Six federal agencies revise proposed rule on risk retention, removing controversial provisions


Six federal financial regulatory agencies (the OCC, Federal Reserve Board, FDIC, FHFA, SEC and HUD) issued a notice revising their previous April 20, 2011 proposed rule on risk retention in securitization transactions.

The new proposed rule, issued on August 28, 2013, was jointly issued by the agencies, with the Secretary of the Treasury, as Chairperson of the Financial Stability Oversight Council playing a coordinating role.

The proposed rule removes certain controversial provisions that were included in the previous rule.  For example, the proposed rule removes the Premium Capture Cash Reserve Account concept, which required securitizers to retain funds in a separate account to cover certain losses on underlying loans.  Also, securities issued where all underlying loans meet the definition of a Qualified Residential Mortgage (QRM) are exempt from risk retention requirements.

The proposed rule aligns the definition of a QRM with the CFPB’s definition of a Qualified Mortgage (QM) under the “ability-to-repay” requirements.  Specifically, the proposed rule eliminates the 20 percent down payment requirement for QRMs.  Instead, a loan that meets any definition of a QM qualifies as a QRM.

The agencies will accept comments on these and other provisions of the proposed rule until October 30, 2013.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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