House lawmakers urge SEC to rethink securitizations rule

A proposed Securities and Exchange Commission rule to prohibit conflicts of interest in certain securitizations would harm families by increasing the cost and reducing the availability of financing across the economy, a bipartisan group of 21 House lawmakers said Tuesday. The proposed rule would prohibit a securitization participant from engaging in any transaction that would involve or result in any material conflict of interest between the participant and an investor in an assets-based security, according to the agency. In a joint letter, the lawmakers said the rule is overly broad and would prohibit many common risk-mitigation and hedging practices by financial institutions, including Fannie Mae and Freddie Mac, “negatively impacting bank safety and soundness.”

“Securitization allows banks and other lenders to provide more credit at a lower cost than would otherwise be possible,” the lawmakers said. “Rather than lenders holding loans on their balance sheets, loans can be placed in a securitization, where investors exchange cash for the bonds that are created… The benefits of securitization are particularly important when interest rates are high, as they are today, and many banks reduce their lending activities.”

The lawmakers urged the SEC to take into account the public comments it has received and tailor the rule appropriately. Signatories include Reps. Wiley Nickel (D-N.C.), Andy Barr (R-Ky.), Sean Casten (D-Ill.) and Blaine Luetkemeyer (R-Mo.).