Proposed Rules for Credit Risk Retention
The Asset Management Group (AMG) of SIFMA provides comments to the Securities and Exchange Commission, the Treasury Department, the Board of Governors of the Federal Reserve, and other agencies (the Agencies), regarding credit risk retention when issuing asset-backed securities. Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act) requires the Agencies to prescribe regulations to require a securitizer to retain an economic interest in a portion of the credit risk for any asset that the securitizer, through the issuance of an asset-backed security, transfers, sells, or conveys to a third party. The regulations must require the retention of at least 5% of the credit risk for assets other than those subject to an exemption or exception (such as for qualified residential mortgages, or QRMs).
American and global securitization market participants are eager to engage in a vibrant, reinvigorated private securitization market that is a viable alternative or supplement to the government-guaranteed securitization market. We believe that the governing principle underlying the Proposal—the alignment of economic interests between asset securitizers and investors through risk retention—is a critical step to the robust return of the private securitization market. A healthy risk retention requirement, with only narrowly construed exemptions such as for qualified residential mortgages (“QRMs”), also furthers the intent of Congress to create a “gold standard” for prudent underwriting. Accordingly, as we detail below, we believe the exemptions to risk retention should be narrow, the risk retained by the securitizer should not be materially diluted, and the types and features of risk retention should accurately reflect the economics of the marketplace.