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GAO Analyzes Risk-Retention Rule

On Tuesday the ""Government Accountability Office"":http://www.gao.gov/ (GAO) added to fears over rising mortgage rates by releasing a new report that casts concern on the role risk retention will play in the markets.

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A provision in the Dodd-Frank Act obligates the ""GAO"":http://www.gao.gov/ to perform an economic impact analysis, making the report a timely one since it arrives on the heels of outcry from trade and industry associations. The report examined data from several mortgage servicers and analytics companies, including ""Fannie Mae"":http://www.fanniemae.com/kb/index?page=home, ""Freddie Mac"":http://www.freddiemac.com/, and ""CoreLogic"":http://www.corelogic.com/.

""A key challenge in implementing the Dodd-Frank Act's provisions is balancing the goal of protecting borrowers from unsustainable mortgage products with the goal of maintaining broad access to mortgage credit,"" the report says.

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It added that mortgage-related provisions in Dodd-Frank would prescribe ""tradeoffs"" between additional consumer financial protection and a needed expansion in credit supply.

The ""GAO"":http://www.gao.gov/ said that mortgage industry representatives reported that the approval of the risk-retention rule ""could disproportionately affect populations that tend to take out smaller mortgages such as lower-income, first-time, rural, and minority borrowers.""

The risk-retention rule continues to create controversy in the mortgage lending and servicing industries. Much like the report, critics charge that the rule will stress banks, crimping the already-tight credit supply and offloading costs onto consumers.

""If you end up with an overly restrictive-risk retention requirement, and if by a number of measures the risk-retention requirement is proposed, it will eliminate about 50 percent to 70 percent that GSEs are buying,"" says Bob Davis, EVP for mortgage markets and public policy at the ""American Bankers Association"":http://www.aba.com/default.htm.

Asked how the risk-retention rule would impact banks, Davis said that ""these institutions [are] facing a very uncertain environment for multiple reasons as to their capital requirement. They're building up capital for contingent liabilities├â┬ó├óÔÇÜ┬¼├é┬ª so they can remain in business if this new capital requirement is going to be imposed on them.""

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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