Financial Regulatory Agencies Adopt Final Risk Retention Rules, Causing Changes to Mortgage and Securitization Practices

    View Authors October 2014

    Last week, six federal regulatory agencies jointly adopted a final rule implementing certain provisions of the Dodd-Frank Act designed to require sponsors of securitization transactions to retain credit risk in those transactions (Final Rule).

    The Final Rule defines a “qualified residential mortgage” (QRM) and establishes risk retention limits for mortgage originators depending on the characteristics of the mortgage. It also establishes the framework for specific exclusions from the QRM definition and risk retention requirement. The Final Rule spans 689 pages, preceded by a 565-page preamble and cost-benefit analysis. Market participants will certainly identify areas to acclaim and criticize between its adoption and one year from now, when it applies to asset-backed securities (ABS) collateralized by residential mortgages, and two years from now, when it applies to all other classes of ABS.

    This publication briefly highlights the Final Rule and the compliance obligations for sponsors of securitization transactions. Please contact Squire Patton Boggs lawyers with any questions related to the Final Rule and its impact on mortgage and securitization market regulation.