Investors have won a victory in their quest to receive more information about securities backed by mortgages or other assets.
The triumph comes in the form of a regulatory decision that allows investment firms to publish more comprehensive information about securitized issues than in the past.
Until now investment banks have limited what they say about such issues to avoid being accused of trying to hype deals that they are securitizing.
But the Securities and Exchange Commission, which regulates the asset- backed market, said last week that brokers and dealers can dispense information, opinions, and even recommendations. The information could supplement or interpret the dry language contained in prospectuses or offering documents.
As long as certain conditions are met, supplemental publications by investment banks "shall not be deemed to constitute an offer for sale or an offer to sell" asset-backed securities, said Michael H. Mitchell, special counsel to the SEC's division of corporate finance.
These reports would be in addition to research that firms routinely put out. They must not give extra weight to issues the firm is involved with, Mr. Mitchell said.
Expanded reporting is expected to improve the market for issues backed by mortgages, home equity loans, or other asset-based credit. "Better information translates into more-efficient pricing, execution, and analysis," said George P. Miller, deputy general counsel for the Public Securities Association. "In many cases dealers were inhibited from distributing materials because of legal concerns."
More information is good news for banks, which are expected to step up their purchases in the asset-backed market following a recent loosening of investment rules by the Office of the Comptroller of the Currency.
But the SEC's move is not a panacea for the industry, which culls a lot of its information from lenders that are securitizing loans and must rely largely on their honesty and underwriting standards. Credit rating agencies have been pressing lenders to use automated underwriting to achieve uniform standards for credit scoring. Consistent availability of scores will improve the reliability of credit ratings on loan pools, they believe.
Indeed, over the past year analysts issued glowing reports about lenders Mercury Finance Co. and Jayhawk Acceptance Corp., which are now deeply troubled.
And more lenders are pouring into the market.
"There are new originators and new structures coming into place," said Mr. Miller of the PSA. The trade association represents firms such as Bear, Stearns & Co. and Prudential Securities, whose institutional investors have been requesting fuller access to information.