On Tuesday, the SEC, Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, Federal Housing Finance Agency and the Department of Housing and Urban Development announced that they were extending the comment period on a proposed rule pertaining to asset-backed securities (ABS) risk retention requirements. Initially, the comment period was to end on June 10th, but in response to significant Congressional pressure, the Agencies decided to extend the rulemaking so that comments are now due on August 1st. In doing so, the SEC put out a statement that “due to the complexity of the rulemaking and to allow parties more time to consider the impact of the Credit Risk [notice of proposed rulemaking] on affected markets, the Agencies have determined that an extension of the comment period until August 1, 2011 is appropriate.”
The rulemaking was created by the six agencies as mandated under Section 941 of Dodd-Frank, and would require ABS sponsors to retain at least 5% of the credit risk of the assets underlying the securities, and would prohibit sponsors from transferring or hedging that credit risk. Many of the comments received by the agencies to date have centered around the exemption from risk retention for “qualified residential mortgages” (QRMs), which could be 100% securitized without any retained credit risk so long as strict underwriting standards are met and the borrower pays a 20% down payment.
Banks, the real estate industry, consumer advocates and lawmakers from both sides of the aisle have filed comments on the rulemaking, calling the 20% down payment requirement overly restrictive.