MBA: Dodd Bill Needs More Explicit Risk-Retention Exemptions for Mortgages

Article excerpt

Senate Banking Committee Chairman Christopher Dodd (D-Connecticut) unveiled a revamped financial services reform bill, saying, "It's decision-making time." But the Mortgage Bankers Association said one key element does not serve the best interests of bankers.

The sweeping bill, known as the Restoring American Financial Stability Act of 2010, runs more than 1,300 pages and encompasses a number of provisions, including creation of a consumer-protection watchdog housed in the Federal Reserve; creation of a nine member Financial Stability Oversight Council chaired by the Treasury secretary; an "advanced warning system" for systemic risk; an end to "too big to fail;" increased transparency and accountability for "exotic" instruments such as derivatives; streamlined federal bank supervision; increased regulation of credit-rating agencies; and a "say on pay" provision for shareholders on executive compensation.

Dodd, in a news conference, called the legislation the broadest financial reform proposal since the 1930s. "Our regulatory structure, constructed in a piecemeal fashion over many decades, remains hopelessly inadequate," he said.

But one aspect of the bill fails to resolve a key element directly affecting the commercial real estate finance industry: risk retention.

"MBA supports efforts to modernize the regulatory structure for mortgage banking firms, but we are concerned that this bill could be headed down several of the same wrong paths as the legislation that moved through the House late last year," said Robert Story Jr., CMB, chairman of the Mortgage Bankers Association.

"This version of the bill does move away from the 'one size fits all' approach to risk retention by recognizing that certain underwriting requirements, loan types and business models are inherently low-risk, and we also are pleased that the bill is cognizant of the impact of onerous risk-retention requirements on the availability and cost of credit," said Story.

"These types of loans have well-known and documented risk profiles easily understood by the investor, and should not require that the originator retain a portion of the loan on its books," he added. "MBA does not believe that a 'one size fits all' approach to risk retention recognizes the uniqueness of the various debt structures in the marketplace."

To ensure continued market recovery, Story said Congress should consider current safeguards that already exist within the CMBS market with regard to retaining risk. …

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