Tuesday, March 29, 2011
Today the FDIC released and voted on proposed risk retention rules for certain types of mortgages. Under Title IX of the Dodd Frank Act, mortage loan originators will be required to retain more risk rather than passing on all of the risk by distributing the loans to securitizers. Qualified Residential Mortgages are exempt from risk retention, and will be subject to much higher than normal standards for borrower qualification such as a lower DTI, higher minimum down payment, and higher maximum LTV ratio. But, according to the FDIC, such loans will account for only a small percentage of all loans and therefore should not impair the access of low to middle income borrowers to mortgage credit. The bigger news today is that the Dodd-Frank Act will require issuers of securitized loans to hold five percent of the risk. How this requirement will affect the overall availability of credit and by extension the still-recovering residential purchase market remains to be seen. Stay tuned.