RJ and Makay

A recent inquiry by Senators Carl Levin and Tom Coburn has yielded 19 recommendations to deal with high-risk lending, regulatory failures, inflated credit ratings, and investment bank abuses. The recommendations, published on April 13, are as follows.

High risk lending:

1. Ensure "Qualified Mortgages" Are Low Risk - Federal regulators should use their regulatory authority to ensure that all mortgages deemed to be "qualified residential mortgages" have a low risk of delinquency or default.
2. Require Meaningful Risk Retention - Federal regulators should issue a strong risk retention requirement under Section 941 by requiring the retention of not less than a 5% credit risk in each, or a representative sample of, an asset backed securitization's tranches, and by barring a hedging offset for a reasonable but limited period of time.

3. Safeguard Against High Risk Products - Federal banking regulators should safeguard taxpayer dollars by requiring banks with high risk structured finance products, including complex products with little or no reliable performance data, to meet conservative loss reserve, liquidity, and capital requirements.