Tuesday, June 07, 2011

Comment Period on Dodd-Frank Proposed Risk Retention Regulations Extended until August 1

The SEC and banking regulators have extended the comment period until August 1, 2011on the proposed regulations implementing the credit risk retention requirements of the Dodd-Frank Act to allow interested persons more time to analyze the issues and prepare their comments. Originally, comments were due by June 10, 2011.The proposed regulations generally would require sponsors of asset-backed securities to retain at least 5 percent of the credit risk of the assets underlying the securities and would not permit sponsors to transfer or hedge that credit risk.

In a letter to the SEC and the banking agencies, the Senators who wrote the qualified residential exemption into Section 941 of Dodd-Frank said that the proposed risk retention regulations go beyond the intent and language of Dodd-Frank by imposing unnecessarily tight down payment restrictions that unduly narrow the qualified residential mortgage definition. The Senators said that the current proposals would necessarily increase consumer costs and reduce access to affordable credit. Well underwritten loans, regardless of down payment, were not the cause of the mortgage crisis, they noted. The Senators urged the SEC and the banking regulators to follow the legislative intent as they modify the proposed risk retention regulations. The letter was signed by Senators Johnny Isakson (R-GA), Mary Landrieu (D-LA), Kay Hagan (D-NC), and Jeanne Shaheen (D-NH).

Recently also, A bi-partisan group of 160 House members urged the SEC and the banking agencies to make the proposed Dodd-Frank risk retention regulations less proscriptive in a number of areas as a matter of legislative intent and economic recovery. In a letter to the SEC and the banking regulators, the representatives said that prudently underwritten privately insured loans should be included in the qualified residential mortgage definition. In addition, the proposal to require a minimum 20 percent down payment under the qualified residential mortgage definition would reduce available affordable mortgage capital for otherwise qualified consumers.

Further, unnecessarily strict qualified residential mortgage definition would particularly harm first-time and minority home buyers, said the House members. They are also concerned that proposed regulations establishing overly narrow debt-to-income guidelines would reduce access to credit and push a broad range of borrowers into FHA insured loans at a time when the FHA is already playing too large a role in the mortgage market.

In a letter to Treasury copied to the SEC, Senator Mike Crapo (R-ID) explained the intent behind the commercial mortgage-backed securities alternatives of the risk retention requirements of Section 941 of Dodd-Frank, which he authored. The Senator said that the legislative intent is for the regulations to offer alternative options with regard to commercial mortgage-backed securities as provided in Dodd-Frank and avoid the creation of a one-size-fits-all retention rule that could stifle a commercial real estate recovery before it can occur. He is concerned because, while the SEC and federal bank regulators must jointly adopt retention rules, there already have been several ad hoc rules from individual regulators that simply blanket a single retention framework broadly across all asset classes.

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