Regulators are looking to relax tougher mortgage rules could that could hamper the housing market’s recovery, reports The Wall Street Journal.
The Federal Reserve and the Federal Deposit Insurance Corp. want to loosen a proposed requirement that banks retain a portion of the mortgage securities they sell to investors, according to people close to the situation cited by WSJ.
To counter criticism that banks and other issuers devised “toxic securities” by packaging subprime loans and other mortgages that had high chances of default, Dodd-Frank imposed that issuers should retain 5% of all mortgage-backed securities issued without government backing—to ensure firms had “skin in the game.”
Now, regulators want to require that banks retain 5% only of mortgages that allow borrowers to make “interest-only” payments or that do not fully document a borrower’s ability to repay a mortgage.
Critics have also argued that the complexity of the new rules would raise costs for lenders and consumers because any mortgage that didn’t qualify would carry higher interest rates.
Other areas of concern include dropping the minimum down payment from the rule making, as restrictive lending standards have yet to thaw significant following the aftermath of the market downturn.
Written by Jason Oliva