Current Issue
The Mortgage Bankers Association (MBA) joined the call against risk retention requirements in a recent financial regulatory reform legislation draft.
In a letter Monday signed by MBA president and CEO John Courson, the group urged House Financial Services Committee chairman Barney Frank (D-Mass.) and ranking member Spencer Bachus (R-Ala.) to ensure reforms aimed at the securitized credit markets are customized to avoid unintended consequences.
In particular, the 10% credit risk retention requirement may be inappropriately applied to all loan sale transactions regardless of whether the loan purchaser intends to permanently hold the loan, according to Courson. Independent mortgage bankers may also be forced out of business by the retention requirements.
The Financial Stability Improvement Act (FSIA) would broadly require additional risk retention for residential and commercial mortgage financing and securitization, when creditors and securitizers are already subject to risk retention under provisions of HR 1728, which passed the House earlier in the year, Courson said.
MBA recommended FSIA be changed to exclude risk retention requirements for creditors and securitizers of residential loans, so these entities will be subject only to the provisions of HR 1728, which call for 5% risk retention for certain mortgages. The MBA is also pushing for the exclusion of commercial loans altogether from FSIA.
“Coverage of all residential loans under FSIA would unnecessarily stem competition, reducing choices and increasing the costs of credit for consumers,” Courson said. “In contrast, the more targeted provisions under HR 1728 would require risk retention only on higher-risk loans where these requirements may be warranted.”
The MBA is not alone in its call against the risk retention language.
The Community Mortgage Banking Project (CMBP) and the Community Mortgage Lenders of America (CMLA), two recently formed community bank lobbying groups, issued a joint statement claiming the “broad risk retention provisions in the draft” could jeopardize affordable mortgages for consumers because the provisions would hamper community-based lenders’ abilities to tap the secondary mortgage market for funding.
The risk retention may force independent mortgage bankers to close and may increase liquidity pressure on already cash-strapped commercial banks, the groups said.
Write to Diana Golobay.
