The OCC, Federal Reserve, FDIC, SEC, Federal Housing Finance Agency, and the U.S. Department of Housing and Urban Development are seeking comment on a notice of proposed rulemaking that would implement the credit risk retention requirements mandated by section 941 of the Dodd–Frank Act.
The proposal would require sponsors of asset-backed securities (ABS) to retain at least 5% of the credit risk of the assets underlying the securities and would not permit sponsors to transfer or hedge that credit risk.
The new proposal would expand the permissible forms of risk retention from those originally proposed to accommodate additional securitization structures, and would replace the Premium Capture Cash Reserve Account approach with a fair value measurement for the risk retention instruments. The proposal would require securitizers to be the entity that retains the risk; loan originators would only retain risk in limited circumstances and at their option. In addition, the new proposal would set the requirements for the qualified residential mortgage (QRM) exemption to be co-extensive with the qualified mortgage safe harbor established by the CFPB.
Comments are sought on an alternative that would incorporate additional factors into QRM, such as borrower credit history and a 70% loan-to-value (LTV) cap.