By Norma Garcia

It’s no secret that the best insurance against indifference is having something to lose. That’s exactly what needs to happen in the mortgage marketplace when mortgages are originated, packaged and sold as securities on the secondary market. Vast pools of improvident mortgages were made and sold to investors in the form of mortgage backed securities, also referred to as RMBS. When the loans underlying those assets began to fail in record numbers, so did the payout to investors, but the sponsors of those securities had nothing to lose because they didn’t bear any of the risk of failure. As the mortgage market collapsed, the repercussions were felt on many levels as millions of individual borrowers marched towards foreclosure, neighborhoods experiencing a large number of foreclosures declined, and investors were left holding the bag on non-performing assets. The SEC has proposed requiring the sponsors of RMBS to keep some “skin in the game” or in other words, retain some of the risk on mortgages that are pooled together and sold as securities to investors. The idea is that by keeping some of the risk, the sponsors have something to lose and are more likely to make responsible loans, minimizing predatory lending experienced by consumers and increasing the quality of the assets sold to investors. Read our comments on this proposal. We also comment on the importance of making certain information available to investors, regulators and the public concerning the quality of the underwriting of loans included in RMBS pools and caution the SEC to carefully balance the need for this information against consumer privacy concerns