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House subcommittee to study risk-retention plan
WASHINGTON (4/13/11)--A joint agency risk-retention rule released in March is scheduled to come under the scrutiny of the House Financial Services subcommittee on capital markets at a hearing scheduled for Thursday. The proposed rule aims to address abuses in the mortgage lending market that contributed to the financial crisis and would do so by requiring a loan securitizer--but not most loan originators--to retain a 5% economic interest in a material portion of the credit risk for any asset that it transfers, sells, or conveys to a third party. The subcommittee hearing will examine the implications of the proposed rule to determine its effects on liquidity and the cost of credit to homeowners, students, consumers and businesses seeking financing, according to the subcommittee announcement. Rep. Spencer Bachus (R-Ala.), head of the parent committee, said in the release, “Requiring securitizers to retain some ‘skin in the game,’ will hopefully encourage them to take more care in selecting high quality assets. For risk retention to be successful, however, the standard must not stifle the securitization of loan products, thereby raising costs to consumers and cutting down on the availability of credit.” The Credit Union National Association (CUNA) has questioned the potential impact of the 5% risk requirement on the credit union mortgage market even though the proposal would generally exempt originators from these requirements. CUNA has emphasized that credit unions did not participate in abusive practices, and has noted concerns that credit union mortgage lending will be impacted by these rules and standards that develop in the marketplace. The risk-retention proposal has been released by each of the following agencies: the Federal Deposit Insurance Corp., the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve, the Department of Housing and Urban Development, and the Federal Housing Finance Agency. The first panel of subcommittee witnesses includes a representative from each of the aforementioned agencies. The second panel includes representatives from the securities industry and from the Center for Responsible Lending.


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