Because what could go wrong?  ⚐

Depressing article from the Times this week …

Under Dodd-Frank, the general rule was to be that if a lender wanted to securitize mortgages, that lender had to keep at least 5 percent of the risk. There was an exception. The lender didn’t need to retain any risk in mortgages deemed to be supersafe. Those mortgages were to be known as Qualified Residential Mortgages, or Q.R.M., in the jargon that promptly developed.

In 2011, when the regulators first proposed rules to carry out the risk-retention law, the idea was that there would be a two-tier mortgage market. Mortgages deemed to be Q.R.M. would be characterized by substantial down payments that would minimize the risk of default, while the other tier would include riskier mortgages — although still safer than some of the ridiculous mortgages that characterized the boom — and could be securitized only if those responsible for either the loans or the securitizations kept some of the risk.

But when the final rule was adopted this week, that idea was dropped.

“The loophole has eaten the rule, and there is no residential mortgage risk retention,” said Barney Frank, the
former chairman of the House Financial Services Committee and the Frank in Dodd-Frank.

Because what could go wrong if banks take on a bunch of risky mortgages that eventually go belly up?