Six agencies announced today in a joint release that they are considering proposing a rule this week to implement a section of the Dodd-Frank provision that requires issuers keep an economic interest in the securities they transfer.

Specifically, section 941 of Dodd-Frank mandates that “any securitizer to retain an economic interest in a portion of the credit risk for any asset that the securitizer, through the issuance of an asset-backed security," as well as for "any residential mortgage asset that the securitizer, through the issuance of an asset-backed security, transfers, sells, or conveys to a third party."

The U.S. Securities and Exchange Commission and Federal banking agencies, and the Secretary of Housing and Urban Development and the Federal Housing Finance Agency are required to issue the rule jointly. Tim Geithner, chairman of the Financial Stability Oversight Council, is charged with coordinating the effort.

The risk-retention requirements are similar to amendments to the disclosure required in asset-backed security registration statements that the SEC had proposed prior to Dodd-Frank legislation, in which a minimum 5 percent risk retention was requested, according to the law firm Gibson Dunn's memorandum on the reform.

Once the rule is proposed and published in the Federal Register, comments will be accepted. Congress mandates that the agencies approve a final version of the rule by April 17.

The regulations would become effective with one year after the date that final regulations are published in the Federal Register, the memo said.

Topics