Three US Senators have asked the SEC and other regulators to repropose the Dodd-Frank risk retention regulations. In a letter to the SEC and the banking agencies, Senators Jerry Moran (R-KN), Pat Roberts (R-KN) and Mike Johanns (R-NE) specifically had concerns with the proposed overly proscriptive definition of what is a qualified residential mortgage. They believe that a failure to get this exemption right could have serious consequences on the availability and costs of mortgage credit. It could also prevent private investors from re-entering the securitization market in any meaningful way. That was not the intent of Congress when it enacted the risk retention requirements of Section 941 of Dodd-Frank
The most serious reform contemplated by the proposal is the 20 percent down payment requirement without any consideration for credit enhancement, said the Senators, who added that research indicates that, while the level of down payment is one factor, it may not be the most significant predictor of loan performance. The Senators urged the SEC and the other regulators to consider the Section 941 risk retention rulemaking in the larger context of comprehensive housing finance reform. It is imperative, they emphasized, that the proper balance be struck between the need for strong underwriting standards and the need to revive a robust private securitization market. Market discipline, regulatory guidance, and prudent underwriting standards could protect consumers and investors alike. In the Senators’ view, the current proposal could place many creditworthy borrowers out of the market and further stagnate the struggling housing market.