Publications

Five federal banking and housing agencies and the SEC have released a proposed rule implementing the credit risk retention requirement mandated by Dodd-Frank for certain securitization transactions.  Section 941 of Dodd-Frank added a new Section 15G to the Securities Exchange Act of 1934, which directs regulators to adopt rules that generally require sponsors of asset-backed securities to retain at least 5% of the credit risk relating to the assets that underlie such asset-backed securities.  The proposed rule revises and re-issues proposed rules originally issued by the Agencies on March 29, 2011, and makes several key revisions to the original proposal.  Most importantly, it broadens the exemption for securitizations of qualified residential mortgages by adopting the CFPB’s definition of “qualified mortgage,” which unlike the original definition, does not have a 20% down payment requirement, a loan-to-value ratio requirement or underwriting standards related to a borrower’s credit history.  The proposed rule also introduces sunset provisions to allow sponsors of asset-backed securities to transfer or hedge their retained interests after certain milestone dates, among other changes.