The Treasury Department circulated a proposal Monday to require originators to retain 5% of a loan's credit risk when selling it into the secondary markets.

An early snippet from the Obama administration's regulatory restructuring plan, which is expected to be unveiled Wednesday, the proposal also would ban loan originators from hedging or even indirectly transferring the risk they are required to retain. Broker and loan officer compensation would be disbursed over time and reduced if a loan is not repaid because of poor underwriting.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.