The American Securitization Forum in a new letter to joint regulators is pressing harder for risk retention to take the form of a “vertical slice” when it comes to residential mortgage-backed securities.
The group said it continues to see this as the best option for this asset class because it allows off-balance sheet transactions to occur in situations where issuers and servicers are affiliates, something that is not possible if risk retention were to take the form of a “horizontal” slice.
While it wants vertical slice treatment for RMBS, ASF has been pressing for other forms of risk retention it feels are more appropriate for other asset classes. A horizontal slice, for example, would be appropriate for student loan and auto asset-backed securities, according to the ASF.
The “vertical” slice approach would involve retaining risk across the full spectrum of credit tranches whereas a “horizontal” slice would involve retaining the tranche that receives the first losses from the deal.
