Two Democratic senators are urging federal regulators to reconsider a proposal that would require certain MBS issuers to maintain a reserve account during the life of a private mortgage securitization.

 In a letter, Sens. Mark Warner (Va.) and Chris Coons (Del.) raised concerns that requiring a “premium capture cash reserve account” would impede the return of a private securitization market.

“While we support the concept of risk retention as a means to ensure a liquid, safe and stable securitization market, we are concerned about the harmful impacts a PCCRA provision could have,” the senators said in a Sept. 20 letter.

The letter is addressed to the six federal regulators who are expected to issue a qualified residential mortgage rule early next year. The QRM rule, mandated by the Dodd-Frank Act, would require securitizers of risky loans to retain 5% of the credit risk.

To prevent a MBS issuer from selling or transferring this credit risk to another investor, the regulators inserted the PCCRA requirement in the proposed QRM rule that was issued in April 2011. (This reserve account is not required by the DFA.)

The senators cite a report released by Moody’s Analytics during the summer that shows the combined impact of risk retention and the PCCRA could increase mortgage rates by 100 basis points to 400 basis points.

“In all likelihood, there would be few, if any loans, originated if the rate impact is over 300 basis points. Those loans would in all likelihood be unaffordable to the borrower,” Moody’s chief economist Mark Zandi told  ASR's sister publication, NMN, back in July.

The Moody’s report also warns that the QRM proposal would “permanently cement the government’s role in housing finance.” (In passing the DFA legislation, Congress exempted Fannie Mae, Freddie Mac and the Federal Housing Administration from the QRM rule and risk retention.)

“Given these concerns, we urge you to carefully weigh the consequences of including a PCCRA provision in the risk retention rule,” Warner and Coons told the regulators.

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