Banks will be forced to keep some risk when they securitize all but the most conservatively written mortgages under rules that regulators are expected to vote on Tuesday, the New York Times reported on Monday.
But the banks are likely to be given broad leeway determining what risks they keep, the Times said.
Major banks are hoping to restart the mortgage securitization market that imploded when holders of the securities were burned by toxic mortgages. The banks had pressed regulators to define almost any mortgage, except for the most extreme types no longer being written anyway, as a qualified residential mortgage, the Times said.
But regulators rejected the banks' idea, according to a summary of the proposal provided to The New York Times by a person briefed on the decision. Instead, regulators have decided that only the most conservative mortgages would qualify. Securitizations of any other mortgages would require the banks to retain at least 5 percent of the risk, the Times said.
Still, regulators agreed to a broad definition of how that risk can be retained, as well as of who will have to retain it, the New York Times said. In some cases they can retain risk by holding onto mortgages that are deemed identical to those being securitized. In others, they would be able to either take the first 5 percent of losses or to hold 5 percent of every class of security, the Times said.
The proposal was developed by the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the Federal Housing Finance Agency and the Department of Housing and Urban Development, and is expected to be formally proposed by each of them, with the FDIC set to vote Tuesday, the New York Times said.
(Editing by Lincoln Feast)