In a letter to Securities & Exchange Commission (SEC) Secretary Elizabeth M. Murphy, Mortgage Bankers Association (MBA) President and CEO John Courson says the SEC's proposed requirement for registrants to disclose preliminary ratings could run the risk of misleading investors.
The proposal, which would amend several securities laws, is intended to mitigate the practice of ratings shopping, which Courson's letter explains involves soliciting multiple rating agencies for a preliminary rating and then selecting the agency whose preliminary ratings is most favorable.
The challenge with this tack, Courson says, occurs with commercial mortgage-backed securities. In CMBS transactions, B-piece investors, who are in a first-loss position, can reject loans that do not meet certain criteria from an initial pool.
"Consequently, the composition of the loan pool is likely to change materially after the preliminary rating," Courson writes.
Courson's complete letter is viewable on the MBA Web site.
SOURCE: Mortgage Bankers Association