FDIC Deputy Dismisses Lighter Risk Mandates for Non-Mortgage Assets

WASHINGTON, D.C. — Issuers of auto loan-backed securitizations will likely have to adhere to the same risk-retention requirements as issuers of other asset classes — even subprime mortgage — said Michael Krimminger, deputy to the chairman for policy of the Federal Deposit Insurance Corp.

Krimminger’s comments came during a session at the American Securitization Forum’s annual conference last month, in response to a question from fellow panelist Lawrence Rubenstein, general counsel for Wells Fargo Asset Securities Corp. About 500 securitizers, investors, and investment bankers packed the room for the discussion, which centered on the FDIC’s “safe harbor” agreement. The proposed rule protects the underlying assets of securities held by failed banks from being seized by U.S. regulators.

The FDIC is currently mulling whether to require additional conditions for securitizers, including a mandate to retain a portion of the credit risk of the securitized assets as an incentive to ensure proper underwriting. The current proposal sets the risk-retention requirement at 5%.

During the session, Rubenstein pointed out that the risk-retention condition was driven by the extraordinarily high losses in the subprime and alt-A mortgage markets. As such, Rubenstein suggested, maybe prime loans — whether auto, mortgage, or other assets — could be excluded from the requirement, particularly since additional safeguards will be in place, like the supply of extensive loan-level information and inclusion of repurchase mechanisms.

“Personally, I would tend to be a little bit loathe to make distinctions within certain asset categories,” Krimminger answered, stipulating that his comments were not official policy of the FDIC.

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