On May 5, SIFMA hosted a Spotlight Series: Risk Retention and Qualified Residential Mortgages. It was immediately apparent that unintended consequences of the proposed risk retention rules abound.

The panelists acknowledged that the regulators had a very tough mandate, and that the rules are way more complicated than anticipated. It was estimated that approximately 60% of the proposed rule will make its way to the final rule, and that while feelings of annoyance with respect to the drafting of the proposed rule may linger, it is up to the securitization market participants to help the regulators provide us with a clear, workable final rule.

Under the proposed rule, calculation of the amount of required risk retention would be based on a percentage of the par value of the ABS interests in an issuing entity. The discussion began with a couple questions some of us have already been asking …

What do regulators mean by “par value”? What is an “ABS interest”?