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The risk retention requirement was supposed to ensure lenders had "skin in the game" when making mortgages. Instead, regulators appear to have abandoned that concept by crafting an exception so large that most single-family mortgages will be exempted.
September 3 -
As Congress struggles to determine the appropriate role for government in the mortgage market, affordable housing may prove a politically charged hurdle on the path to reform.
August 7
WASHINGTON Former Rep. Barney Frank criticized regulators' latest effort to craft an exemption for proposed risk retention requirements, warning it was overly broad.
Frank, who has previously said the risk retention provision is "the single biggest thing" in the namesake Dodd-Frank law, said Friday that the most recent proposal issued by six agencies last month missed the mark.
Under the financial reform law, lenders must retain at least 5% of the risk for loans they securitize unless the loan fits the criteria defining a "qualified residential mortgage." Regulators' latest plan broadened that QRM exemption, scrapping an earlier proposal that would have required a 20% down payment. The proposal said that any loan that met the criteria set out by the Consumer Financial Protection Bureau's separate "qualified mortgage" rule would also qualify as QRM.
"I think they should not have equated QM and QRM," Frank said in an interview after an event on the fifth anniversary of the financial crisis, hosted by the American Action Forum. "I don't think that it should be either you can't make the mortgage or you don't have to securitize it. I think there should have been a third category."
The former Massachusetts Democrat and House Financial Services Committee chairman added that he had hoped "that QM be more the exception than the rule that the rule be some securitization, some risk retention, and only very solid mortgages be exempted."
That viewpoint has been shared by a number of policymakers and regulators, including Daniel Gallagher, who sits on the Securities and Exchange Commission, since the new proposal was released. Critics charge that regulators have undermined the point of the risk retention requirement by effectively proposing to exempt the vast majority of loans in the market.
During the panel debate with former Rep. Bill Thomas, chairman of the House Ways and Means Committee, and others, Frank also weighed in the need to move away from the affordable housing goals at Fannie Mae and Freddie Mac, as lawmakers work towards overhauling the mortgage finance system.
The issue of affordable housing is one that has yet to be fully hashed out as part of that debate, and could prove contentious as discussions move forward because Republicans partially blame the goals for the housing crisis, while some Democrats and liberal groups remain sympathetic to the goals' aims.
While Frank noted that he's long been a staunch supporter of affordable housing issues, he argued that it's time to move past the goals.
"No more goals," he said, instead pointing to the affordable housing trust fund established in 2008 as a model going forward.
The trust fund has become the basis for affordable housing provisions in numerous policy plans floating around Capitol Hill, including in legislation proposed earlier this year by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va.
