The Treasury Department is circulating a proposal that would require originators to retain 5% of a loan's credit risk when selling it into the secondary market. An early snippet from the Obama administration's regulatory restructuring plan, which is expected to be unveiled Wednesday, indicates the proposal also would ban loan originators from hedging or even indirectly transferring the risk they are required to retain. Loan broker and loan officer compensation would be disbursed over time and reduced if a loan is not repaid because of poor underwriting. Some of these concepts — or similar ones — have already been introduced in the House by House Financial Services Committee chairman Barney Frank, D-Mass.
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