WASHINGTON, June 16 (UPI) -- The Obama administration is set to tell U.S. mortgage lenders they must keep a portion of loans they sell to share in the risks, a Treasury spokesman said.
The proposed change would require lenders to hold at least 5 percent of the bundled mortgage-backed securities, spokesman Andrew Williams said.
As part of a larger overhaul of the regulatory system, forcing banks to keep a portion of the risk for loans in theory will provide a self-regulating loop, as banks will no longer be able to sidestep the risk by selling all the loans they write.
The plan includes requiring greater disclosure on methodology by rating companies that assess the securities sold to investors, CQ Politics reported Tuesday.
Some rating methodology may be protected. But even that would have to be disclosed to the Securities and Exchange Commission.
In a recent editorial published in The Washington Post, Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers said the current financial regulatory system was "riddled with gaps, weaknesses and jurisdictional overlaps, and suffers from an outdated conception of financial risk."