I just saw the CNBC economics commentator, Steve Liesman, relay a conversation he had with a Federal Reserve spokesperson this morning. Here were the highlights of the regulations that the Federal Reserve would be proposing:
- Originators of securities would be required to retain at least 5% of the credit risk of these securities.
- This position could not be hedged by the originator, although the commentators discussed how difficult this might be to regulate.
- Income from securitization transaction would no longer be recognized upfront but would but instead would need to be recognized over the life of the security.
I will look for further clarification about these points but wanted to get news out ASAP.
Here is the Wall Street Journal's take on the regulations:
"The Obama administration's planned revamp of securitization doesn't go
much beyond what is already in the works, raising doubts on Wall Street
about whether the plan will fix the market chiefly responsible for the
global credit crisis."
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