Magazine article Mortgage Banking

Brace Yourself

Magazine article Mortgage Banking

Brace Yourself

Article excerpt

The floodgates have officially opened for the regulatory backlash from the mortgage market crisis. Last summer, we watched as the wide-ranging, shock-and-awe Dodd-Frank Wall Street Reform and Consumer Protection Act was adopted in response to the global financial crisis. Back then, we heard predictions of hundreds of new regulation projects that the new law set in motion. Well, brace yourself, because they're here.

As we sit in Washington, D.C., in early spring, we see one of the first major byproducts of the Dodd-Frank Act start to emerge--the risk-retention rule. This is the rule making that is supposed to restore the notion of "skin in the game" for those who securitize loans. It must strike many as highly ironic that the buy back demands lenders have been hit with in the last few years don't count toward having skin in the game. Even though they create real losses and the balance sheets of many lenders are bleeding from repurchases--with more to come--somehow, that's not real enough.

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Both commercial and residential mortgage securitizers will be affected by this new proposed rule, and it is safe to say many parties will be weighing in with comments. The proposed rule contains the definition of a Qualified Residential Mortgage (QRM)--the type of home loan that gets you a free pass when it comes to retaining 5 percent of the risk. The ultimate QRM definition will be critical, because those will be the loans that non-depository lenders will want to make. …

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