With the idiosyncrasy and instability in financial economic markets, the long-awaited proposal of the Dodd-Frank Act’s risk retention requirement was released on March 29th with the SEC acting on it on March 30th. This proposal pays attention to the mortgage securitization and exempted classes of loans referred to as the “Qualified Residential Mortgages” or QRMs.
The proposal states that for a loan to qualify for GSE backing the borrower must make at least a 20% down payment or at least 25% of the mortgage is to be refinance or 30% if it’s a cash-out refinance. The big change with the proposal is that loans with a federal guarantee such as from FHA, Fannie or Freddie backing are exempt from risk retention during their conservatorship.
So what does this mean? Down the future it could make it more difficult for private securitization of competitors thus impacting the ability of prospective borrowers to get approved and most importantly making the road longer and challenging to unwind the federal support of the GSEs housing finance support. Here is the proposal link:
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110329a1.pdf
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