Regulators Jointly Approve Final Risk Retention Rule

FDIC HUD OCC SEC FHFA Qualified Residential Mortgage ABS

On October 22, coordinated by the Department of Treasury, six federal agencies – the Board of Governors, HUD, FDIC, FHFA, OCC, and SEC – approved a final rule requiring sponsors of securitized transactions, such as asset-backed securities (ABS), to retain at least 5 percent of the credit risk of the assets collateralizing the ABS issuance. The final rule, which largely mirrors the proposed rule issued in August 2013, defines a “qualified residential mortgage” (QRM) and exempts securitized QRMs from the new risk retention requirement. Government-controlled Fannie and Freddie are exempt from the rule. Most notably, the final rule’s definition of a QRM parallels with that of a qualified mortgage as defined by the CFPB. Further, initially part of the proposed rule, the final rule does not include down payment provisions for borrowers. The final rule will be effective one year after publication in the Federal Register for residential mortgage-backed securities, and two years after publication for all other types of securitized assets.