Dodd Bill Wants 10% Risk Retention on MBS

Senate Banking Committee chairman Christopher Dodd, D-Conn., has produced a "discussion draft" of a comprehensive regulatory reform bill that requires sellers of mortgage-backed securities to retain 10% of the credit risk. However, the draft provides a risk retention exemption for government-guaranteed mortgages as well as mortgages purchased and securitized by Fannie Mae and Freddie Mac. In addition, regulators can approve a "total or partial" risk retention exemption for other MBS and allocate risk retention between securitizers and the lenders. The House Financial Services Committee is moving toward approving a similar bill to address systemic risk that also requires 10% risk retention, a mandate that the mortgage industry opposes. "To restore confidence in our markets and encourage investment, we will require companies that sell products such as mortgage-backed securities to keep 'skin in the game' so that they won't sell worthless securities to investors," Sen. Dodd said. His bill also creates an independent Consumer Financial Protection Agency to protect consumers from "hidden fees and abusive terms" so they know they are being offered "safe" mortgages and other products, he said. Sen. Dodd said he would seek input on his draft bill and reach out to Republicans in an attempt to mark up and approve a bill by the first week of December. Dodd's CFPA plan focuses on companies that "pose the greatest risk to consumers — mortgage bankers, brokers, finance companies and the largest institutions," according to a legislative summary.