A group of global trade associations is putting forward recommendations that are designed to improve securitization markets.

The so-called Global Joint Initiative to Restore Confidence in the Securitization Markets proposed areas of focus for the industry response in the short-term, and offered recommendations to enhance industry practices in the securitization and structured credit markets. The recommendations were issued Wednesday by the Securities Industry and Financial Markets Association, the American Securitization Forum, the European Securitisation Forum and the Australian Securitisation Forum.

The industry groups stressed the importance of securitization to the global economy and the importance of its recovery. Market conditions are expected to remain difficult through 2010, which puts at risk the benefits of securitization such as reduced cost and availability of credit and reduces alternatives for investors. Banks may fail to meet US$2 trillion of demand for credit origination over the next three years in the absence of well-functioning securitization markets, they warned.

They noted that there is no single action or combination of actions the industry can take which will be sufficient to restore the securitization market to a more normal level of functionality, let alone restore it to the level of the last few years. The groups also caution against using the volumes of 2006 and early 2007 as benchmarks for success in returning the markets to health.

However, the Global Joint Initiative has identified four priorities for immediate action by the industry: improving disclosure of information on underlying assets for residential mortgage-backed securities; enhancing transparency with regard to underwriting and origination practices; restoring the credibility of CRAs; and, improving confidence in valuations, methodologies and assumptions.

It also proposed eight recommendations for restoring confidence in the securitization markets:

> increase and enhance pool information on RMBS into a more easily accessible and more standardized format;

> establish core industry-wide market standards of due diligence disclosure and quality assurance practices for RMBS;

> strengthen and standardize core representations and warranties as well as repurchase procedures for RMBS;

> develop industry-wide standard norms for RMBS servicing duties and evaluating servicer performance;

> expand and improve independent, third-party sources of valuations and improve the valuation infrastructure and contribution process for specified types of securitization and structured products;

> restore market confidence in the CRAs by enhancing transparency into the CRA process;

> establish a Global Securitization Markets Group to report publicly on the state of the market and changes in market practices; and

> establish and enhance educational programs aimed at directors and executives with oversight over securitized and structured credit groups, as well as at investors with significant exposure to these products.

“The global securitization industry is firmly committed to developing and implementing practical, action-oriented solutions to restore confidence in the securitization markets,” said Tim Ryan, president and CEO of the SIFMA, in a news release. “The recommendations offered today have global reach and impact and are important steps to develop best practices and improve market infrastructure. Taken together with the Term Asset-Backed Securities Loan Facility in the U.S., as well as other government–led initiatives in Europe and Australia to encourage securitization, we hope this will help restart the frozen credit markets.”

IE