The originators of subprime mortgages and securitizers would have to retain an interest in any securities sold to investors under a subprime lending bill House Financial Services Committee chairman Barney Frank, D-Mass., is drafting.
"We are going to have originator liability," the chairman told a Washington meeting of the National Community Reinvestment Coalition (NCRC). Frank said the originator will be in the first loss position and the issuer of the mortgage-backed security would be the "next one in line."
The percentages for these loss positions have not been determined yet, he told reporters. He also told NCRC members the subprime lending bill will "toughen up the liability on the securitizer. We are going to put more penalties on the person who sells it."
The chairman expects his committee will pass the subprime lending bill in April. Later this year when the committee takes up regulatory reform, Frank wants impose similar originator/securitizer liability on all MBS and asset-backed securities.