What If You Build It And No One Comes? Massive SEC Proposal Would Fundamentally Change Asset-Backed Securities

This Stroock Special Bulletin summarizes and discusses the Securities and Exchange Commission's recent 667-page release that, if adopted, would fundamentally change how asset-backed securities are offered, sold and reported.   The proposed regulations are the SEC's response to the financial crisis that started in late 2007 and the role played by complex and, as it turns out, little understood asset-backed securities. 

According to the SEC, the proposals are "designed to improve investor protection and promote more efficient asset-backed markets."  However, the costs and burdens that would be borne by loan originators may result in driving many of them out of the market completely.   This may result in less credit to the individuals and businesses that need it the most, and increased costs for those still able to obtain credit.  The SEC may be creating a regulatory framework in which very few participants line up to play.