TheMReport — News and strategies for the evolving mortgage marketplace.
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32 | Th e M Rep o RT o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t ORIGINATION The LaTesT regulators optimistic on Finalizing risk retention rule Financial supervisors tell lawmakers they're on track to finish their work soon. F inancial regulators said last month they hope to finish their work on a rule aimed at tightening mortgage standards and reduc- ing risk by the end of this year. In a September Senate Banking Committee hearing, FDIC chair Martin Gruenberg said his agency and others are "in the end game" of their work on a rule that would require mortgage-backed securi- ties (MBS) issuers to hold a stake in packaged loans that don't meet certain exemption requirements. "I would hope, without mak- ing predictions, that we could complete that rulemaking by the end of the year," Gruenberg told the committee. Federal Reserve governor Daniel Tarullo echoed Gruenberg's statement, though he was less concrete on a timeline: "I don't know whether I'd say by the end of the year, but I think we're definitely in the home stretch." As it was proposed in 2011, the rule originally called for securities issuers to hold on to 5 percent of a mortgage's risk after selling it, unless the borrower made a 20-percent down payment. In response to industry con- cerns about access to home- ownership, regulators have since loosened those standards to remove the down payment requirement, instead using lan- guage parallel to the Consumer Financial Protection Bureau's qualified mortgage definition and granting exemptions to qualified loans. If released this year, the finalized rule would achieve what former congressman Barney Frank said was the most important provision of 2010's Dodd-Frank Act: a requirement that mortgage lenders keep some "skin in the game" rather than passing off risky loans. It would also be a step for- ward for the Dodd-Frank Act itself. Analysts estimate that as of July, only 52 percent of the required rulemakings set forth in the act had been finalized, with an additional 24 percent yet to be proposed. FDIC chair Martin Gruenberg said his agency and others are "in the end game" of their work on a rule that would require mortgage-backed securities (MBS) issuers to hold a stake in packaged loans that don't meet certain exemption requirements.