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Treasury seeks to 'strike a balance' on risk retention

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The Treasury Department signaled Friday regulators might draw back on the risk-retention proposal in search of common ground with industry and consumer groups. Federal regulators proposed the risk-retention rule in April, requiring lenders to maintain 5% of the credit risk on loans, including mortgages, pooled into securities. Lenders do not have to maintain the risk on qualified residential mortgages, which include a strict debt-to-income ratio, servicing standards and a 20% down payment. On Thursday, a coalition of 44 groups representing both mortgage bankers, insurers and consumers met on Capitol Hill with the lawmakers who drafted the rule mandated under the Dodd-Frank Act. The coalition criticized what members called overly restrictive guidelines on the QRM, specifically the 20% down payment. "Our goal is to strike a balance that preserves access to affordable mortgage credit in all communities for creditworthy borrowers across incomes, while strengthening the long-term health of the housing market and our economy. We believe that risk retention, as part of comprehensive housing finance reform, is an important part of that effort," said Treasury Under Secretary Jeffrey Goldstein in a speech before the National Housing Conference Friday. A slew of research came out since the rule proposal. One report showed half of borrowers could be shut out of buying a home because of the down payment. Another warned of the risk blocking new refinancing because of debt-to-income ratio requirements. More than 300 lawmakers in both the Senate and the House of Representatives signed letters asking regulators to revise the rule. But rule makers, including Federal Deposit Insurance Corp. Chairman Sheila Bair, long argued the QRM was designed to be just a small slice of the market. Research from credit ratings agency DBRS showed prime mortgages originated in 2011 already mirror the requirements. Still, Goldstein said regulators are paying close attention to the push back. "We are seriously considering feedback and are committed to getting this rule right, so that we can ensure securitization is a stable and reliable source of credit for consumers, businesses, and homeowners," Goldstein said. Regulators, including the Treasury, recently extended the comment period for the rule to Aug. 1 from June 10. Write to Jon Prior. Follow him on Twitter @JonAPrior.

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