Thursday, June 23, 2011

Senator Corker Has Concerns about Proposed Dodd-Frank Risk Retention Regulations

Senator Bob Corker (R-TN) an influential member of the Banking Committee, asked regulators to improve the qualified residential mortgage rules under the proposed regulations implementing the risk retention requirements of Dodd-Frank. In a letter to Treasury, with copies to the SEC and banking regulators, the Senator said that a rule allowing for a more sophisticated trade-off between down payment and other risk mitigating factors, such as documentation type or credit score, would still materially improve underwriting quality but would not represent such a blunt change to market conditions. More broadly, he urged the regulators to use the ``incredibly’’ broad discretion that Dodd-Frank give them when crafting the risk retention regulations to weigh the impact of this pro-cyclical regulation on the housing market’s ability to recover. For example, regulators could use this discretion to gradually phase-in rules limiting negative amortization of payments or strictures that include significant interest rate shocks.