SEC toughens regulations for securities-backed loans

The SEC's new rules will have a widespread effect on commercial lending.

The Securities and Exchange Commission (SEC) introduced a new set of rules on Wednesday governing securities-backed loans. The new regulations are aimed toward increasing transparency by requiring companies that issue securities to give more background information to potential investors. That information will include the credit scores and debt levels of individuals whose securities are being offered for investment. The SEC stressed that income levels will not be part of the disclosed data, in order to protect individual identities.

The SEC oversees a sector of the asset-backed securities market worth more than $600 billion, with auto and commercial real estate loans being the most numerous. Few mortgage-backed securities will be affected by the new rules, as most of those are covered by government-sponsored Fannie Mae and Freddie Mac, who are already required to provide more information. Those two mortgage giants played a significant part in the recent recession, which has also been the impetus for the SEC's latest regulatory decision.

Specifically, the Commission is seeking to curb improper practices by credit rating agencies, who were widely criticized for their procedures leading up to the crisis. The new regulations will limit the practice of wrongly giving high rating scores to firms that haven't earned them, and are in line with 2010's Dodd—Frank Wall Street Reform and Consumer Protection Act.

For both investors looking to fund securities-backed loans and financial institutions seeking external subsidizing, proper planning is paramount. Amortization software can be a useful tool to ensure a wise investment, as it can help users manage the information that will soon become available to them. Both auto loan management software and land contract management software give users the possibility of establishing an amortization schedule for loans, a practical implement to avoid unnecessary risks.