Mortgage Bankers Say Risk Retention Will Force Them Out of Business

November 24, 2009 No Comments »

out of business

The Community Mortgage Lenders of America (CML America) warned today that risk retention provisions in the “Restoring American Financial Stability Act” will force them out of business.

The bill would require lenders and issuers of securitized mortgages to retain as much as 10 percent of a loan sold on the secondary market, a measure intended to improve underwriting quality.

The group sent a letter to Senate Banking Committee Chairman Christopher Dodd on behalf of 87 community mortgage bankers from throughout the country that see $120 billion in annual mortgage production.

“We firmly believe that the language, which establishes an across-the-board credit risk retention requirement, will sharply increase borrowing costs, dramatically restrict the availability of affordable mortgage options, and cut short efforts to stabilize the fragile housing market,” the CML argued.

Instead, the independent bankers want an exemption from the risk retention requirements for certain “affordable, well-underwritten and well-designed products,” otherwise known as FHA loans, VA loans, and GSE-eligible home mortgages.

“As the Committee seeks to mitigate excessive risk taking in the securitization process, it is critically important that you preserve the full benefits of securitization in the core of the market for lower risk products. “

They warned that a sweeping measure intended to mitigate systematic risk and too-big-to-fail institutions could actually eliminate competition and leave few players in the mortgage space.

The CML claims independent mortgage bankers accounted for nearly one-third of all home loan lending in 2008.

The originate-to-distribute model of loan origination has been largely to blame for the mortgage crisis, as such a system promoted volume over quality.

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