WASHINGTON — Federal regulators proposed new, stricter rules Wednesday for asset-backed securities, the bundles of loans that helped spark the market’s collapse in 2008 and nearly brought down the financial system.

The Securities and Exchange Commission voted 5-0 to propose that Wall Street firms that package and sell asset-backed securities be required in most cases to hold at least 5 percent of the packaged loans — mortgages, credit cards, auto loans — on their own books. With some “skin in the game” in the form of exposure to risk, the thinking goes, the firms would be more careful to ensure that borrowers are properly screened.

Experts say it was the lack of committed “skin” that enabled a system in which bundles of mortgage loans were whisked from investor to investor, with no one assuming responsibility for the risk until the roof caved in. Mortgage-backed securities were the pyramid of cards that collapsed and nearly blew up the financial system.

The government stepped in after the subprime mortgage disaster turned home loans that had been bundled together as securities into toxic assets. The Federal Reserve spent $1.25 trillion to buy up mortgage securities, a government support that ended last month.

The proposed SEC rules could be formally adopted sometime after a 90-day public comment period, possibly with changes.

The 5 percent minimum holding requirement would be a condition for firms seeking expedited SEC approval of their offerings of asset-backed securities for sale to investors. That process, known as “shelf” registration, is predominantly used by securities issuers. At the same time, an investment-grade rating from the credit rating agencies would no longer be required for expedited approval.

Although the vote by the five SEC commissioners was unanimous, two of them voiced concerns about the new requirement for risk-holding. Troy Paredes said it may not make sense to apply a 5 percent minimum requirement to every offering of asset-backed securities.

The SEC’s proposal also would require firms to provide fuller disclosures on asset-backed securities, including information on every underlying loan in a package. For example: What type of mortgage loan was involved? Were complete documents required from the borrower? Or was it a “no-doc” or “liar loan”?

The idea is to give investors more information in order to better judge the securities’ risk. That would reduce reliance on the credit rating agencies who were widely criticized for failing to give investors adequate warning of the risks in subprime mortgage securities that triggered the financial crisis.


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