Credit rating agency reform / / John De Luca and Paul Russo, editors

• Record Nr.: UNINA9910963685703321
• Pubbl/distr/stampa: New York, : Nova Science Publishers, c2009
• ISBN: 1-61728-212-X
• Edizione: [1st ed.]
• Descrizione fisica: 1 online resource (227 p.)
• Altri autori (Persone): De LucaJohn; RussoPaul
• Disciplina: 332.7/13
• Soggetti: Credit bureaus; Credit ratings
• Lingua di pubblicazione: Inglese
• Formato: Materiale a stampa
• Livello bibliografico: Monografia
• Note generali: Description based upon print version of record.
• Nota di bibliografia: Includes bibliographical references and index.
• Nota di contenuto: Intro -- CREDIT RATING AGENCY REFORM -- CREDIT RATING AGENCY REFORM -- CONTENTS -- PREFACE -- Chapter 1 CREDIT RATING AGENCY BACKGROUND -- I. BACKGROUND -- A. Introduction -- B. The Credit Rating Agency Reform Act of 2006 -- C. The Role of Credit Ratings in the Credit Market Turmoil -- 1. THE CREATION OF SUBPRIME RMBS AND CDOS -- 2. DETERMINING CREDIT RATINGS FOR SUBPRIME RMBS AND CDOS -- 3. THE DOWNGRADES IN CREDIT RATINGS OF SUBPRIME RMBS AND CDOS -- II. PROPOSED AMENDMENTS -- A. Amendments to Rule 17g-5 -- 1. ADDRESSING THE PARTICULAR CONFLICT ARISING FROM RATING STRUCTURED FINANCE PRODUCTS BY ENHANCING THE DISCLOSURE OF INFORMATION USED IN THE RATING PROCESS -- a. The Proposed Amendment -- b. Proposed Guidance for Compliance with Provisions of the Securities Act of 1933 -- I. Public Offerings -- II. Private Offerings -- III. Offshore Offerings -- 2. RULE 17G-5 PROHIBITION ON CONFLICT OF INTEREST RELATED TO RATING AN OBLIGOR OR DEBT SECURITY WHERE OBLIGOR OR ISSUER RECEIVED RATINGS RECOMMENDATIONS FROM THE NRSRO OR PERSON ASSOCIATED WITH THE NRSRO -- 3.RULE 17G-5 PROHIBITION ON CONFLICT OF INTEREST RELATED TO THE PARTICIPATION OF CERTAIN PERSONNEL IN FEE DISCUSSIONS -- 4. RULE 17G-5 PROHIBITION OF CONFLICT OF INTEREST RELATED TO RECEIPT OF GIFTS -- B. Amendments to Rule 17g-2 -- 1. A Record of Rating Actions and the ; Requirement that they be made Publicly Available -- 2. A Record of Material Deviation from Model Output -- 3. Records Concerning Third-Party Analyst Complaints -- Clarifying Amendment to Rule 17g-2(b)(7) -- C. Amendments to the Instructions for Form NRSRO -- 1. Enhanced Ratings Performance Measurement Statistics on Form NRSRO -- 2. Enhanced Disclosure of Ratings Methodologies -- D. Amendment to Rule 17g-3 (Report of Credit Rating Actions).; III. PROPOSED NEW RULE 17G-7 (SPECIAL REPORTING OR USE OF SYMBOLS TO DIFFERENTIATE CREDIT RATINGS FOR STRUCTURED FINANCE PRODUCTS) -- IV. PAPERWORK REDUCTION ACT -- A. Collections of Information under the Proposed Amendments -- B. Proposed Use of Information -- C. Respondents -- D. Total Annual Recordkeeping and Reporting Burden -- 1. Amendments to Form NRSRO -- 2. Amendments to Rule 17g-2 -- 3. Proposed Amendment to Rule 17g-3 -- 4. Amendments to Rule 17g-5 -- 5. Proposed Rule 17g-7 -- E. Collection of Information Is Mandatory -- F. Confidentiality -- G. Record Retention Period -- H. Request for Comment -- V. COSTS AND BENEFITS OF THE PROPOSED RULES -- A. Benefits -- B. Costs -- 1. Proposed Amendments to Form NRSRO -- 2. Proposed Amendments to Rule 17g-2 -- 3. Proposed Amendment to Rule 17g-3 -- 4. Proposed Amendments to Rule 17g-5 -- 5. Proposed Rule 17g-7 -- C. Total Estimated Costs and Benefits