by Mitch Kokai
Senior Political Analyst, John Locke Foundation
The federal financial reform legislation commonly known as Dodd-Frank was overly long and unwieldy. So how should the government address one of the key problems left unresolved by the complex legislation? You guessed it: hundreds of pages of new complications. The Washington Examiner explains.
Financial regulators are revisiting one of the key Dodd-Frank regulations pertaining to mortgages, two years after industry and consumer groups warned that the original proposal would raise borrowing costs for homeowners.
On Wednesday, six federal agencies tasked with regulating banking and housing finance released a 499-page proposal for a rule mandated by the Dodd-Frank Act that requires banks to retain a portion of the risk created in securitizing mortgages. The provision was intended to ensure that lenders have some “skin in the game” to prevent them from loosening mortgage standards for loans packaged into securities, a phenomenon thought by many to have contributed to the 2008 financial crisis.
A key feature of the rule is the definition of a “qualified residential mortgage” — a loan that meets high underwriting standards that would be exempt from the risk-retention rule.
In the 2011 version of the rules, regulators called for a stringent definition for qualified residential mortgages that included a 20 percent down payment. After proposing the rule, agencies received comments from 10,500 people and groups, the “overwhelming majority” of whom opposed it, according to Wednesday’s new proposal.
Industry groups such as the National Association of Realtors and the American Bankers Association warned that the mortgage requirements could lead lenders to leave the market and put homeownership out of reach for many would-be borrowers. Affordable housing groups also expressed concerns that the QRM would price some people out of the market. The authors of the section of Dodd-Frank creating the QRM in the U.S. Senate also told regulators that they did not intend for it to include a minimum down payment.
Who wants to bet that the latest proposal will solve the problem? Anyone? Anyone? Bueller? Bueller?