The Capital Markets Subcommittee, chaired by Rep. Scott Garrett, will meet for a hearing to evaluate the proposed risk retention rule at 2 p.m. on Thursday, April 14 in room 2128 Rayburn.

 

The Dodd-Frank Act directs six federal regulators to jointly issue regulations forcing firms that jointly package loans and other assets into securities to hold a portion of the credit risk on their balance sheets.  After months of inter-agency debate, the joint risk retention rule proposal was put out for public comment on March 31, 2011.  The proposed rule is 367 pages and seeks comments on more than 150 questions.

 

Section 941 of the Dodd-Frank Act requires securitizers to retain no less than five percent of the credit risk in assets it sells into a securitization.  Section 941 is premised on a view that by requiring securitizers to retain some credit risk, and forcing them to bear losses if a borrower defaults, securitizers will be better about monitoring the quality of loans that are bundled into the pool.   

 

Subcommittee Chairman Garrett said, “Given the significant impact the risk retention requirement of Dodd-Frank could have on credit availability in the U.S., it’s important that we attain a more detailed understanding of the proposed rule to make sure we mitigate and address any possible unintended consequences.  I look forward to receiving a status update from regulators on the progress they’re making with implementation, as well as hearing from industry participants on how the rule will affect them.” 

Financial Services Committee Chairman Spencer Bachus said, “The Subcommittee hearing will examine the implications of the proposed rule and determine its effects on liquidity and the cost of credit to homeowners, students, consumers and businesses seeking financing.   While securitization has been instrumental in creating liquidity and fostering growth in the past, securitization can also create moral hazards by allowing the originators and securitizers of assets to pass all of the risks of the underlying assets onto investors.  Requiring securitizers to retain some ‘skin in the game,’ will hopefully encourage them to take more care in selecting high quality assets.  For risk retention to be successful, however, the standard must not stifle the securitization of loan products, thereby raising costs to consumers and cutting down on the availability of credit.”

Witnesses scheduled to testify:

 

 

Scott Alvarez, General Counsel, Federal Reserve Board

Meredith Cross, Director of the Division of Corporation Finance, U.S. Securities and Exchange Commission

Michael Krimminger, General Counsel, Federal Deposit Insurance Corporation

Julie Williams, First Senior Deputy Comptroller and Chief Counsel, Office of the Comptroller of the Currency

Bob Ryan, Acting Commissioner, Federal Housing Administration

Patrick Lawler, Chief Economist and Associate Director, Office of Policy Analysis and Research, Federal Housing Finance Agency

 

 

Henry V. Cunningham, Jr., President, Cunningham & Company

Tom Deutsch, Executive Director, American Securitization Forum

J. Christopher Hoeffel, Managing Director, Investcorp International Inc.

Kevin D. Schneider, President & CEO, U.S. Mortgage Insurance, Genworth Financial

Bram Smith, Executive Director, Loan Syndications and Trading Association

Ellen Harnick, Senior Policy Counsel, Center for Responsible Lending