The Federal Deposit Insurance Corp. has scheduled a March 29 board meeting to take up the long-await proposed rule that will determine which “high quality” mortgages are exempt from risk retention.
Observers expect federal regulators will require a 20% downpayment on loans to meet the "qualified residential mortgage" test under the Dodd Frank Act. QRM loans will be exempt from risk retention and issuers of mortgage securities backed by QRM loans won't have to retain 5% of the credit risk.
Mortgage analysts will be looking to see if mortgage insurance can be used so lower downpayment loans will qualify and be exempt from risk retention.
The risk retention status of Fannie Mae and Freddie Mac also is uncertain. Initially it was understood the two mortgage giants would be exempt because imposing a 5% risk retention requirement on their guaranteed MBS would be disruptive to the mortgage market.
But high ranking Obama officials recently raised doubts about a GSE exemption. Some analysts believe Fannie and Freddie could be exempt based on the fact they fully guarantee their MBS. Such guarantees are a form of risk retention.
