Six federal agencies have adopted a final rule requiring banks to keep a stake in the mortgages they package and sell. The rule also provides a safe harbor for lenders to operate to determine who should receive loans.

Approval from six agencies, Including SEC

The six regulators, including the SEC and FHFA, were required by the 2010 Dodd-Frank Wall Street financial reform law to implement the new rule. Overseen by the Treasury Department, the new “skin in the game” regulatory requirement was crafted and issued by the Federal Reserve, HUD, the FDIC, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency and the SEC.

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The rule first got the nod from the Federal Deposit Insurance Corporation on Tuesday. The Department of Housing and Urban Development also adopted the rule on Wednesday. The U.S. Securities and Exchange Commission approved the rule Wednesday, though two officials dissented. However, the U.S. Federal Reserve unanimously adopted the rule later in the day in a public board meeting.

In its joint press release, the Federal Reserve indicated the final rule largely retains the risk retention framework contained in the proposal issued by the agencies in August 2013.

Two Republicans dissent

However, two Republican commissioners said they could not support the rule in part as they believe its exemption for low-risk mortgages is too broad. They also said the rule perpetuates the dominant role of the government-sponsored enterprises like Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) in the housing market.

The scope of an exemption for ordinary “qualified” residential mortgages was the most hotly contested issue. In 2011, regulators originally proposed defining qualified mortgages as those requiring borrowers to make hefty down payments. However, the regulators scrapped the plan after the industry pushed back, pointing out that it would stifle the housing market for lower-income buyers.

In the final rule, the definition of a qualified mortgage is much looser than first proposed in 2011, and aligns with a definition of a separate rule by the Consumer Financial Protection Bureau.

Securities and Exchange Commission Commissioner Michael Piwowar said the SEC’s economic analysis found that “mandatory risk retention could impose significant costs on the financial markets”.

Daniel Gallagher, the Republican on the five-member SEC, said the rule “manages to take the policies that lost the last war and adopt them as the government’s preparation to win the next.”

Interestingly, Republicans from the House Financial Services Commission issued a report in July criticizing the Dodd-Frank financial reform law, arguing that it over-regulates large financial firms.

Full report here.