St Louis Mortgage and Real Estate News –
St Louis Refinance, In-House Financing and Principal Loan Reduction News: Regulators Push For 20 Percent Down Payments
St Louis Home Mortgage and Commercial Loans | Customer Financing | 314-334-0210 | Floyd Tapia, Commercial Lending, Consumer Finance and Loan Modification Consultant
The Dodd-Frank financial overhaul law enacted last year enabled regulators to define a so-called gold-standard residential mortgage that would be exempt from costly new rules according to St Louis mortgage brokers.
At least three agencies including the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency have backed a proposal to require home buyers to put down at least 20 percent of the sales price in order to obtain one of these “qualified residential mortgages.”
One proposal would also require borrowers to maintain a 75 percent loan-to-value ratio for refinances, and a 70 percent loan-to-value for cash-out refinances in which the borrower refinances into a larger loan, according to people familiar with the matter.
Mortgage-finance giants Fannie Mae and Freddie Mac would also be exempt from the rules while they remain in conservator-ship, according to these people.
The United States government took over the firms in 2008, and the Obama administration has proposed eventually winding them down.
The behind-the-scenes debate over the proposal could have far-reaching implications for how Americans finance loans, because it addresses how much equity new borrowers should have in their homes.
It is unclear whether the proposal will garner support among other regulators and be acceptable to the White House and Congress.
Altogether, six federal agencies which includes the three supporting the proposal plus the Department of Housing and Urban Development (HUD), the Federal Housing Finance Agency and the Securities and Exchange Commission (SEC) must sign off on the proposal before it is released for public comment.
It could not be determined whether all the agencies would support the 20 percent down-payment standard.
At a congressional hearing, HUD Secretary Shaun Donovan said no deal has been reached yet, and that any plan could instead spell out options.
At a separate hearing, Treasury Secretary Timothy Geithner said, “We’ve got to be careful that we get it right.”
He added, “I’m not sure how much longer it’s going to take, but it’s going to take a bit longer than we initially expected.”
Meanwhile, some lawmakers expressed concerns that the new rules might make it too hard for homeowners to qualify for less risky, and less costly, home loans.
Sen. Kay Hagan (Democrats, North Carolina) told Federal Reserve Chairman Ben Bernanke that several lawmakers “are really concerned about not making it so restrictive that we can’t have as many well-qualified loans as possible.”
The proposal was crafted in response to a provision in Dodd-Frank that aimed to improve mortgage-lending standards.
Loans that don’t meet the standards for “qualified residential mortgages” and are sold to investors as securities will be subject to a “risk retention” rule, which could raise borrowing costs for homeowners.
The risk-retention rule requires banks to keep 5 percent of the value of all mortgages they securitize on their books.
During the housing boom, many lenders passed on all of their mortgages, and all of the risk, to investors.
It was designed to force lenders to have “skin in the game” when selling groups of mortgages packaged as securities.
Critics of the risk-retention rule said it could raise costs for traditionally safer lending products such as long-term, fixed-rate loans with full income documentation.
A coalition of consumer advocacy groups and the real-estate industry have warned that defining the rule too narrowly could raise borrowing costs for millions of creditworthy borrowers.
Regulators must issue a rule defining “qualified residential mortgages” by April, and had initially planned to publish a draft proposal late last year.
But the process has been delayed by a disagreement about whether to include in the rule national standards for loan servicers, such as how to modify loans for troubled borrowers.
The new proposal reflects a compromise among the regulators to include some standards for how and when banks modify loans.
- Contribution by The Wall Street Journal
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