Despite strong objections from the banking industry and others seeking securitizations by them, the FDIC has finalized tough new rules limiting the “safe harbor” for assets backing issuances by insured depositories (IDs). Although IDs may still issue asset-backed securities (ABS) that do not comply with the FDIC’s safe-harbor standards, markets are likely to be reluctant to accept them or, at the least, price them considerably higher to reflect the greater risk for ABS investors without a safe harbor. Residential mortgages sold through government channels are not covered, meaning that non-private residential mortgage-backed securities (RMBS) should continue uninterrupted. Other ABS will, however, be dramatically affected in the near term, possibly sharply curtailing ABS comprised of commercial mortgages, auto loans, credit-card receivables and similar obligations.
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