Public Scrutiny for Credit Risk Retention Rules Extended

Jack Humphrey, Regulatory journalist
June 08, 2011 /

Interested individuals now have more time to analyze the issues concerning the rules on credit risk retention as six federal agencies approved the extension of the comment period.

The proposed rules on credit risk retention follow the requirements set by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

On April 29, the Credit Risk NPR was published in the Federal Register, proposing to implement the credit risk retention requirements of section 15G of the Securities Exchange Act of 1934 as added by section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The credit risk rules would require sponsors of asset-backed securities to retain at least 5 percent of the credit risk of the assets underlying the securities. Moreover, these sponsors are not allowed to transfer or hedge that credit risk.

Part of the requirements is a retained-interest disclosure from investors regarding their securitization transaction material information, which will be used by investors and the six federal agencies to monitor risk retention compliance among sponsors.

The agencies, including the Office of the Comptroller of the Currency Treasury (OCC), Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation (FDIC), Securities and Exchange Commission, Federal Housing Finance Agency (FHFA), and the Department of Housing and Urban Development (HUD), have extended the comment period to August 1, 2011, from the June 10 due date following related request from the public.

The extension was deemed appropriate due to the complexity of the proposed credit risk rules, jointly published by FHFA and HUD on April 29 in the Federal Register notice.

According to these agencies, it is important for interested persons to have more time to review the provisions of the proposed rules and the questions posed by the federal agencies, and to conduct appropriate data collection and analysis on the potential impact of the Credit Risk NPR prior to the submission of comments.

Securitizer of asset-backed securities are required under Section 15G to retain an economic interest of no less than five percent in the credit risk of the assets collateralizing the said securities.

Section 15G includes a variety of exemptions from this requirement, including that for asset-backed securities that are collateralized exclusively by ‘‘qualified residential mortgages,’’ as such term is defined by the concerned federal agencies by rule.

In designing the proposed credit risk rules, the federal agencies sought to ensure that the amount of risk retained would be meaningful, while reducing the potential for the proposed rules to negatively affect the availability and cost of credit to consumers and businesses.


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