finance types, explain this Dodd-Frank provision mortgage lenders are upset about

[zerozero]

what does 5% risk retention mean?

Frank: No nonsense talk on Dodd-Frank | HousingWire

HW: Did you anticipate this sort of push back from the mortgage industry in particular?

Frank: Oh, sure. No one likes to have their profits cut back. On the question of risk retention, I think that is one of the important features of the bill, and I’m hopeful there will be no backing down on that. I guess I was a little surprised they would defend the right to make a loan without having to stand behind them. That was so clearly one of the precipitating causes of the crisis, and I was disappointed in that.

HW: Has the pendulum swung too far, though? Will a 20% down payment on the qualified residential mortgage restrict lending too much?

Frank: They’re not talking about 20% anymore. And that’s assuming that securitization is necessary to make loans. We used to make loans without securitizations. And also they must not think they’re making good loans if they can’t hold 5%. I think 20% is high, but it has to be. But they aren’t saying you can’t make a loan. They’re saying if you make the loan you’ll have to retain 5% of the loss. Do they have so little confidence in their judgments that that’s fatal to them?

HW: But does that push too much business to the banks that are large enough to be able to hold that kind of capital?

Frank: No. Again, why is risk retention such a terrible thing? What you’re telling me is that these people have no confidence in the loans they make.

HW: Without such a broad securitization market, can the housing market return back to what it was before the overheated bubble?

Frank: Well, it used to be pretty robust without securitization at all. And these bad loans just didn’t start in 2005. Again, you’re assuming there is no securitization with risk retention. I have more confidence in the market than that. There will be a little bit of a bump. But again, we’re saying if you make those loans, you should stand behind them. I’m shocked at this notion that they have so little confidence in the loans they make that they can’t keep even 5% of the risk. And I think that they’ll get over it when the demand is there.

 

[BlvdBrawler]

What's funny is I've been in meetings about this for the last 6 months, but I haven't been paying attention at all so I honestly don't know what's going on.

 

[zerozero]

What's funny is I've been in meetings about this for the last 6 months, but I haven't been paying attention at all so I honestly don't know what's going on.

I'm trying to figure this out from my layman point of view and I think what he's saying is that the original lender has to eat 5% of the loss if the loan isn't paid back--you can't just sell the whole loan and wash your hands of it

 

[Broke Wave]

Who gives a fukk what Finance types are upset about. Do you really think America should draw up policy to make them happy, or even according to what they think is a good idea? In 2012???

 

[zerozero]

Who gives a fukk what Finance types are upset about. Do you really think America should draw up policy to make them happy, or even according to what they think is a good idea? In 2012???

lol. Nah breh I read an article, see an argument I don't understand, so I wonder what it's about.

 

[MewTwo]

This all sounds like rocket science to me.

 

[alybaba]

Securitizers need to retain 5% of the risk in any mortgage pools they securitize - so they have an incentive to securitize decent quality mortgage pools instead of putting crap in there and selling to investors.

This pisses lenders off because a) it requires more work b) means now they have fiduciary duty to their shareholders to examine those mortgages, so they carry more legal risk if shyt blows up again, c) decreases liquidity in the securitization market, d) they have to hold that 5% exposure on their books, which increases capital requirements and e) would hurt their profits (but you know they will just pass on the cost to consumers)