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10.23.14

New Risk Retention Rule

The final rule was issued jointly by the Board of Governors of the Federal Reserve System, the Department of Housing and Urban Development, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission.

The final rule largely retains the risk retention framework contained in the proposal issued by the agencies in August 2013.  The rule tracks Dodd-Frank by requiring sponsors of asset-backed securities to retain not less than five percent of the credit risk of the assets collateralizing the securities issuance. The rule, though, prohibits certain transferring or hedging the required credit risk.

As required by the Dodd-Frank Act, the final rule also defines "qualified residential mortgage"  and exempts securitizations of Such mortgages from the risk retention requirement. This is consistent Consumer Financial Protection Bureau regulation on qualified residential mortgages.