FDIC Issues Risk Retention MBS Proposal

The Federal Deposit Insurance Corp. has issued a proposed rule on securitization standards that include a 5% risk retention requirement on newly issued MBS by depositories. The new standards are part of the agency's revision of "safe harbor" policies with regard to receivership assets. The current safe harbor assures MBS investors that FDIC will not seize the underlying mortgages of MBS sold by a bank that later fails. The regulator is making the proposal because of recent changes in accounting rules and wants to set a securitization requirement as a way to revive the private-label MBS market. FDIC wants to move quickly on the new policies. Chairman Sheila Bair says securitization standards are compatible with current House and Senate legislative efforts. However, at an FDIC board meeting Tuesday, Comptroller of the Currency John Dugan raised objections and is forcing FDIC to move more deliberately. "A rigid minimum retention requirement risks closing down securitization markets," he said.