EDGAReView

Imagine if potential buyers of the infamous Goldman Sachs offering could have been able to download the details and value of each individual asset in the offering, regardless of how each original mortgage had been sliced and re-packaged. Such radical transparency is possible, with new reporting requirements and the use of interactive data. We are delighted to see the SEC’s movement in that direction, even if they have not yet specified XBRL as the data format for achieving this goal. Learn more about the SEC’s proposed rule changes and download the free white paper explaining how it is possible to have loan-level details for every mortgage-backed security, from cradle to grave, in an automated form that is easy to manipulate so that investors can value the actual cash flows of these investments.

On April 7th the U.S. Securities and Exchange Commission met and agreed to propose significant changes to reports on Asset Backed Securities (ABS). “The recent financial crisis highlighted that investors and other participants in the securitization market did not have the necessary tools to be able to fully understand the risk underlying those securities and did not value those securities properly or accurately,” the SEC states.

The proposed new rules give investors more time between when an offer is filed with the SEC and when it begins to be sold, along with more information for investors to evaluate, for the entire life of the offering. Sponsors would have to share the risks by retaining a portion of whatever they’re selling.

What we at EDGAR Online especially note about the proposed rule change is the use of a data format that the public can use to uncover the details. This is key. The SEC is proposing that reports be filed in XML. They didn’t (yet) specify XBRL, which is based on XML, but clearly, they want data that is reusable, without copying and pasting, in other computer programs. They also want the contractual cash flow provisions filed as downloadable source code, called Python, a commonly used open source interpretive programming language.

Last year the US XBRL organization appeared before the commission to explain exactly how an ABS could and should be reported so that investors had the information they needed to value ABSs. That testimony was based on a white paper by Philip Moyer, who explains, “The actual loan level data underlying most asset-backed securities (ABS) is, and has always been, filed with the EDGAR system two to three weeks before those issues were priced. But the information was buried in massive documents called Free Writing Prospectuses. You can look at these documents and find million-dollar home mortgages with no money down and no proof of income. The problem was that there were far too few people on the buy-side who were able to easily access this data — and even fewer people who could analyze it before buying an ABS.”

XBRL solves this problem entirely. You can see how it works by reading the XBRL US white paper, Bringing Transparency to the Mortgage-backed Securities Market

We encourage our subscribers to submit their own comments on the SEC’s proposed rules. Comments may be submitted over a 90-day period at http://www.sec.gov/rules/proposed.shtml or http://www.regulations.gov or email rule-comments@sec.gov (and include File Number S7-0810 in the subject line. Paper comments (in triplicate) should be mailed to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. All submissions should refer to File Number S7-08-10. The Commission will post all comments on the Commission’s Internet Web site.