The Securities and Exchange Commission (SEC) may have mandated XBRL tagging for financial reporting but XBRL US is also keen to extend its reach into the asset backed securities (ABS) markets. In a recent testimony to the US Domestic Policy Subcommittee Oversight and Government Reform Committee, Mark Bolgiano, president and CEO of XBRL US, recommended establishing a single data standard in the mortgage backed securities (MBS) market based on XBRL.
“XBRL US has developed a prototype dictionary of terms for residential mortgage backed securities (RMBS) which could be a starting point to a broader development of XBRL data in the ABS market,” he explained to the committee earlier this month. To this end, Philip Moyer, XBRL US board member and CEO of Edgar Online, has been heading a team at the standards body to develop the XBRL dictionary for mortgage data, which Bolgiano indicated is now ready for use.
According to Bolgiano, the requirements for greater transparency in Troubled Asset Relief Programme (TARP) funds reporting and oversight can be met using XBRL. He believes that the standard will bring a consistent format to data on financial condition, risk, value, and compensation information regardless of the sources of that data. He contended that XBRL would bring “quality, consistency and interoperability” to the patchwork of proprietary data formats used in the ABS markets.
Bolgiano explained: “With an agreed?upon data standard and XBRL, issuers, investors, rating agencies and regulators could forecast actual discounted cash flows of the individual loans, making it significantly easier to value each security – effectively ‘normalising’ the data so that the security can be valued using a recognised valuation method.”
Certainly, the idea of tagging the often substantial source documents on which ABSs are founded so that they can be more easily processed seems logical enough. By holding this data in an electronic format it would also be much easier to drill down to a more granular level of detail at short notice, should the market take a turn for the worse.
“Once the data and technology standard have been determined, the existing pool of toxic assets can be valued if certain industry players will provide data on the underlying loans. Once that data is in hand, the XBRL dictionary of terms, for example the RMBS prototype, can be used to determine the value of existing toxic assets against a set of defined criteria, including those acquired under TARP. XBRL could also be used to support the valuation of other baskets of securitized assets, for example new issuances supported by the Term Asset?Backed Lending Facility (TALF),” said Bolgiano.
During the testimony he also went on to describe the current usage of XBRL around the world including for financial reporting in the US and the proposals to introduce these data tags in the corporate actions space.
Given the SEC’s predisposition towards using XBRL to solve its data woes, the XBRL US case is made that much stronger in the US market. No doubt we will be hearing much more about the MBS proposals in the coming weeks.