Considerable uncertainty surrounds the recently postponed issuance of the mortgage securitization regulations required by the Dodd-Frank Act (DFA). In particular, two critical decisions involve the required risk retention contained in the DFA. The forthcoming directives will clearly have a major impact on the competitive and economic structure of the mortgage industry in the future.

The two major issues are 1) what types of loans will be exempt from the requirements (so-called qualifying residential mortgages, or QRMs) and 2) how the risk retention requirement will actually be applied. The former decision will focus on the breadth of the QRM definition. Wells Fargo recently created a stir with a proposal that QRMs should have a maximum LTV of 70%, a much narrower definition than advocated by other industry participants, including the MBA.

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