The Dodd-Frank bill requires lenders to retain a five percent risk-retention in loans sold to the secondary market. It is an idea driven by the lessons that we learned from the financial crisis. Give banks a moral hazard by making them hold some skin in the game. It is hoped that they would then respond by not making unsustainable loans.
The bill gives regulators some time to decide how to implement that requirement. The Dodd-Frank bill does offer some guidance. The Merkley Amendment sets an expectation that lenders will hold a five percent stake in any "qualified residential mortgage." A "QRM," as it known, needs risk retention. An exempted loan does not.
This is a classic example of a rule that could have unexpected consequences. At first glance, it seems like common