A group of 15 housing trade groups representing both consumers and market players sent a letter to federal regulators Friday requesting a delay to the recent risk-retention rule by more than one month. Regulators proposed the rule in March, requiring lenders to maintain 5% of the risk on loans issued into securities. The exception, known as the qualified residential mortgage, would exempt lenders from holding “skin in the game,” but only when certain requirements are met such as a 20% downpayment from the borrower. The comment period ends on the proposal June 10, but the trade groups asked for an extension to no earlier than July 22. “While we recognize that Dodd-Frank requires a final Risk Retention rule within 270 days, the proposal was not issued until nearly all of that time elapsed,” the letter reads. “Under the circumstances, the public’s opportunity to respond should not suffer.” The letter was signed by the Mortgage Bankers Association, the American Bankers Association, the Center for Responsible Lending, the National Association of Realtors, the National Association of Home Builders and others. These groups have been pushing regulators and lawmakers to ease the requirements under the rules since they were proposed. “Any time you get the mortgage bankers, the mortgage insurers, the Center for Responsible Lending and Congressional Black Caucus to agree on something, maybe this committee should pay a little bit of attention,” said Rep. Jeb Hensarling (R-Texas) during a committee hearing in April. The groups maintained that the rules would further constrict the mortgage market and could possibly shut out otherwise credit-worthy borrowers during a time of lingering fragility in the market. But speaking before a House subcommittee hearing this week, Janneke Ratcliffe, executive director of the UNC Center for Community Capital, said the private-label market needs more transparency along with a broader risk-retention rule to ensure private capital returns. In the decade preceding the crisis, a study Ratcliffe conducted found borrowers had access to prime, fixed-rate loans they could afford to pay under affordable housing programs. They experienced low default rates and built up meaningful equity. “These findings underscore that risk-retention should apply to product and process factors that increase risk, not to characteristics of the borrowers,” Ratcliffe said. “That said, overall, the risk retention provisions will certainly improve accountability.” Recent rules from the Federal Reserve propose requirements for a qualified mortgage, or a QM. Under this proposal, lenders are required to determine a borrower’s ability to repay a loan before it is written. The overload of rules, the groups say, requires an extension in order to give them more time. “To prevent undue regulatory burden, both the QM and QRM should be consistent; indeed, Dodd-Frank requires that the QRM not be broader than the QM,” according to the letter. “Accordingly, issues under both rules should be considered and addressed together by the public.” Write to Jon Prior. Follow him on Twitter @JonAPrior.
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