Comment on the proposed Credit Risk Retention Rule

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Article Highlights

  • The Dodd-Frank Act was intended to restore sound underwriting practices.

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  • Enacted over 3 years ago, Dodd-Frank introduced 3 new factors into housing finance.

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Editor's Note: The following letter is a comment on the revised risk retention rule (part of the Dodd-Frank Act) proposed by six government agencies in August 2013. The proposal defines "qualified residential mortgage" (QRM), mortgages which would be exempt from risk retention requirements (i.e. the rule requiring sponsors of securitization transactions to retain risk in those transactions).

 

Dear Sirs and Madam:

The Dodd-Frank Act was intended to restore sound underwriting practices. Enacted over three years ago, it introduced three new factors into housing finance: (1) a high quality mortgage—called the Qualified Residential Mortgage (QRM)—that would have a minimal incidence of default; (2) a set of minimum mortgage standards called the Qualified Mortgage (QM); and (3) a requirement that the securitizer of any mortgage not a QRM retain at least 5 percent of the risk of any mortgage pool it sponsors. The terms of the QM were specified by the Consumer Financial Protection Bureau in January 2013, and the proposed terms of the QRM were specified in an August 28 release by the six agencies1 charged with responsibility to design the QRM.

Download the PDF to read the full comment.

Comment on the proposed Credit Risk Retention Rule by American Enterprise Institute

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About the Author

 

Peter J.
Wallison

 

Alex J.
Pollock
  • Alex J. Pollock is a resident fellow at the American Enterprise Institute (AEI), where he studies and writes about housing finance; government-sponsored enterprises, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; retirement finance; and banking and central banks. He also works on corporate governance and accounting standards issues.


    Pollock has had a 35-year career in banking and was president and CEO of the Federal Home Loan Bank of Chicago for more than 12 years immediately before joining AEI. A prolific writer, he has written numerous articles on financial systems and is the author of the book “Boom and Bust: Financial Cycles and Human Prosperity” (AEI Press, 2011). He has also created a one-page mortgage form to help borrowers understand their mortgage obligations.


    The lead director of CME Group, Pollock is also a director of the Great Lakes Higher Education Corporation and the chairman of the board of the Great Books Foundation. He is a past president of the International Union for Housing Finance.


    He has an M.P.A. in international relations from Princeton University, an M.A. in philosophy from the University of Chicago, and a B.A. from Williams College.


  • Phone: 202.862.7190
    Email: apollock@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: emily.rapp@aei.org

 

Edward J.
Pinto
  • American Enterprise Institute (AEI) resident fellow Edward J. Pinto is the codirector of AEI’s International Center on Housing Risk. He is currently researching policy options for rebuilding the US housing finance sector and specializes in the effect of government housing policies on mortgages, foreclosures, and on the availability of affordable housing for working-class families. Pinto writes AEI’s monthly Housing Risk Watch, which has replaced AEI’s FHA Watch. Along with AEI resident scholar Stephen Oliner, Pinto is the creator and developer of the AEI Pinto-Oliner Mortgage Risk, Collateral Risk, and Capital Adequacy Indexes.


    An executive vice president and chief credit officer for Fannie Mae until the late 1980s, Pinto has done groundbreaking research on the role of federal housing policy in the 2008 mortgage and financial crisis. Pinto’s work on the Government Mortgage Complex includes seminal research papers submitted to the Financial Crisis Inquiry Commission: “Government Housing Policies in the Lead-up to the Financial Crisis” and “Triggers of the Financial Crisis.” In December 2012, he completed a study of 2.4 million Federal Housing Administration (FHA)–insured loans and found that FHA policies have resulted in a high proportion of working-class families losing their homes.

    Pinto has a J.D. from Indiana University Maurer School of Law and a B.A. from the University of Illinois at Urbana-Champaign.

  • Phone: 240-423-2848
    Email: edward.pinto@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: 202-419-5212
    Email: emily.rapp@aei.org

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