Proposal Requires Mortgage Borrowers Have More Skin In The Game

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WASHINGTON – The FDIC proposed a rule this morning that will require borrowers to make a down payment of at least 20% on their mortgages in order for the mortgages to be exempt from new “Skin in the Game” rules on securitizations.
The Skin in the Game rules, part of last year’s Dodd-Frank Financial Reform law, requires that lenders retain at least 5% of all loans to be sold on the secondary markets–ensuring they retain some “skin in the game.”
The proposal, issued for public comment, offers a package of options tailored for business, auto, commercial real estate and home loans, which would be eligible for exemptions under certain conditions. Residential mortgage loans with a 20% down payment or those that have been guaranteed by Fannie Mae or Freddie Mac would be exempt from the 5% requirement.
Five other federal regulators–but not NCUA–are expected to propose similar rules later this week. Still, credit unions would have to conform to the same rules as participants in the secondary markets.
Bond issuers would be able to choose what form of risk retention to use. It presents four approaches, allowing lenders to keep 5% of every part of a security, known as a vertical slice; a 5% stake in the riskiest tranche, called a horizontal slice; a combination of the two; or a “representative sample” of loans from the pool.

The Securities and Exchange Commission, Federal Reserve, Department of Housing and Urban Development, Federal Housing Finance Agency, and Office of the Comptroller of the Currency are all expected to propose the same rules later this week. 

WASHINGTON – The FDIC proposed a rule this morning that will require borrowers to make a down payment of at least 20% on their mortgages in order for the mortgages to be exempt from new “Skin in the Game” rules on securitizations.

The Skin in the Game rules, part of last year’s Dodd-Frank Financial Reform law, requires that lenders retain at least 5% of all loans to be sold on the secondary markets–ensuring they retain some “skin in the game.”

The proposal, issued for public comment, offers a package of options tailored for business, auto, commercial real estate and home loans, which would be eligible for exemptions under certain conditions. Residential mortgage loans with a 20% down payment or those that have been guaranteed by Fannie Mae or Freddie Mac would be exempt from the 5% requirement.

Five other federal regulators–but not NCUA–are expected to propose similar rules later this week. Still, credit unions would have to conform to the same rules as participants in the secondary markets.

Bond issuers would be able to choose what form of risk retention to use. It presents four approaches, allowing lenders to keep 5% of every part of a security, known as a vertical slice; a 5% stake in the riskiest tranche, called a horizontal slice; a combination of the two; or a “representative sample” of loans from the pool.

The Securities and Exchange Commission, Federal Reserve, Department of Housing and Urban Development, Federal Housing Finance Agency, and Office of the Comptroller of the Currency are all expected to propose the same rules later this week.

 

 

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