Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Residential Real Estate Post-Crash Index-Moderated -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (93927)	7/24/2013 10:40:43 AM
From: Broken_Clock	Read Replies (1) \| Respond to of 119361

Easing of Mortgage Curb Weighed By Nick Timiraos \| The Wall Street Journal – 14 hours ago Concerned that tougher mortgage rules could hamper the housing recovery, regulators are preparing to relax a key plank of the rules proposed after the financial crisis. The watchdogs, which include the Federal Reserve and Federal Deposit Insurance Corp., want to loosen a proposed requirement that banks retain a portion of the mortgage securities they sell to investors, according to people familiar with the situation. The plan, which hasn't been finalized and could still change, would be a major U-turn for the regulators charged with fleshing out the Dodd-Frank financial-overhaul law passed three years ago. It also would represent a victory for an unusual alliance of banks and consumer advocates that opposed the new rules, arguing that they would restrict lending and do little to make the financial system safer. Advocates of more stringent standards said that a broad exemption to the risk-retention rules would undermine the initial goal of imposing market discipline. "My sense is that Washington has lost its political will for serious reform of the securitization market," said Sheila Bair, who served as FDIC chairman until 2011. The rules in question focus on mortgage-backed securities, complex pools of loans that are packaged by banks and sold to investors. The securities were at the center of the financial crisis, saddling investors with billions of dollars in losses as the housing bust caused mortgages to sour rapidly. Bloomberg News Regulators are worried a proposed mortgage rule could inhibit housing.The market for mortgage-backed securities that aren't issued by federally related entities nearly evaporated in 2007 as the housing boom turned to bust. Investors have been slow to return, though there have been a handful of new mortgage-bond deals over the past year. Those have mostly consisted of pristine loans to wealthy borrowers with large down payments. Critics said that banks and other issuers devised toxic securities by packaging subprime loans and other mortgages that had the highest change of default. To counter this problem, Dodd-Frank stipulated that issuers should retain 5% of all mortgage-backed securities issued without government backing. The idea was to ensure that the firms had "skin in the game," addressing problems that arose when lenders didn't pay close attention to the quality of loans issued as securities so long as the bonds could receive triple-A ratings. But Congress also created an exception to the skin-in-the-game requirement. Lawmakers directed six regulators to specify certain loans—such as traditional 30-year, fixed-rate mortgages—that wouldn't be subject to the new rules. At issue now is how to define this so-called qualified residential mortgage. An earlier proposal, issued in April 2011, said the skin-in-the-game rules wouldn't apply to mortgage securities containing loans where borrowers made at least a 20% down payment. Now, regulators want to scrap that requirement, meaning that banks would have to retain 5% only of mortgages that allow borrowers to make "interest-only" payments or that don't fully document a borrower's ability to repay a mortgage—a much smaller portion of the market that includes the riskiest loan products that caused much of the crisis-time losses. To be exempted, those loans would still have to meet other standards issued earlier this year by the Consumer Financial Protection Bureau on Dodd-Frank's requirements that banks ensure a borrower's capacity to repay a mortgage. Critics charged that the complexity of the new rules would likely raise costs for lenders and consumers because any mortgage that didn't qualify would carry higher interest rates. Consumer advocates and the real-estate and banking industries—camps that have typically sparred over regulatory efforts—forged an alliance to push for a less-restrictive definition over the last three years. In dropping the minimum down payment from the rule making, analysts say that regulators appear to be listening amid rising concerns that restrictive lending standards have yet to thaw significantly in the aftermath of the downturn, which could make it harder for housing markets to recover. Opponents of the down-payment rules have said that down-payment standards should be set by the market and not by regulators. They have argued that shoddy loan products and lenders' carelessness in determining a borrower's ability to repay a loan—not down payments—were bigger contributors to the mortgage crisis. Others have said that risk-retention standards were flawed from the onset, with lenders likely to find ways around them. "'Eat your own cooking'—it's very intuitive. But when you get down to the nuts and bolts of it, it doesn't work," said Mark Zandi, chief economist at Moody's Analytics. The new mortgage regulations, he said, should be "as simple as possible so that credit can start to flow again" to the market for nongovernment-backed securities. Regulators could solicit comments by September with an eye toward finalizing their regulation by the end of the year. Regulators also have discussed asking for public comment on a possible 30% down-payment requirement, people familiar with the situation said. Federal Reserve governor Daniel Tarullo and Federal Deposit Insurance Corp. Chairman Martin Gruenberg have pushed to abandon the down-payment requirement and were sympathetic to arguments that it would add complexity for lenders without reducing the risk of borrowers' defaults, according to a person close to the process. Earlier this month, banking regulators jettisoned a proposal that would have required banks to raise more capital for certain mortgages, particularly those to borrowers who have made smaller down payments, citing a clutch of other impending mortgage rules. "One of the risks that we face now is that there is still a pretty significant part of the population that is having considerable difficulty accessing mortgage credit," even though they may be credit-worthy, said Federal Reserve Chairman Ben Bernanke last week in testimony on Capitol Hill. The lending industry has also raised concerns that a down payment standard would create an unequal playing field because the rules don't apply to federal agencies or to the mortgage-finance giants Fannie Mae and Freddie Mac for as long as those firms are backed by the federal government. Some industry groups have urged the inclusion of a down-payment standard. "Buyers of mortgage securities want to see some required borrower skin in the game in the form of down payment," said Tom Deutsch, the executive director of the American Securitization Forum, an industry trade group. In addition to the Fed and the FDIC, other agencies involved in drafting the rules include the Office of the Comptroller of the Currency, the Securities and Exchange Commission, the Department of Housing and Urban Development, and the Federal Housing Finance Agency. The forthcoming mortgage rules are also said to withdraw a controversial requirement that mortgage-bond issuers set aside the profits from the sales of securities in a so-called "premium capture cash reserve account," these people said. Write to Nick Timiraos at nick.timiraos@wsj.com and Alan Zibel at alan.zibel@dowjones.com