In October, the Federal Deposit Insurance Corporation (FDIC) approved a final rule requiring asset-backed security issuers to retain part of the risk in any asset they securitize.
The final rule explicitly exempts all loans originated through state HFA programs–like AHFA–from the risk retention requirements. In short, this means that banks and others who sell securities comprised of HFA loans will not be required to maintain any portion of the risk on those loans.
The final rule is the result of three-year, multiagency rulemaking process to implement the risk retention requirements of the Dodd-Frank Wall Street Reform Bill.
Under Dodd-Frank, banks and other security issuers are required to retain at least 5 percent of the risk for mortgages and other loans they bundle into securities.
The purpose of this requirement is to provide banks an incentive to ensure that the loans they bundle are of good quality by mandating that they maintain some of the risk.
