The House Financial Services Committee’s systemic regulator bill, HR 1754, is hung up this month on the proposed risk retention requirements.

The proposal requires creditors to retain 10 percent or more of credit for securitized loans and let regulators adjust that level to between 5 percent and 10 percent. Financial institutions prefer a 5 percent base. The argument over the specific number will be resolved.

The larger issue --- the need for “skin in the game” in the new mortgage lending paradigm --- no one disputes.

Risk retention will establish a necessary sense of ownership and responsibility at the origination end of the home loan process. But any risk retention debate is incomplete unless policymakers give equal weight to time to the need for transparency. One doesn’t work without the other.

Investors in mortgage securities, once that market begins to function on it's own again, will have to be able to look at the characteristics and performance of each loan that makes up the overall pool. Investors will need a reliable monitoring system that provides a view into the performance and payment stream of each mortgage. 

That hasn’t existed in the past and the absence of transparency was as much a culprit in the housing collapse as the lack of skin in the game. Crafters of the systemic regulator bill should keep that in mind.