What We're Hearing

A few grizzled mortgage banking veterans I know believe that if the risk retention language on MBS in the new bill from Sen. Chris Dodd sticks, you can kiss the nonbank mortgage industry goodbye. You can also say goodbye to plenty of depositories that like mortgage banking. The problem is this: a 5% risk retention requirement for even 'A' paper loans (Fannie Mae/Freddie Mac) will force many originators/servicers/master servicers to the sidelines because 5% will render as worthless the economics of lending and keeping servicing rights on one's books. It also will prevent smaller players from being able to issue 'A' paper MBS. "This will cause a huge rollup of mortgage bankers," one former MBS trader told me. "At a time when the government wants to prevent 'too-big-to-fail' they will be creating more of it. The big banks will be in charge"...