Nom de Plumber is a Nom de Plume.
Dodd-Frank mandates originator risk retention, ostensibly to foster high-quality loans.
How do Fannie and Freddie comply with this core “reform” principle?
Ironically, the largest US credit providers do the opposite……..selling first-loss risk, via their STACR and CAS credit-sharing deals. If originator risk retention were so inherently good, why should the GSE’s be able to exempt themselves?
Dodd-Frank supporters might respond that shedding default risk onto private investors serves to protect the GSE’s, and ultimately US taxpayers, from systemic credit losses. Well, if their rationale were sound, then the GSE’s would protect taxpayers and borrowers even better by just retaining that exposure, as “skin-in-the-game” incentive to write ultra-safe mortgages. (Their wording, not mine, mirrored right back to them.)
By their actions, the GSE’s show zero faith that originator risk retention will truly prevent residential mortgage defaults. In reality, only substantive borrower down-payments can do so, as commercial mortgages prove.
- Regulators and GSE’s hold themselves high above the very rules which they enforce on others.
- Far worse, they may fundamentally misunderstand the rules which they make.
On the second point, please see here: