Back in October 2010, rumors began that there must be some way for the banks and brokers alike to share some of the risk retention liability for home loan financing i.e.; mortgage origination. There seems to have been little disagreement when the Dodd-Frank Bill was laid out during that time. Regulations needed to focus on the seriousness of making all players in mortgage lending more responsible. The retention liability has been stated as at least 5 percent share of each loan originated to be held with the institution originating the mortgage loan. This gives them more incentive to originate performing loans with more emphasis on risk associated factors.
It seems to have been some confusion in interrupting this Bill and those who hear these words: Regulation of Risk Retention should be very careful to read section 941 of the Dodd-Frank Bill (page 516). This is from the MBA Summary:
Section 941 "Requires federal banking agencies and SEC to jointly prescribe rules requiring securities to retain economic interest of at least five percent of credit risk of assets they securitized. Regulations must include separate requirements for different assets classes, and may allocate the retention amount between originator and securities. HUD and the Federal Housing Finance Agency must participate in the rule making process for residential mortgage-backed securities (MBS) risk retention requirements."
That said the definition of what will make a loan qualify for the title of “qualified residential mortgage must be defined by the group of Federal Banking agencies, the commission, Secretary of Housing and Urban Development and the Director of the Federal Housing Finance Agencies; jointly. The agencies will take into consideration:
1) documentation and verification of financial resources used to qualify the mortgage applicant
2) what standards with regard to: residual income after all mortgage obligations, debt in relation to gross income, housing debt versus income
3) the shock of payments to income level on ARM loans where the interest rate will increase eventually 4) mortgage insurance requirements
5) loan types such as balloon, interest only, negative amortization, prepayment penalties and other features that present an added risk potential for default.
Now March 2011, FDIC has announced a set date of March 29, 2011 as a meeting to clarify exactly what a ‘Qualified Residential Mortgage’ is. Other agencies will follow to include the OCC, the Fed, HUD, SEC and the FHFA. Once all have issued their pass to the definition and who will be exempt from this rule; the final decision will be posted in the Federal Register.
Our final questions might be; will this really be of benefit to protect consumers or will there be some loophole which will be used by the entities to avoid retaining the 5 percent requirement? Will this lead to the banks actually servicing parts of their portfolio when there is a specific need, as they already do? I guess at this point, we will just have to wait and find out exactly what the rules will be for the Pending Risk Retention Bill for mortgage financing after FDIC gives their definition of ‘Qualified Residential Mortgage.’
It seems to have been some confusion in interrupting this Bill and those who hear these words: Regulation of Risk Retention should be very careful to read section 941 of the Dodd-Frank Bill (page 516). This is from the MBA Summary:
Section 941 "Requires federal banking agencies and SEC to jointly prescribe rules requiring securities to retain economic interest of at least five percent of credit risk of assets they securitized. Regulations must include separate requirements for different assets classes, and may allocate the retention amount between originator and securities. HUD and the Federal Housing Finance Agency must participate in the rule making process for residential mortgage-backed securities (MBS) risk retention requirements."
That said the definition of what will make a loan qualify for the title of “qualified residential mortgage must be defined by the group of Federal Banking agencies, the commission, Secretary of Housing and Urban Development and the Director of the Federal Housing Finance Agencies; jointly. The agencies will take into consideration:
1) documentation and verification of financial resources used to qualify the mortgage applicant
2) what standards with regard to: residual income after all mortgage obligations, debt in relation to gross income, housing debt versus income
3) the shock of payments to income level on ARM loans where the interest rate will increase eventually 4) mortgage insurance requirements
5) loan types such as balloon, interest only, negative amortization, prepayment penalties and other features that present an added risk potential for default.
Now March 2011, FDIC has announced a set date of March 29, 2011 as a meeting to clarify exactly what a ‘Qualified Residential Mortgage’ is. Other agencies will follow to include the OCC, the Fed, HUD, SEC and the FHFA. Once all have issued their pass to the definition and who will be exempt from this rule; the final decision will be posted in the Federal Register.
Our final questions might be; will this really be of benefit to protect consumers or will there be some loophole which will be used by the entities to avoid retaining the 5 percent requirement? Will this lead to the banks actually servicing parts of their portfolio when there is a specific need, as they already do? I guess at this point, we will just have to wait and find out exactly what the rules will be for the Pending Risk Retention Bill for mortgage financing after FDIC gives their definition of ‘Qualified Residential Mortgage.’
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