In 2011, the Board of Governors of the Federal Reserve System, the Department of Housing and Urban Development, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency and the Securities and Exchange Commission (collectively, the Agencies) issued a notice of proposed rulemaking to implement the risk retention requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act. On August 28, the Agencies issued a notice revising the proposed rule that would require sponsors of asset-backed securities (ABSs) to retain risk in those transactions. The new proposal revises the options provided to sponsors to satisfy the risk retention requirements. While the original proposal generally measured compliance with the risk retention requirements based on the par value of ABSs issued in a securitization transaction and included a premium capture provision, the new proposal generally bases risk retention on the fair value of the assets in an ABS without a premium capture provision.

The new proposal continues to exclude the following ABSs from credit risk retention requirements: commercial loans, commercial mortgages, automobile loans of low credit risk or fully guaranteed Fannie Mae and Freddie Mac loans while such loans are in conservatorship or receivership and have capital support from the US government.

The Agencies are requesting comment on the revised proposed rule by October 30, 2013.

Click here for the proposed rule.