ABA clarifies role of trustee in securitization

Seeking increased clarity of the trustee’s role in asset-backed securities transactions, the American Bankers Association said many market participants fail to recognize the legal limitations on the duties of trustees in ABS deals. The ABA said the role of the trustee wasn’t a factor in the investment performance nor the market issues that may have caused or affected the current crisis within the space. “Importantly, the trustee typically has no duty under the transaction documents to make investigations on its own for the purpose of detecting defaults, fraud or other breaches,” according to the ABA. The contracts governing ABS transactions explicitly outline, carefully detail, and specifically limit the responsibilities expected of the trustee. The ABA said these “duties are ministerial in nature and typically include administrative functions such as maintaining securitization accounts, receiving payments, performing calculations and making distributions of information and payments.” The ABA said it is the servicer that collects income from the assets underlying the ABS and provides information to investors on how the assets are performing. “Transaction documents virtually never give the trustee any substantive oversight of the servicer and its activities other than to confirm the timely receipt by the trustee of certain remittances and reports from the servicer, including reports of independent accountants and certifications in the forms required by the transaction documents,” according to the ABA. Write to Jason Philyaw.