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June 7, 2011 – The comment deadline on a proposed Dodd-Frank Act rule on risk retention by sponsors of asset-based securities has been extended from June 10 to Aug. 1, federal banking, housing finance and securities industry regulators said in a joint announcement Monday.

The rule would require sponsors of asset-backed securities to retain at least 5 percent of the credit risk of the underlying assets. The proposal exempts from this requirement loans defined as qualified residential mortgages.

The proposal would set no new regulatory requirements for credit unions, but NAFCU is monitoring its progress due to its potential market implications. For example, the rule could have an impact on those credit unions seeking to sell residential mortgages on the secondary market.

Under the proposed rule, a residential mortgage loan would be defined as a QRM where underwriting addresses ability to repay. That would require, among other things:

• documented income;
• prudent ratios of housing and all installment payments;
• amortized payments incorporating taxes, insurance and any homeowner dues;
• payment performance history;
• an 80 percent loan-to-value requirement for purchase transactions; and
• stable mortgage terms that do not provide for substantial payment shock.

Comments are sought on whether the use of private mortgage insurance should be incorporated.

A group of 39 senators, noting specifically the minimum down payment and debt-to-income ratio requirements, told regulators the proposed rule goes beyond the law's intent. They have urged regulators to revisit the regulation and ease provisions that could preclude creditworthy home buyers from access to affordable housing finance.

The proposal was issued by the Office of the Comptroller of the Currency, the Federal Reserve, the FDIC, the Securities and Exchange Commission, the Federal Housing Finance Agency and the Department of Housing and Urban Development.