The following post comes to us from Susan M. Curtis, partner and co-head of the Structured Finance Group at Skadden, Arps, Slate, Meagher & Flom LLP, and is based on a Skadden memorandum.
On August 28, 2013, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the U.S. Securities and Exchange Commission, the Federal Housing Finance Agency and the Department of Housing and Urban Development (collectively, Agencies) issued a notice of proposed rulemaking (Proposed Rule) in connection with the risk retention requirement mandated by Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Proposed Rule can be found here.
Background
The risk retention requirements of Section 941 of the Dodd-Frank Act are intended to align the interests of securitizers with those of other securitization transaction participants by requiring securitizers to retain some of the credit risk in the assets they securitize, or to have “skin in the game.” Section 941 added Section 15G to the Securities Exchange Act of 1934, which requires the Agencies to prescribe risk retention rules. Section 15G also generally requires a securitizer to retain no less than 5 percent of the credit risk in assets it sells into a securitization and prohibits a securitizer from directly or indirectly hedging or otherwise transferring the credit risk that the securitizer is required to retain, subject to limited exemptions. The Proposed Rule follows the initial rule proposal and request for comment by the Agencies released in April 2011 (the Original Proposal). As described below, the Proposed Rule reflects comments received on the Original Proposal and re-proposes the risk retention rules with a number of modifications.