Softened Mortgage Rule Said to Be Proposed Soon by U.S. Agencies
A panel of six financial regulators is close to proposing a softened version of a pending rule requiring lenders to keep a stake in risky mortgages that they securitize, according to five people with knowledge of the discussions.
The Federal Reserve and the Securities and Exchange Commission, among others, plan to suggest that lenders must keep a share in the risk of mortgages issued to borrowers who spend more than 43 percent of their income on debt, said the people, who asked to remain anonymous because the discussions are not yet final.
The move would mark a victory for a coalition that includes the National Association of Realtors, the Mortgage Bankers Association, and dozens of other housing-industry participants and consumer groups who protested when the agencies in 2011 released a more stringent draft of the rule, commonly known as the Qualified Residential Mortgage or QRM rule. That proposal would have required lenders to keep a share of mortgages with down payments of less than 20 percent and those issued to borrowers spending more than 36 percent of their income on debt.
“If what we’ve heard about the proposed QRM rule is true, then we are very pleased that the agencies are moving towards a broad definition that will benefit the American people by ensuring access to safe, affordable options for buying a home,” Gary Thomas, president of the National Association of Realtors, said today in an e-mailed statement.
The regulation, mandated by the 2010 Dodd-Frank Act, will reshape who can lend and who can borrow because banks will probably make only those loans that conform to the new standards.
The new proposal, which may come in a matter of weeks, would align the Qualified Residential Mortgage rule with similarly named guidance governing risky home lending: the qualified mortgage, or QM, rule. That regulation, issued by the Consumer Financial Protection Bureau in January, contains no down payment requirement and offers legal protections to banks for loans to borrowers spending no more than 43 percent of their income on debt.
“Having them as similar as is humanly possible will reduce unnecessary regulatory burden,” said Julia Gordon, director for housing finance and policy at the Center for American Progress, an advocacy group with ties to the Democratic Party.
The agencies will seek public comment before each holds a vote on the final rule. Agencies involved in the rulemaking also include the Department of Housing and Urban Development, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp.
The regulators also may ask separately whether the securitization rule should include a down payment requirement of 30 percent, the people said.
Members of the coalition that has been lobbying for a change in the rule say they are opposed to a down payment requirement because it could block low-wealth borrowers from the market.
“What’s the best down payment should be a decision that’s made by the lenders,” Gordon said in a telephone interview.