The RMBS market has been tainted globally, leaving European commentators to call for greater transparency in the hope that it will help improve investor confidence and coax the market back to life.
Leading consultant with Menelaus Consulting, Craig Alexander, said mortgage originators and issuers need to take the lead and introduce transparency and understanding.
“They must open their books to give investors and the wider market community sufficient knowledge of the content of the bonds and importantly their underlying assets. The ratings agencies must then disclose in detail the methods they use for rating each bond,” Mr Alexander said.
According to UK website, Mortgage Solutions, research is underway to produce the first model based on European Securitisation Forum standard data.
The new methods encourage the ratings agencies to play a passive part rather than an active part in the rating of RMBS, enabling investors and others in the value chain to more actively manage their investment.
“By providing a cuboid picture of the risk represented by each asset – both stressed, shocked and unstressed – investors can understand in more depth the content of their investment and more intelligently trade the various tranches of the security,” Mr Alexander said.
Mr Alexander said a scientific approach to RMBS will help cut through the smoke and mirrors and attract investors back to the securitisation market.
According to Mr Alexander, using the technologies currently under research, methods will be developed that enable areas of like-risk to be calculated in a more verifiable and scientific way.