North Dakota Bankers Association - link home

About Us Government Relations and Legal Education Business Partners Communications



Regulators Issue Long-Awaited Risk Retention Proposal

Posted on 3/30/2011

The Federal Reserve and FDIC yesterday issued for comment a much-anticipated proposed rule that requires sponsors of asset-backed securities to retain at least 5 percent of the credit risk of the securities' underlying assets, and that provides key exemptions from the requirement. Other agencies involved in the joint rulemaking, mandated by the Dodd-Frank Act, will act on the proposal within the week.

The proposal exempts government-guaranteed securitizations and assets, mortgages sold to Fannie Mae and Freddie Mac as long as the GSEs are in conservatorship, and mortgages that meet stringent "qualified residential mortgage" standards. Together, these exemptions cover the vast majority of securitized mortgages.

The QRM standards include, among other things, a 20-percent down payment requirement; a maximum loan-to-value ratio of 80 percent for purchase loans, 75 percent for refinance loans and 70 percent for cash-out refinance; specific debt-to-income ratios and credit history criteria; and some servicing requirements.

The proposal also outlines underwriting standards for other asset classes used in securitizations, including auto loans, commercial loans and commercial real estate loans, and it exempts such securitizations that meet these standards.

Securitizers have several options under the proposal for holding the required risk, including a 5 percent "vertical" slice of the ABS interests, a "horizontal" first-loss position, and a representative sample, among others.

Read a summary of the proposal. Read the proposed rule.

Members Only
Calendar of Events

ND Banks Benefit Trust

Office Depot

2019 NDBA LEAD360 Conference

2019 Tri-State Trust Conf