As a way to simplify the mortgage market, six federal agencies have proposed revised regulations that oversee how banks finance mortgages. By easing requirements on lenders under the softened qualified residential mortgage rule, banks won’t have to retain a stake in mortgages with down payments of less than 20 percent when they bundle mortgages into securities. The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the Federal Housing Finance Agency and the Department of Housing and Urban Development are the regulators behind the proposal.
Making sense of the story
- The first draft of the qualified residential mortgage rule faced opposition from housing industry participants and consumer groups. The rule was intended to prevent the type of risky loans that contributed to the subprime credit crisis, but opponents said it would impede home lending.
- Under the new draft, the qualified residential mortgage rule would be aligned with the qualified mortgage, or QM, rule. The QM stems from the Consumer Financial Protection Bureau and contains no down payment requirement. Such alignment provides a clearer roadmap to banks.
- Before regulators vote to finalize the rule, they are requesting public feedback on the full proposal by Oct. 30. Feedback is also encouraged for an alternative arrangement that would require lenders to keep a stake in any loan with a down payment of less than 30 percent.
- Commenting on the revision, NATIONAL ASSOCIATION OF REALTORS® President Gary Thomas stated the following: “The new standards, which align with those applied to Qualified Mortgages, are stringent enough to protect consumers from unscrupulous lending practices while also creating new opportunities for private capital to reestablish itself as part of a robust and competitive mortgage market.”
- Under the revisions, borrowers who spend less than 43 percent of their income on debts will have an easier time getting a loan.