Publication Date
May 2011Author(s)
Janneke RatcliffeIt is important to bring private capital back and protect the taxpayer, but it is also important restore the financial system so that it works better for the American households who rely on it for their economic security.
Janneke Ratcliffe presented this testimony before the Subcommittee on TARP, Financial Services, and Bailouts of Public and Private Programs, U.S. House of Representatives in May 2011.
Restoring investor confidence in the mortgage market will require much greater transparency than in the past. It will also require more accountability on the part of agents, as envisioned by the Dodd-Frank Act’s risk-retention provisions. However, regulators should proceed with care to avoid putting an unintended and pro-cyclical damper on the fragile finance system.
In particular, our research suggests that a broad Qualified Residential Mortgage (QRM) definition will better balance the value of risk-retention with the goal of reducing the government role in the market from current levels and protecting the taxpayer over the long run. Our research suggests that it is more appropriate to apply risk retention requirements to mortgages with features that in and of themselves increase risk, rather than to borrower characteristics.
Finally, the ultimate impact of these measures is highly dependent on the form that the mortgage secondary market takes. As you move forward in this complex reform process, it is important to bring private capital back and protect the taxpayer, but it is also important restore the financial system so that it works better for the American households who rely on it for their economic security. You cannot have true transparency and valuable information at any level