Mortgages without risk, at least for banks

mortgage riskBy Floyd Norris | The New York Times

There was no single cause of the financial crisis, but a chief one was surely the way mortgage loans were made by people who believed they had no reason to care if the loan was repaid.

That was why the Dodd-Frank financial overhaul law included risk retention — called “skin in the game” — as a major reform. For all but the safest loans, someone connected to the loan had to keep a stake in it. If such a loan went bad, then that lender would suffer along with those who bought securities containing it.

“To me,” said Barney Frank, the former chairman of the House Financial Services Committee and co-author of the law, “the single most important part of the bill was risk retention.”

But it now appears that section will be rendered moot as multiple regulators give in to pressure brought by an odd coalition to classify virtually every mortgage as exempt from the risk retention law.

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