* Law allows risk retention stake to be lowered
* Bair defends FDIC action on "safe harbor" rule
By Dave Clarke
WASHINGTON, Oct 5 U.S. banking regulator Sheila
Bair on Tuesday sought to downplay concerns that a new
requirement that issuers retain a stake in asset-backed
securities will hurt the securitization market -- a market seen
as critical for the housing market's recovery.
Under the financial regulatory overhaul law enacted in
July, banks and other issuers of securities backed by such
things as mortgages or other consumer loans are required to
retain a 5 percent ownership interest in the loans.
Bair, chairman of the Federal Deposit Insurance Corp, said
in an interview with CNBC that this stake could be lowered or
even eliminated, in the case of qualified residential
mortgages, if the underlying loans meet yet-to-be-written
She said regulators would work swiftly to get these new
underwriting standards in place.
"I think if they don't like the 5 percent, let's work
expeditiously to get these new lending standards in place," she
Regulators have about seven months left to write
regulations implementing new risk retention requirements.
"We would be happy to eliminate it, again, if there are
good strong lending standards, good strong definitions of
qualified residential mortgages, which the agencies agree to,"
Last week the FDIC took some flak from industry and fellow
regulators for putting in place a regulation that provides
"safe harbor" for securitizations in the event a failing bank
is seized by the agency. The regulation includes a section on
The American Securitization Forum, an industry group, said
the FDIC should have waited for the broader risk retention
rules envisioned by the new law to be completed before moving
Bair has defended the decision noting that the regulation
includes a provision that would give precedence to the
interagency rule when it is finalized.
(Reporting by Dave Clarke, Editing by Dave Zimmerman)