Housing and mortgage trade groups are concerned that federal regulators will propose a narrow exemption to MBS risk retention rules that would impose high capital requirements on plain vanilla mortgages, making them unnecessarily expensive for creditworthy borrowers.
The Dodd-Frank Act requires securitizers of residential mortgages to retain 5% of the credit risk on MBS but the legislation carves out an exemption for qualified residential mortgages (QRM).
The bill gives the Federal Deposit Insurance Corp. (FDIC) and other regulators the ability to exempt well-documented, tightly underwritten mortgages from the 5% risk retention mandate.
"We believe careful calibration of the QRM exemption is imperative in light of the enormous potential impact it would have on the cost and availability of mortgage credit at this precarious point in the housing cycle," according to a joint letter by builders, realtors, lenders, title insurers and consumer groups.
FDIC officials declined to comment on the regulators' deliberations regarding the QRM category of loans that would have zero risk retention.
FDIC, along with the other banking regulators, the Securities and Exchange Commission, the Federal Housing Finance Agency and the Department of Housing and Urban Development are trying to draft a joint risk retention rule that can be issued for public comment later this month.
Initially, the FDIC board wanted to take up the issue of risk retention at its Jan. 18 meeting, but that date has been pushed back. Sources indicated that certain regulators and industry groups are balking at FDIC's insistence that the risk retention proposal also include new servicing standards.
"It is abundantly clear that servicing problems have substantially contributed to deep problems in the securitization and broader housing markets," said FDIC spokesman Andrew Gray. "The risk retention rules provide a ready vehicle for addressing glaring problems in servicing practices," he added.
FDIC wants new servicing standards included in the QRM, ensuring that residential servicers have the proper incentives to process loans on behalf of both borrowers and investors.