of this Rulemaking -- VI. CONSIDERATION OF BURDEN ON COMPETITION AND PROMOTION OF EFFICIENCY, COMPETITION, AND CAPITAL FORMATION -- VII. CONSIDERATION OF IMPACT ON THE ECONOMY -- VIII. INITIAL REGULATORY FLEXIBILITY ANALYSIS -- A. Reasons for the Proposed Action -- B. Objectives -- C. Legal Basis -- D. Small Entities Subject to the Rule -- E. Reporting, Recordkeeping, and Other Compliance Requirements -- F. Duplicative, Overlapping, or Conflicting Federal Rules -- G. Significant Alternatives -- H. Request for Comments -- IX. STATUTORY AUTHORITY -- Text of Proposed Rules -- List of Subjects in 17 CFR Parts 240 and 249b -- Part 240-General Rules and Regulations, Securities Exchange Act of 1934 -- Exhibit 1 -- Exhibit 2 -- REFERENCES -- Chapter 2 SUMMARY REPORT OF ISSUES IDENTIFIED IN THE COMMISSION STAFF'S EXAMINATIONS OF SELECT CREDIT RATING AGENCIES -- I. SUMMARY -- II. BACKGROUND -- A. The Examinations.; B. Current Regulatory Requirements and Proposed New Rules and Rule Amendments with Respect to Credit Rating Agencies -- III. THE RATINGS PROCESS -- A. The Creation of RMBS and CDOs -- B. Determining Credit Ratings for RMBS and CDOs -- IV. THE STAFF'S EXAMINATIONS: SUMMARY OF FACTUAL FINDINGS, OBSERVATIONS AND RECOMMENDATIONS -- A. There was a Substantial Increase in the Number and in the Complexity of RMBS and CDO Deals Since 2002, and Some Rating Agencies Appeared to Struggle with the Growth -- Remedial Action -- B. Significant Aspects of the Ratings Process Were Not Always Disclosed -- Current Regulatory Requirements -- Remedial Action -- Proposed Rules and Rule Amendments that Would Address These Issues -- C. Policies and Procedures for Rating RMBS and CDOs Can be Better Documented -- Current Regulatory Requirements -- Remedial Action -- D. Rating Agencies are Implementing New Practices with Respect to the Information Provided to Them -- Proposed Rules and Rule Amendments that Would Address Verification -- E. Rating Agencies Did Not Always Document Significant Steps in the Ratings Process -- Including the Rationale for Deviations from Their Models and for Rating Committee Actions and Decisions -- and They Did Not Always Document Significant Participants in the Ratings Process -- Current Regulatory Requirements -- Remedial Action -- Proposed Rules and Rule Amendments that Would Address These Issues -- F. The ; Surveillance Processes Used by the Rating Agencies Appear to Have Been Less Robust than Their Initial Ratings Processes -- Current Regulatory Requirements -- Remedial Action -- Proposed Rules and Rule Amendments that Would Address These Issues -- G. Issues Were Identified in the Management of Conflicts of Interest and Improvements Can be Made -- 1. The "Issuer Pays" Conflict.; Proposed Rules and Rule Amendments that Would Address These Issues -- Current Regulatory Requirements -- Remedial Action -- Proposed Rules and Rule Amendments that Would Address These Issues -- 2. Analysts' Compensation -- 3. Securities Transactions by Employees of Credit Rating Agencies -- Current Regulatory Requirements -- Remedial Action -- H. Internal Audit Processes -- Current Regulatory Requirements -- Remedial Action -- V. OBSERVATIONS BY THE OFFICE OF ECONOMIC ANALYSIS -- A. Conflicts of Interest -- B. Factual Summary of the Ratings Process for RMBS -- Risk Variables -- 2. Use of