Summary of Loan originators no longer must have ‘skin in the game’

Looking for the article?
We have the summary! Get the key insights in just 5 minutes.

Loan originators no longer must have ‘skin in the game’ summary
Start getting smarter:
or see our plans

Rating

8 Overall

9 Importance

8 Innovation

8 Style


Recommendation

After the Great Recession, US regulators attempted to prevent another credit crisis by enacting the Dodd-Frank Act, which included a requirement that mortgage originators hold at least 5% of an initiated mortgage security on their own books. Senior financial expert Robert C. Pozen discusses a recent ruling that invalidates the 5% provision for some participants and argues that the change, along with the easing of other controls, could pose immense future risk to the financial system. getAbstract recommends this concise and informative report to financial professionals.

In this summary, you will learn

  • What the 5% "skin in the game" regulation entails,
  • Why its rollback could harm financial markets and
  • What less restrictive mortgage governance means for the financial system.
 

About the Author

Robert C. Pozen, a senior fellow at the Brookings Institution, was formerly executive chairman of MFS Investment Management.

 

Summary

One of the provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act – requiring that mortgage originators retain a minimum of 5% of the value of a mortgage debt instrument – seemed a logical attempt to promote a “skin in the game” mentality among lenders. The 5% rule provided a check on originators by ensuring that the initializing broker or lender had thoroughly vetted the borrower before a loan could spread through the financial system via sales to “pool sponsors” and then to investors as part of a collateralized security.


More on this topic

By the same author

The Role of Institutional Investors in Curbing Corporate Short-Termism
The Role of Institutional Investors in Curbing Corporate Short-Termism
9
Extreme Productivity
Extreme Productivity
7

Customers who read this summary also read

Constructing the Home Purchase Sentiment Index
Constructing the Home Purchase Sentiment Index
8
The Most Important Number in Finance Is Going Away. Wall St. Isn’t Prepared.
The Most Important Number in Finance Is Going Away. Wall St. Isn’t Prepared.
8
The Value of Debt in Building Wealth
The Value of Debt in Building Wealth
8
The Man Who Knew
The Man Who Knew
9
United States
United States
8
Cryptoassets
Cryptoassets
8

Related Channels

Comment on this summary