Perhaps a Crack of Daylight in New Regulatory Regime for Securitization

Word this week that the six major US regulatory bodies may be bowing to pressure (and logic) coming from Congress and the markets to “re-think” the recently proposed risk retention rules for US securitizations. 

Could this be the first sign that this long, drawn out fight between initially under-informed legislators and then narrow-focused regulators (i.e. the “conventional wisdom crowd”) and proponents who have tried to point to 25 years of a successful securitization market leading up to the 2007 crisis (“the sanity crowd”) is turning a corner?  We certainly hope so.

This week’s decision to extend the comment period for the so-called “QRM” provision coming out of Dodd-Frank to August 1st would seem to be a good sign for the RMBS markets and with the risk-retention rule being one of several particularly penal rules coming out of the recent rush to “fix” securitization, we could be witnessing a reversal of fortune.

Two dots that have not been connected elsewhere is the impending departure of Sheila Bair from the FDIC and this decision to extend the comment period beyond her departure date.  We don’t see this as a mere coincidence, as even this week, Ms. Bair continues to stand behind all of the new rules and regulations instituted during her tenure.  We suppose that you can’t really blame her, as any significant trend away from what has been proposed or is already on the books over the next several months and years would only diminish her legacy.

For our part, we care much more about getting it right then we do about protecting a legacy or two.  We applaud the decision to re-visit the risk retention rule and we hope it opens the doors for a re-visit of safe-harbor and balance sheet treatment for securitizations.

About markferraris
Managing Principal Orchard Street Partners LLC

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