Big Banks Lose: Mortgage Risk Retention Doesn't Expire

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Yesterday morning I attended the FDIC's background press briefing before the vote on proposed risk retention rules.

While the rules covered a vast ground, I was of course most interested in those that focus on the "Qualified Residential Mortgage."

The QRM would be the exemption from risk retention, and therefore banks would want most borrowers to fall under the QRM standard.

A few moments after we reporters sat down at the big conference table, FDIC representatives clunked down a huge document in front of each of us. Then another, then another: Well over 200 pages of what these proposed rules are all about. Thankfully, they then had some other FDIC folks explain to us exactly what we needed to know. I then ran out onto the balcony camera and reported the three top points...20 percent down payment, debt to income ratio requirements and various servicer rules.

I didn't focus on one point: The banking industry had been expecting a two-year waiting period for performing loans to then be exempt from risk retention. Way back when we all started this debate, Wells Fargo had pushed for a 30 percent down payment requirement for QRM. At first I didn't understand why any bank would want that, but it was explained to me that some of the biggest banks favored a large down payment requirement because they have the financial ability to warehouse these loans for two years before securitizing them, while the smaller lenders don't. Just wait for risk retention to expire, and the big banks are good to go.

Well they didn't get that.

The risk retention does not expire until the securitization pool are repaid.

That's why a lot of analysts say this plan will not bring private investors back to the residential mortgage market.

Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick