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Skinned in the Game

Article by Four Percent June 28, 2012 //   1 minute read

Amar Bhide, Barron's The 848-page Dodd-Frank Act overflows with abstruse rules that have profound consequences, but attract little public attention. One such rule requires banks to keep at least 5% of the risk of the mortgages they originate, instead of passing it all off to buyers of securitized mortgages. Co-sponsor Rep. Barney Frank (D., Mass.) explained the theory: If banks have skin in the game, "we'll just get better-quality loans." Regulators published a 97-page proposed rule in the Federal Register in April 2011 to implement the risk-retention requirements. Bankers lobbied against the proposal, arguing that it would retard the securitization of mortgages, deprive the housing industry of funds, and impede an economic recovery. Regulators retreated. A year has now gone by without a final rule. Read More