Press Releases

Release Date: March 17, 2008
Contact:
Katrina Cavalli, 212-313-1181, kcavalli@sifma.org

ASF and SIFMA Oppose Minnesota Subprime Foreclosure Deferment Act

Proposed Legislation Would Threaten Future Availability of Mortgage Credit

New York, NY, March 17, 2008 — Tom Deutsch, deputy executive director of the American Securitization Forum (ASF), testified today before the Minnesota House of Representatives on behalf of the ASF and the Securities Industry and Financial Markets Association (SIFMA), opposing the Minnesota Subprime Foreclosure Deferment Act of 2008. 

As outlined in letters sent from the ASF and SIFMA to both the Minnesota Senate and House of Representatives, Mr. Deutsch noted that the legislation, by imposing a delay and reduction in payments due, will introduce a significant degree of uncertainty in whether and when an investor will be able to realize the value of the security for their investment. This would in turn impose substantial costs and threaten the future availability of mortgage credit to all Minnesotans, with those the legislation is intended to help being harmed the most.

The bill would suspend the foreclosure process for one year for eligible homeowners with subprime mortgage loans.  Homeowners would be required to continue making payments to their lender, making either the minimum monthly payment on the date the loan was originated or 65 percent of the minimum monthly payment at the time the borrower defaulted prior to the foreclosure.

“In the face of this uncertainty, investors will either require higher yields on mortgage-backed securities going forward, or investors will withdraw their participation from the market entirely.  In either case, ALL mortgage borrowers in Minnesota will bear substantially greater costs and find fewer opportunities for affordable mortgage financing in a market environment already deprived of adequate access to affordable credit,” said Mr. Deutsch.

Additionally, the ASF and SIFMA note that delaying foreclosure proceedings in today’s housing market would reduce expectations of recovery on foreclosed properties, likely causing an immediate drop in the value of loans held in a bank’s portfolio, as well as for mortgage-backed securities (MBS) in cases where loans have been securitized. 

“Pension and mutual funds are large buyers of AAA MBS, and any reduction in the value of these securities will be reflected in the value of those pension and mutual funds,” Mr. Deutsch said.  “Since the foreclosure delays and principal write-downs that are proposed in the bill would reduce cash flows and devalue MBS that are collateralized by loans to Minnesota residents, the bill would essentially pull value from pension funds and 401(k) plans in order to temporarily benefit homeowners who go to foreclosure, with the added negative effect of drying up affordable credit to all Minnesotans who are looking to either refinance into a better mortgage product or finance a first-time home purchase.”

While all mortgage borrowers would suffer from higher mortgage rates and reduced access to credit, Mr. Deutsch noted in his testimony that the effect would be particularly pronounced for subprime borrowers who pose the greatest risk for entering foreclosure during the life of their mortgage.

“This increased risk, and the resulting increased costs of borrowing would be felt even more keenly in areas where home prices are declining, local economic conditions are poor, or a borrower tends to have a riskier credit profile. Given the current conditions in the mortgage market—lenders tightening credit standards, or lenders going out of business entirely—it is already becoming difficult for some borrowers to access mortgage credit at all. The changes proposed in the bill will exacerbate this problem and will harm those whom it intends to help by making it even more difficult and expensive for imperiled borrowers to obtain affordable new financing.  Most importantly, potential Minnesota borrowers will face a significant decrease in the availability of affordable credit,” he said. 

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The American Securitization Forum is a broad-based professional forum through which participants in the U.S. securitization market advocate their common interests on important legal, regulatory and market practice issues.  ASF members include over 375 firms, including issuers, investors, servicers, financial intermediaries, rating agencies, financial guarantors, legal and accounting firms, and other professional organizations involved in securitization transactions.  The ASF also provides information, education and training on a range of securitization market issues and topics through industry conferences, seminars and similar initiatives.  For more information about ASF, its members and activities, please go to www.americansecuritization.com.  The ASF is a forum of the Securities Industry and Financial Markets Association.

The Securities Industry and Financial Markets Association brings together the shared interests of more than 650 securities firms, banks and asset managers. SIFMA's mission is to promote policies and practices that work to expand and perfect markets, foster the development of new products and services and create efficiencies for member firms, while preserving and enhancing the public's trust and confidence in the markets and the industry. SIFMA works to represent its members’ interests locally and globally. It has offices in New York, Washington D.C., and London and its associated firm, the Asia Securities Industry and Financial Markets Association, is based in Hong Kong.