Email
Print Friendly
A A A

Banking

Agencies Revise Proposed Risk Retention Rule

bank riskThe Federal Reserve and five other federal agencies on August 28 issued a revised proposal requiring sponsors of securitization transactions to retain risk in those transactions. The new measure would change a proposed rule the agencies issued in 2011 to institute the risk retention requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).

Several options proposed
The rule would provide asset-backed securities sponsors with several options to satisfy the risk retention requirements. The original proposal generally measured compliance with the risk retention requirements based on the par value of securities issued in a securitization transaction and included a so-called premium capture provision. The agencies are now proposing that risk retention generally be based on fair value measurements without a premium capture provision.

As required by the Dodd-Frank Act, the proposal would define "qualified residential mortgage" (QRM) and exempt securitizations of QRMs from risk retention. The new proposal would define QRMs the same as they are defined by the Consumer Financial Protection Bureau. The new proposal also requests comment on an alternative definition of QRM that would include certain underwriting standards in addition to the qualified mortgage criteria.

Some loans not subject to risk retention rule
Similar to the original proposal, under the revised measure securitizations of commercial loans, commercial mortgages, or automobile loans of low credit risk would not be subject to risk retention. Further, the rule includes a provision, unchanged from the original proposal, regarding Fannie Mae and Freddie Mac. As long as the two government-sponsored entities are in conservatorship or receivership and have capital support from the U.S. government, the new proposed rule would recognize the full guarantee on payments of principal and interest provided by Fannie Mae and Freddie Mac for their residential mortgage-backed securities as meeting the risk retention requirements.

This proposal is being issued jointly by the Federal Reserve Board of Governors, the Department of Housing and Urban Development, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. As provided under the statute, the Secretary of the Treasury, as Chairperson of the Financial Stability Oversight Council, played a coordinating role in the rulemaking.

The agencies are requesting comment on the revised proposed rule by October 30, 2013.

August 29, 2013

 

Related Links

Related Links on Other Sites