Mortgage lenders and community bankers across the US are lobbying lawmakers over proposed new federal home loan credit rules as the end on the discussion period looms.
The new mortgage rules seek to reduce risk-taking on mortgage lending, but mortgage lenders say the guidelines could hurt small banks and would be bad for credit markets. The Securitized Lenders rules are part of the recently passed Dodd-Frank "Wall Street overhaul bill".
Mortgage Securitization and home loan lending Rules under contention
Now US finance regulators need to establish guidelines for originators of securitized loans, to prevent the problems that lead to the US financial meltdown.
One of the key aims of the legislation is to reduce risk-taking.
The legislation proposes to do that by enforcing mortgage lenders/originators to hold a 5 percent stake in any debt instrument pooled in the secondary market.
Will small banks leave mortgage lending?
Many people believe that making the lenders partly responsible, and tied to the home loan outcomes will see many banks leave mortgage lending, fearing the consequences of being saddled with "hurt money".
The fear is that many home buyers will be denied access to mortgage credit should mortgage lenders leave the housing market.
Is the 20% down & equity rule too harsh or a healthy safety lending margin?
The law gives an exemption for mortgages deemed to be safe enough and gave regulators the task to define such suitable loans.
Regulators have proposed an exemption for the so-called qualified home loans when borrowers make 20 percent or more down payments or equity in the home for refinance purposes.
Some believe that this should be reduced to 10 percent as 20% would kill home loan lending and home values would sink lower still.
Source: Mr Mortgage
