Does making banks keep a portion of loans they sell increase borrower costs?


I would suggest that few, if any, investors know their plan yet on complying with new regulations for keeping skin in the game on securities backed residential, commercial, credit-card, and other loans.

On the residential side, my guess is that investors are taking their time looking production, underwriting, secondary/investor markets, and trying to see:

a) how this would impact them,

b) how it will impact the industry, and then

c) come up with potential suggestions that would improve the regulations.

The whole Qualified Residential Mortgage (QRM) idea is not bad in itself, and there are plenty of “sponsor” institutions with the liquidity to hold 5% of some portion of the mortgages they sell into securities markets, but the potential ramifications and cost to the borrowers will have to be sorted out.

Will holding the risks lead to higher rates and fees for a subset of borrowers? Sure it will.

And what happens when Fannie & Freddie come out of conservatorship?

And what will be the impact of limiting fees on smaller loans, many to borrowers stretching from Nevada to West Virginia?

So although these conversations have started in Washington DC and bank executive suites, answers will take awhile to sort out. Here’s some additional reading on this topic.

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