The Dodd-Frank financial reform, which passed this summer, requires lenders to retain a five percent stake in loans it packages and sells to investors. The goal of this retention is for lenders to have a stake in the future of these loans, making the lenders accountable for the quality of the loans they packaged and sold. Mortgage Bankers Association (“MBA”) is now asking for an exemption that would cover most home loans. Specifically, the MBA is asking that adjustable rate mortgages that have at least three years of initial period payments should qualify for the exemption. The MBA also argues in its letter to federal regulators that without exempting most home loans, “few loans to ordinary customers are likely to be made.
Federal regulators now must define which loans are safe enough to be exempt from the risk retention rules. The rules are expected no later than April 2011.