US lenders would have to offer mortgages with at least a 20 percent down payment if they want to repackage the loan to sell to other investors without keeping some of the risk on their books, according to a proposal US bank regulators endorsed on Tuesday.
The Federal Deposit Insurance Corp board and the Federal Reserve agreed to seek public comment on the proposal that is intended to restore lending discipline and define the safest form of mortgages that can be completely resold to other investors. However, the rule is expected to have little near-term impact because not many investors are yet eager to buy repackaged mortgages and because it would not include loans sold to mortgage finance giants Fannie Mae and Freddie Mac.
Last year's Dodd-Frank financial law requires firms that package loans into securities - a practice known as securitization - to keep at least 5 percent of the credit risk on their books. The provision is meant to force securitizers to have "skin in the game," so they don't churn out poorly underwritten loans and then pass along the risk to investors, as happened during the 2007-2009 financial crisis. Mortgages that meet strict underwriting standards are exempt from the risk requirement.