Fed/OCC/FDIC/FHA/HUD/SEC Joint Proposed Rule: Credit Risk Retention

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Dodd-Frank Timeline, Credit Risk Retention
Proposal Date Re-Proposal Date Comment Deadline
June 10, 2011 August 28, 2013 October 30, 2013

On August 28, 2013, six federal agencies issued a notice revising a proposed rule requiring sponsors of securitization transactions to retain risk in those transactions. The new proposal revises a proposed rule the agencies issued in 2011 to implement the risk retention requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act.


On March 30, 2011, the SEC held an open meeting concerning credit risk retention regulation under the Dodd-Frank Act. The proposal was presented for comment in conjunction with the following five agencies:

Among the topics at this meeting were the options available for sponsors meeting the risk-retention requirements under Dodd-Frank.<ref>Agencies Seek Public Comment on Risk Retention Proposal. SEC. Retrieved on March 31, 2011.</ref> Proposed rules were added to the Federal Register on April 29, 2011.

The originally proposed rule outlined sponsors' options for meeting Dodd-Frank credit risk retention requirements include, but are not limited to:

  • "Retention of risk by holding at least 5 percent of each class of ABS issued in a securitization transaction (also known as vertical retention).
  • Retention of a first-loss residual interest in an amount equal to at least 5 percent of the par value of all ABS interests issued in a securitization transaction (horizontal retention).
  • An equally-divided combination of vertical and horizontal retention.
  • Retention of a representative sample of the assets designated for securitization in an amount equal to at least 5 percent of the unpaid principal balance of all the designated assets.
  • For commercial mortgage-backed securities, retention of at least a 5 percent first-loss residual interest by a third party that specifically negotiates for the interest, if certain requirements are met."

The rules also include exemptions and specific requirements for certain types of loans and asset-backed securities, including securitizations of commercial loans, commercial mortgages, or automobile loans of low credit risk.

Re-proposal, August 2013[edit]

The original proposal generally measured compliance with the risk retention requirements based on the par value of securities issued in a securitization transaction and included a so-called premium capture provision. Under the new proposal, risk retention would be generally based on fair value measurements without a premium capture provision.

The proposal generally requires the securitizer of asset-backed securities to retain not less than 5 percent of the credit risk of the assets collateralizing the asset-backed securities. Section 15G includes a variety of exemptions from these requirements, including an exemption for asset-backed securities that are collateralized exclusively by residential mortgages that qualify as “qualified residential mortgages,” as such term is defined by the agencies by rule.

The proposal would define “qualified residential mortgage” (QRM) and exempt securitizations of QRMs from risk retention. The new proposal would define QRMs to have the same meaning as the term qualified mortgages as defined by the Consumer Financial Protection Bureau. The new proposal also requests comment on an alternative definition of QRM that would include certain underwriting standards in addition to the qualified mortgage criteria.

Related Document: Federal Register Entry[edit]



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