The risk retention provision remains one of the top unfinished items for regulators implementing the 2010 Dodd-Frank Act. Regulators' second proposal may be more popular than the original, though it still leaves banks wary.
The original proposal in 2011 left the six agencies facing many complaints. The biggest complaint was over suggested criteria for the ultra-safe "Qualified Residential Mortgages," which under the law are exempt from risk retention.
In the re-proposal, released in August, the new QRM criteria would include no down payment minimum. Instead, the definition would be aligned with that of loans considered to be "Qualified Mortgages". The QM standard, used by the Consumer Financial Protection Bureau to define loans that have extra legal protections, does not include a down payment requirement.
"In formulating their QRM recommendations, the agencies have done an admirable job balancing these considerations: on one hand, they wanted QRM loans to have a low default rate; on the other hand, if QRM is too tight, it will impede efforts to bring private capital back into the market and will further restrict credit availability," Laurie Goodman, director the Urban Institute's Housing Finance Policy Center, said in an Oct. 29 letter. "The right balance would thus appear to be precisely where they have landed with their main proposal: that QRM equal QM."
But not all of those agree with Goodman.
"As an exemption to the risk retention rule, QRM should not be defined in a manner that would leave only a small fraction of the residential mortgage market subject to risk retention," wrote E. Todd Chamberlain, chief executive of PNC Mortgage.
For the full piece see "Why Banks Are Still Wary of Credit Risk Retention Plan" (may require subscription).