WSJ: Regulators may relax 'risk retention' mortgage securitization rule

The Federal Reserve and Federal Deposit Insurance Corp. may loosen a proposal to require that banks retain a 5 percent stake in mortgage-backed securities they sell to investors, the Wall Street Journal reports.

An earlier proposal issued by regulators in April 2011 to implement the Dodd-Frank Consumer Protection Act would have exempted mortgage-backed securities containing “qualified residential mortgage” (QRM) loans in which borrowers made down payments of at least 20 percent from the “skin-in-the-game” requirement.

Lenders and consumer groups argued that a 20 percent down payment QRM requirement would restrict lending without doing much to protect the financial system. Regulators put that proposal on hold in May 2012.

Now the Fed, FDIC and four other regulatory agencies are looking at ditching the down payment requirement, while still requiring that lenders retain a 5 percent interest in mortgages that allow borrowers to make “interest-only” payments, or don’t fully document a borrower’s ability to repay, the Journal reported. Source: finance.yahoo.com.