such as the average current balance of underlying loans and average seasoning of the loans, prepayment information, as well as defaults, losses and claims across the pool of mortgage loans.
- Anonymised loan-level data will include de-identified loan information. Examples of such data include current and scheduled loan balances, interest rate types applying to the loans, borrower payment frequencies and property location.
The information will be required for those securities that are currently eligible, as well as any newly issued securities for which repo eligibility is being sought. The information must be kept up to date.
The reporting templates apply to RMBS, including self-securitised transactions.
Draft reporting templates for other asset-backed securities (ABS), such as securities backed by auto loans/leases and/or credit card receivables, asset backed commercial paper (ABCP) and commercial mortgage backed securities (CMBS), will be made available in 2013.
Access to the Information
The information must be delivered in a usable format.
In the interests of broader transparency in the market, issuers will also be required to make the completed reporting templates available to the public free of charge if the securities are to remain eligible for the Reserve Bank's operations. The requirement that information be made publicly available also applies to self-securitised transactions. Issuers will need to provide the Bank with details of where the information is being made available to the public.
Arrangements for public access can include provision of data via a secure website managed by or on behalf of the information provider, or through a data warehouse with expertise in handling the new reporting requirements.
These new reporting requirements are designed to promote greater standardisation of RMBS reporting and enhance information available on securitisations in the Australian market since there is currently no regulatory standard for RMBS reporting and disclosures. A market ‘best-practice’ standard has been developed by the Australian Securitisation Forum which has published various reporting and disclosure standards which it encourages issuers to adopt (for details see: ASF-RMBS Disclosure and Reporting Standards). The Reserve Bank's requirements are consistent with these standards.
Internationally, IOSCO has consulted with market participants on policy proposals addressing, among other issues, improvements in transparency and measures to standardise disclosure. Consistent with this, the Bank of England and the European Central Bank are improving transparency in their ABS markets. The information requirements of these two institutions are set out in reporting templates which have been designed to be, wherever possible, consistent with one another. The Reserve Bank's reporting templates for RMBS are consistent with these.
The draft reporting templates are now open for comment. When the templates are finalised, an implementation period will apply for RMBS to give issuers the time to develop the reporting systems necessary to comply with the new reporting requirements. Early compliance with the requirements is encouraged. Existing securities not meeting the new information requirements during the transition period will continue to be repo eligible. When the new requirements become effective, however, any security that does not meet the requirements will be ineligible for the Reserve Bank's operations.
Comments on the reporting templates should be made by 28 December 2012 and be directed to:
Head of Domestic Markets Department
Reserve Bank of Australia
GPO Box 3947
SYDNEY NSW 2001
or by email to firstname.lastname@example.org.