Tuesday, December 15, 2015. Washington, D.C.
December 15, 2015
The Honorable Mitch McConnell
The Honorable Harry Reid
The Honorable Paul D. Ryan
U.S. House of Representatives
The Honorable Nancy Pelosi
U.S. House of Representatives
Dear Congressional Leaders:
The Association of Mortgage Investors (AMI) writes to express its opposition to the inclusion of any legislative policy rider concerning the Trust Indenture Act (TIA) of 1939 to the pending appropriations bill. In light of nearly a century track record of the TIA’s effectiveness, value, and its unique legal role in the protection of U.S. capital markets, the burden on the proponents in favor of any modification must be a heavy one.
AMI represents managers of mutual funds and money for state and local pension and retirement funds and for a range of public institutions, including unions, teachers, and first-responders, on a daily basis. The AMI was formed to become the primary trade association representing investors in mortgage-backed securities (MBS), along with life insurance companies, and state pension and retirement systems, university endowments. It has become the sole unconflicted buy-side investor group and developed a set of policy priorities that we believe contribute to achieving the goal of restoring private capital to the U.S. mortgage market and effective investor rights. AMI was founded to play a primary role in the analysis, development, and implementation of mortgage and housing policy that keep homeowners in their homes and provide a sound framework that promotes continued home purchasing.
As many have noted, the TIA was a landmark achievement that helped restore the integrity of the U.S. financial markets and make private capital available for American investment. As history teaches us, the 1929 financial crisis resulted in a crash of the stock (equities) markets. Yet, it is less well-known that the 1929 crisis also resulted in a bond industry crash as well. In response, in 1934, Congress tasked the Securities and Exchange Commission (SEC) to explore solutions for re-vitalizing the corporate bond market. The SEC prepared a report authored by the Commissioners, including future U.S. Supreme Court Justices William Douglas and Abe Fortas.
The 1936 SEC report on the problems surrounding the corporate bond market bears striking similarities to recent the history faced by the investors and the American public. The report reads as if torn from recent financial news headlines:
The basic problem is to refashion the trust indenture [a corporate bond] for the purpose of according greater protection to investors. That entails prescribing a minimum standard specifications for the conduct of trustee and issue thereunder. . . . This means a more proper balance between the interests of investors and requirements of issuers … where its failure to take swift and positive action leave the investors without effective protection of their interests . . . In this situation the inherent incompatibility of interest arises, common to all creditors and debtors . . . .
Accordingly, the SEC report catalogs a number of the resulting problems from the lack of appropriate investment standards, systems, and safeguards present up until Congress’ vigilance in shoring up the capital markets. The result of the 1936 SEC report was Congress’ enactment of the TIA. In particular, the TIA addressed many defects of the bond industry of the early 20th century.
The TIA’s legal framework is critically valuable to the U.S. economy and all bond-holders, including those seniors and retirement savers. This landmark legislation has enabled the corporate bond market with the standards and structures necessary for its efficient operation – so much so that most investors do not even realize that its protective provisions are in effect.
We urge that any changes to the TIA proceed via regular order, with transparency, and in consultation from stakeholders from the financial services industry, academia, the legal community, and consumer groups. The consequences of any hasty, retroactive TIA amendment is likely to have a chilling effect on future U.S. capital investment for decades and potentially be damaging to seniors, retirees, and 401K savers across the Nation.
Thank you for your attention to these concerns. Please do not hesitate to contact the AMI if you have any questions or utilize us as a technical resource regarding these matters.
The Association of Mortgage Investors (AMI)
The Hon. Richard Shelby, Chairman, U.S. Senate Committee on Banking Housing, & Urban Affairs
The Hon. Sherrod Brown, Ranking Member, U.S. Senate Committee on Banking, Housing, & Urban Affairs
The Hon. Jeb Hensarling, Chairman, U.S. House Committee on Financial Services
The Hon. Maxine Waters, Ranking Member, U.S. House Committee on Financial Services