US Regulators Respond to Public Comments and Restructure Proposed Rule for Credit Risk Retention
One of the important unfinished aspects of the Dodd-Frank Act (“Act”) is the requirement for Federal agencies (“Regulators”) to issue regulations implementing Section 941 of the Act which generally requires that a securitizer retain at least 5% of the aggregate credit risk for assets that are packaged in an asset-backed securitization (“ABS”) issued by the securitizer. The Regulators originally proposed rules to implement Section 941 over two years ago (“First Proposal”).
On August 28, 2013, the Regulators issued a second proposed rule for public comment (“Re-proposal”). The Regulators responded to a range of concerns expressed in comment letters and made a series of important revisions in the Re-proposal. Among the major changes proposed by the Regulators are much more relaxed requirements for a residential mortgage loan to qualify as a Qualified Residential Mortgage that would be exempt from risk retention requirements. Comments on the Re-proposal must be submitted by October 30, 2013.