One of the more controversial provisions of the Dodd-Frank Act is Section 941. This section requires an issuer of an asset-backed security to retain "not less than 5% of the credit risk." Section 941 was intended to address the collapse in the residential mortgage backed securities market following the subprime meltdown, but it covers other securitization asset classes as well.

The theory behind risk retention is that having "skin in the game" will better align the incentives of issuers and investors, ultimately improving the quality of securitized assets. Setting aside whether such a theory has any relation to the recent financial crisis — after all Fannie Mae and Freddie Mac retained 100% of the credit risk on their MBS and that didn't turn out so well — the residential mortgage market rightly has attracted a unique focus in regulatory reform efforts.

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