After four years, six agencies last week brought forth the final U.S. risk-retention rule (see Client Report ABS35 and relevant dailies below).  Although the industry lauded the most contentious decision – allowing the qualified residential mortgage (QRM) to be set according to the CFPB’s qualified mortgage (QM) – Republicans from several agencies, Chairman Hensarling (R-TX), editorial pages, and even some liberal media (backed by former Rep. Barney Frank) derided the outcome.  We remain skeptical that the QRM=QM approach will promote private-label securities (PLS), even if it frees up mortgage credit – in our view, it’s impossible for PLS to compete with agency and Ginnie RMBS unless or until far more fundamental questions about the government’s role are resolved.  We will analyze this issue and others raised by the risk-retention rule in a forthcoming in-depth analysis.

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