Regulators delay risk-retention rule to August
Federal regulators extended the comment period on the proposed risk-retention rule from June 10 to Aug. 1.
Under the Dodd-Frank Act authority, regulators proposed the rule in April, requiring lenders to retain 5% of the credit risk on mortgages pooled in securities. The exception is the qualified residential mortgage. Lenders do not have to maintain the risk on these loans if they meet a variety of requirements such as new servicing standards and a 20% down payment, according to the proposal.
The rule immediately met harsh criticism from industry trade groups and consumer groups alike. They argued the QRM was too narrowly defined and that many borrowers would be priced out of the market because they could not come up with the 20% down payment.
Roughly 39% of those who took out a mortgage in 2010 made a down payment of less than 20%, according to a study from CoreLogic ($23.68 0%). Studies also showed the market share for private mortgage insurers would tumble because the QRM does not make room for them. The National Association of Realtors went on the lobbying trail this spring asking regulators and lawmakers to ease the risk-retention requirements in order to relieve taught credit restrictions on a struggling housing market.
In May, a group of 15 housing trade groups wrote to regulators formally asking for an extension.
Federal Deposit Insurance Corp. Chairman Sheila Bair long argued the risk-retention rule was designed to govern much of the market, and the QRM was meant to be a narrow slice.
But the Department of Housing and Urban Development Acting Commissioner Bob Ryan, the agency's former chief risk officer, said the 20% down payment may be too restrictive. Testifying before Congress he recommended a 10% down payment.
"We are concerned by the 20%. It may be too high. We are seeking feed back on the performance benefits of lowering it," Ryan said during a congressional hearing in April.
Regulators did not immediately give a specific reason for the delay.
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