Historical Data -- 3. Surveillance of Ratings -- C. Factual Summary of the Ratings Process for CDOs -- VI. CONCLUSION -- REFERENCES -- Chapter 3 FEDERAL RESERVE BANK OF NEW YORK STAFF REPORTS: UNDERSTANDING THE SECURITIZATION OF SUBPRIME MORTGAGE CREDIT* -- ABSTRACT -- EXECUTIVE SUMMARY -- 1. INTRODUCTION -- 2. OVERVIEW OF SUBPRIME MORTGAGE CREDIT SECURITIZATION -- 2.1. The Seven Key Frictions -- 2.1.1. Frictions between the Mortgagor and Originator: Predatory Lending -- 2.1.2. Frictions between the Originator and the Arranger: Predatory Lending and Borrowing -- 2.1.3. Frictions between the Arranger and Third-Parties: Adverse Selection -- Adverse Selection and the Warehouse Lender -- Adverse Selection and the Asset Manager -- Adverse Selection and Credit Rating Agencies -- 2.1.4. Frictions between the Servicer and the Mortgagor: Moral Hazard -- 2.1.5. Frictions between the Servicer and Third-Parties: Moral Hazard -- Moral Hazard between the Servicer and the Asset Manager4 -- Moral Hazard between the Servicer and the Credit Rating Agency -- 2.1.6. Frictions between the Asset Manager and Investor: Principal-Agent -- 2.1.7. Frictions between the Investor and the Credit Rating Agencies: Model Error -- 2.2. Five Frictions that Caused the Subprime Crisis.; 3. AN OVERVIEW OF SUBPRIME MORTGAGE CREDIT -- The Motivating Example -- 3.1. Who Is the Subprime Mortgagor? -- The Motivating Example -- Industry Trends -- 3.2. What Is a Subprime Loan? -- The Motivating Example -- Industry Trends -- The Impact of Payment Reset on Foreclosure -- 3.3. How Have Subprime Loans Performed? -- Motivating Example -- Industry -- 3.4. How Are Subprime Loans Valued? -- 4. OVERVIEW OF SUBPRIME MBS -- 4.1. Subordination -- 4.2. Excess Spread -- 4.3. Shifting Interest -- 4.4. Performance Triggers -- 4.5. Interest Rate Swap -- 4.6. Remittance Reports -- 5. AN OVERVIEW OF SUBPRIME MBS RATINGS -- 5.1. What Is a Credit Rating? -- 5.2. How Does One Become a Rating Agency?17 -- 5.3. When Is a Credit Rating Wrong? How Could We Tell? -- 5.4. The Subprime Credit Rating Process -- 5.4.1. Credit Enhancement -- 5.5. Conceptual Differences between Corporate and ABS Credit Ratings -- 5.6. How through-the-Cycle Rating Could Amplify the Housing Cycle -- 5.7. Cash Flow Analytics for Excess Spread -- The Timing of Losses -- Prepayment Risk -- Interest Rate Risk -- Other Details -- Motivating Example -- 5.8. Performance Monitoring -- 5.9. Home Equity ABS Rating Performance -- 6. THE RELIANCE OF INVESTORS ON CREDIT RATINGS: A CASE STUDY -- 6.1. Overview of the Fund -- Fund Adequacy -- Portfolio Composition -- 6.2. Fixed-Income Asset Management -- Mandates (from ORC Sec 742.11) -- Asset Management -- 7. CONCLUSIONS -- REFERENCES -- APPENDIX 1: ; PREDATORY LENDING -- The Role of the Rating Agencies -- APPENDIX 2: PREDATORY BORROWING -- Fraud for Housing -- Fraud for Profit -- The Role of the Rating Agencies -- APPENDIX 3: SOME ESTIMATES OF PD BY RATING -- INDEX -- Blank Page.
• Sommario/riassunto: Presents an overview of subprime mortgage securitisation process as well as the seven key informational frictions that arise. This book discusses the rule amendments that the Commission intends to propose which would reduce undue reliance in the Commission's rules on nationally recognized statistical rating organizations (NRSRO) ratings.