On October 23, 2014, six federal agencies – the U.S. Securities and Exchange Commission (“SEC”), Office of the Comptroller of the Currency (“OCC”), Board of Governors of the Federal Reserve System (“Federal Reserve Board”), Federal Deposit Insurance Corporation (“FDIC”), Department of Housing and Urban Development (“HUD”) and the Federal Housing Finance Agency (“FHFA”) – jointly adopted final risk retention rules imposing 5% risk retention, or “skin-in-the-game,” requirements for securitizations.

The final rule exempts securitizations of “qualified residential mortgages” (“QRMs”) from the risk retention requirement and does not require QRMs to include a minimum down payment. Nevertheless, the new rules, when they become effective over the next two years, will impose significant new costs and obligations on a wide range of securitization structures. In particular, the final risk retention rules are expected to affect transaction structures, disclosure requirements, origination standards for new assets and the relative responsibilities of sponsors, originators, managers and trustees in securitization transactions, among other matters.

For more details, you may like to read our client memo:

http://www.shearman.com/~/media/Files/NewsInsights/Publications/2014/10/Cred it-Risk-Retention-Rules-Finalized-DSP-102314.pdf.

The draft final rules are available at:

http://www.federalreserve.gov/aboutthefed/boardmeetings/bcreg20141022a1.pdf.