Even as he favored a broader exemption from risk retention than currently proposed, Rep. Barney Frank said Monday regulators should not undermine skin-in-the-game rules by turning the exception into the rule.

In remarks to the National Press Club, the Massachusetts Democrat criticized a diverse alliance of mortgage lenders, lawmakers of both parties and consumer advocates waging a campaign to expand the exemption. Frank said their drumbeat that the rules will hurt lending ignores the effects that zero risk retention had in the crisis.

"This assault on risk retention is a terrible idea," said Frank, a principal author of the reform law bearing his name, which mandated the retention rules. In response to complaints that the provisions are "'disruptive,'" he said, "Yes, it's disruptive, because we had to disrupt a rotten system."

Speaking at length about the progress of the Dodd-Frank Act one year after its enactment, the congressman also criticized Republicans for blocking agency funding needed to implement the law, and lauded efforts to construct the facility authorized by Dodd-Frank to resolve failing firms.

But much of the news conference focused on risk retention. The law requires institutions to keep 5% of the credit risk of mortgages they securitize, but allows regulators to define "qualified residential" mortgages, a new class of well-underwritten loan that would be exempt. The agencies have taken heat for making the QRM too narrow in their current proposal, which would limit the exemption to loans with a 20% down payment and low debt-to-income. Critics say that definition would prevent low- and moderate-income borrowers from receiving lower-cost loans.

Frank said it was risk-retention — not QRM — that was intended to be the model for securitization in the law. Still, when questioned by a reporter he agreed the regulatory proposal was too restrictive, suggesting a more appropriate down payment requirement would be 4 or 5%.

"I'm prepared to accommodate an exception only as long as it's an exception," he said.

Frank also accused congressional Republicans of using the federal budget deficit as a pretext for refusing to adequately fund the Securities and Exchange Commission and the Commodity Futures Trading Commission, the two agencies charged by the law with regulating the vast derivatives market.

He also took Senate Republicans to task for holding up key nominations.

However, Frank's overall assessment of the law's progress was positive. He noted that the United States has largely been ahead of other countries in establishing new regulations for financial markets, including the new system to put large financial firms that fail into receivership.

"We are the first nation to say, 'Hey, if you get in trouble, you're dead, and then we will worry about your mess,'" he said. "We think that model is an attractive one."

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