US banks, housing groups oppose mortgage proposal

Bankers and housing advocates have joined together in a strange-bedfellows alliance to push back against a proposal from US regulators the groups argue will make it more difficult for Americans to afford a home. The proposal, required by the 2010 Dodd-Frank financial reform law, calls for lenders to keep a portion of all but the safest mortgages on their books, rather than passing them off to the secondary market.
A wide array of industry and consumer groups and politicians say regulators have gone too far in defining the safest mortgages, particularly a 20 percent down payment requirement. "What is proposed here by the regulatory agencies will most definitely throw a wet rag on housing recovery in this country," John Taylor, chief executive of the National Community Reinvestment Coalition, said at a news conference on Thursday. He was joined at the event by other housing advocates and the Mortgage Bankers Association, a group that represents lenders.
The regulators' proposal comes in response to widespread criticism that lending standards became too lax in the run-up to the financial crisis because loans were bundled together and sold as securities. Critics argue that the originator of the loan or the firm creating the security had little stake in whether the loan performed because it was being sold to investors.
The proposal requires the securitizer to hold onto 5 percent of the loans being securitized so they have a stake in the loans' performance, or "skin in the game." Mortgages that meet strict underwriting standards are exempt from the risk-retention requirement. These exempt loans are known as Qualified Residential Mortgages (QRM).
In March, regulators released a proposed rule that would require these exempt loans to have, among other standards, a 20 percent down payment. On Wednesday the housing and lending groups took particular aim at that requirement, arguing that coming up with such a down payment will be difficult for most borrowers.
They presented data they said showed that such a high down payment does not greatly decrease default rates. They said that when defining a QRM, regulators should focus on limiting the type of mortgage products that can be offered, such as those that do not require proof of income, rather than also trying to set loan underwriting standards.
Regulators have pushed back against the criticism, arguing that the QRM standard will only apply to a small portion of the market. They have said the goal is to prevent the dangers that arose in the securities market during the crisis, not set a universal standard for mortgages.
At Thursday's news conference, the lenders and housing advocates said their concern is that the market will adopt the QRM as a broad standard, and any loans that do not meet its requirements will be significantly more expensive. The groups said they at least want the final rule delayed until there is more certainty about other housing rules being developed by regulators. The March proposal is out for comment through June 10.