This week, the bank regulators and the SEC adopted some new rules to regulate securitization. They were allegedly trying to fix the problems that created the subprime mortgage meltdown during which banks and mortgage companies like Countrywide could originate mortgages and then immediately sell them at a profit, so they never had to worry about whether the mortgages were going to pay off.
The new "risk retention" rules are intended to assure that securitizers keep "skin in the game" by retaining at least 5% of the risk in a securitization. Sounds great, right?
Except that the regulators created a huge loophole that you can drive a truck through. If lenders make "qualified residential mortgages" or "QRMs," they can securitize the mortgages without retaining any risk whatsoever, just like the subprime mortgages that created the financial crisis.
But you'll ask "Aren't these QRM mortgages really high quality so we'll never have another crisis?" Unfortunately, the banks and real estate brokers lobbied hard, and they won. The regulators adopted a definition of QRM that doesn't even require a down payment.
Once again, the banks and brokers won, and everyone else got screwed.