Subprime mortgage bonds fueled the risky lending that inflated housing prices ahead of the financial crisis. Yet the mortgage industry got off relatively easy when financial regulations were enacted to discourage securitization of risky loans. Rules requiring sponsors to retain “skin in the game” of these transactions contain an important carve-out for “qualified mortgages” that meet certain criteria.

The Treasury Department’s report on capital markets recommends extensive revision to risk retention requirements that would provide relief for bonds backed by other kinds of assets as well, including commercial mortgages, auto loans, and below-investment grade corporate bonds.

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