Comments on: The anti-risk-retention lobby’s bizarre logic http://blogs.reuters.com/felix-salmon/2011/06/02/the-anti-risk-retention-lobbys-bizarre-logic/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Strych09 http://blogs.reuters.com/felix-salmon/2011/06/02/the-anti-risk-retention-lobbys-bizarre-logic/comment-page-1/#comment-27270 Thu, 02 Jun 2011 17:46:05 +0000 http://blogs.reuters.com/felix-salmon/?p=8504#comment-27270 What jomiku said. Felix’s unexamined premise is that if the 5% retention rule goes into effect, unchanged, over the bankster’s objections, that they’ll necessarily be “forced to be honest about their underwriting”. I’m not nearly as sanguine.

The way to force better underwriting is to do so directly. Regulate that area of activity with clear rules and standards, backed up by random, intrusive audits. If greedy banksters with their eye on this quarters bonus check are found to have violated the standards, then file civil lawsuits and/or criminal actions against them as individuals.

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By: klhoughton http://blogs.reuters.com/felix-salmon/2011/06/02/the-anti-risk-retention-lobbys-bizarre-logic/comment-page-1/#comment-27264 Thu, 02 Jun 2011 16:00:43 +0000 http://blogs.reuters.com/felix-salmon/?p=8504#comment-27264 5% retention is a very small amount. The old standard was closer to 20-25% being kept “on the books,” just because of the cashflow issues of securitized mortgages (most especially–as has become a problem now–that the servicer continues to make payments as if they came in on mortgages that are slightly delinquent).

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By: jomiku http://blogs.reuters.com/felix-salmon/2011/06/02/the-anti-risk-retention-lobbys-bizarre-logic/comment-page-1/#comment-27262 Thu, 02 Jun 2011 14:23:16 +0000 http://blogs.reuters.com/felix-salmon/?p=8504#comment-27262 The idea of keeping skin in the game may, of course, backfire because banks will continue to make loans that go bad and they’ll now have more of that on their books. Just pointing out it seems impossible to craft to a genuinely effective system. If I were a bank, I’d be more interested in what I can do with the value on my books. Can it be used to offset other capital requirements? Can its value be used to make my books look better than they are?

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By: Beezer http://blogs.reuters.com/felix-salmon/2011/06/02/the-anti-risk-retention-lobbys-bizarre-logic/comment-page-1/#comment-27261 Thu, 02 Jun 2011 14:19:06 +0000 http://blogs.reuters.com/felix-salmon/?p=8504#comment-27261 I can’t recall exactly who pointed this out, it may have been Elizabeth Warren, but mortgage brokers and securitizers didn’t want mortgages insured because, on average, it opened up as much as 95bp in profit on a mortgage.

Hey, it’s all about booking a commission today isn’t it, and forget you once it’s in their checking account?

Bring back some form of insurable interest. Lending banks need to have some skin in the game up front, if for no other reason than the next time they collectively screw the pooch, that’s 5% taxpayers don’t have to insure.

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By: AndyGarbage98 http://blogs.reuters.com/felix-salmon/2011/06/02/the-anti-risk-retention-lobbys-bizarre-logic/comment-page-1/#comment-27260 Thu, 02 Jun 2011 14:18:53 +0000 http://blogs.reuters.com/felix-salmon/?p=8504#comment-27260 Is 5% enough to prevent the mortgage mess from reoccurring?

I thought the ABS originators made enough money off each issue to simply write-off the 5% they’d end up holding.

I could imagine them holding back either the *best* 5%, or the *worst* 5% depending on whether the market was chasing safety or yield.

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By: winstongator http://blogs.reuters.com/felix-salmon/2011/06/02/the-anti-risk-retention-lobbys-bizarre-logic/comment-page-1/#comment-27259 Thu, 02 Jun 2011 14:02:31 +0000 http://blogs.reuters.com/felix-salmon/?p=8504#comment-27259 You could go a lot further. Say the cost of that 5% is 10% not 5.05%. An extra 5% interest on 5% of the loan would be $47/month. Granted, a lot more than $1/mo, but still not a prohibitive cost.

No bank would need 10% to hold the loan either…

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By: dWj http://blogs.reuters.com/felix-salmon/2011/06/02/the-anti-risk-retention-lobbys-bizarre-logic/comment-page-1/#comment-27254 Thu, 02 Jun 2011 03:41:27 +0000 http://blogs.reuters.com/felix-salmon/?p=8504#comment-27254 If the new regulation doesn’t “withhold credit” from anyone who would otherwise get it, it isn’t working.

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