The risk retention standards under the Dodd-Frank Act being voted on this week by federal regulators are an important part of revitalizing our housing finance system, but they will only work well if we get the rest of housing finance reform right.
The securitization market blew itself up during the financial crisis and it won’t be rebuilt until investors can have confidence that securitization sponsors’ interests are better aligned with their own. The risk retention standards, which require securitization sponsors to retain a 5 percent interest in the loans they securitize and to hold capital adequate to cover that risk, will help to do that, as will rules on transparency being promulgated by the SEC under the Dodd-Frank Act.
The above excerpt was originally published in CNBC.
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