By Nancy Leinfuss

NEW YORK, June 15 (Reuters) - A U.S. government plan to prevent banks from the massive sale of risky loans without assuming any risks themselves seeks to strike at one of the key causes of the credit crisis.

The Obama administration plans to require original lenders to retain 5.0 percent of the credit risk of loans that are later securitized as part of its proposal to revamp financial regulations, a U.S. Treasury spokesman said on Monday.

The new proposal was seen centering around the subprime mortgage market where all of the risks were passed from the originator to the underwriter, who later packaged the loans together and sold them as securities in the asset-backed market, while retaining very little of the risk.

By breaking the direct link between borrowers and lenders, securitization led to a general erosion of lending standards, resulting in a serious market failure that fed the housing boom and deepened the housing bust.

Some investors said that while the 5.0 percent loan retainment required of lenders may offer comfort to some buyers of consumer ABS securities, for investors in the subprime mortgage landscape much more skin-in-the-game is required.

"If someone is going to apply a 5.0 percent retained position on a new subprime residential mortgage deal, I don't think anybody is going to buy off on it as being sufficient. That does absolutely nothing," said Mike Kagawa, portfolio manager at Payden & Rygel in Los Angeles.

A collapse in the U.S. subprime mortgage market, due to poor lending standards, flawed appraisals and easy credit, led to surging defaults on loans and drove foreclosures to record highs as home values plunged.

"In the world of subprime mortgages where most people are expecting as much as 30 percent losses, (retaining) even 20 percent is not enough," said Kagawa.