'Risk retention' proposal triggers industry outcry

20% down payment threshold arbitrary, say critics

A proposal that would require that companies securitizing mortgages retain 5 percent of the risk on all but the safest loans could leave borrowers who are unable to put at least 20 percent down on a home purchase paying higher fees and interest rates, critics say.

The new risk retention requirements were mandated by Congress in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which contains a number of provisions intended to address problems created when loans are bundled into mortgage-backed securities and sold to investors.

The loan securitization process keeps money flowing into mortgage lending, helping make borrowing more affordable. But the process also insulated loan originators from losses and encouraged risky underwriting practices during the boom, critics say.

Regulators have some flexibility in implementing the new law as they draw up the definition of what will constitute