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FDIC Approves Risk Retention Rule-making

by Chicago Agent

The Federal Deposit Insurance Corporation (FDIC) today approved a proposal of new risk retention rules in an attempt to stabilize the mortgage market.

According to dealbook.nytimes.com, the FDIC voted unanimously on the proposal this morning. The proposal would require lenders to retain 5 percent of the credit risk on securities, prohibiting them from transferring risky loans to investors, which DealBook Editor Ben Protess cites as a leading cause of the U.S. economic crash.

“The proposed risk-retention rules are a step in the right direction,” DePaul University Professor of Finance and Real Estate Rebel A. Cole recently told Chicago Agent. “Unless the lenders have ‘a dog in the fight’ in the form of recourse, then we are likely to see a repeat of the housing crisis.”

CNBC.com says that lenders would now have to offer low risk loans, known as Qualified Risk Mortgages (QRMs), with 20 percent down payments if they intend to repackage and sell them to investors.

“If we are truly interested in restarting securitization than we must restore investor confidence in the soundness of the securitization model,” said FDIC Chairman Sheila Bair, according to CNBC.

The Securities Exchange Commission will vote on the proposal tomorrow, and all other involved agencies have committed to vote by the end of the week, says CNBC.

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