The risk retention proposal drafted by federal regulators is likely to hinder the development of a private securitization market and make it harder to wind down Fannie Mae and Freddie Mac, according to a new paper by Moody's Analytics.

As proposed, the regulators would require MBS issuers to retain 5% of the credit risk on mortgages that don't meet a "qualified residential mortgages" (QRM) test and carry downpayments of less than 20%.

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