Bill Requires 5% MBS Risk Retention with Some Exceptions

Securitizers of mortgages and other assets would have to retain at least 5% of the credit risk with some exceptions for loans that meet certain regulatory standards, according to a bill introduced by Senate Banking Committee chairman Christopher Dodd, D-Conn. The financial services regulatory reform bill that chairman Dodd plans to mark up next week allows federal banking regulators and the Securities and Exchange Commission to reduce the risk retention on loans that exhibit high quality underwriting. However, the direction given the regulators seems to be very vague when clarity is needed, one source said. Industry groups were urging the lawmakers to create an exemption for 30-year fixed rate mortgages and other "qualified" mortgages. But the Dodd bill does not provide such a blanket exemption. The regulators also have the discretion to require originators to retain a portion of the credit risk.