It appears that House/Senate conferees are leaning toward adopting risk retention language requiring issuers of residential MBS to hold a "vertical" slice of securitized assets, which means mortgage bankers will be affected by losses on all tranches, not just one.

According to interviews with lobbyists working the issue, the details will not be hammered out until next Tuesday, at the earliest.

"We think we're going to be okay on the issue but you never know," one MBS investor told National Mortgage News.

It appears that language stipulating 5% risk retention for "qualified" mortgage assets (Fannie Mae, Freddie Mac, Federal Housing Administration and other government products) will survive, though there was even talk of cutting that down to 3% for certain loans.

If issuers are required to take on vertical risk they suffer losses on all MBS tranches that are created.

Under a "horizontal" model only the most subordinated bond is first in line to absorb credit losses. None of the executives interviewed wanted to be identified because of the sensitive nature of the talks.

The House and Senate are trying to shape a compromise bill on overhauling regulation of financial services, including many facets of mortgage banking.

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