WASHINGTON (Reuters)-regulators want to ensure that mortgage lenders keep some risk on the loans they originate, as is crucial to strengthen the housing finance system, a senior Treasury official said on Friday.
"We are committed to implementing reforms risk retention so thoughtful that ensures a constant access to mortgage credit for borrowers with low and middle income and protects the health of the housing market still fragile," Treasury under Secretary Jeffrey Goldstein said in remarks prepared for delivery at the Conference of mortgage.
"Best practices for underwriting mortgages are good for consumers, good for the financial industry and good for the economy," said Goldstein.
The Treasury is involved in implementing requirements from reform bill Dodd-Frank Wall Street for curbing recruitment at financial firms. He invited the Federal regulatory legislation to establish new guidelines for lenders and originators of loans securitized, the types of tools that has fueled the financial crisis of 2007-2009.
The proposed rules are intended to reduce risk-taking forcing lenders to take on a share of 5 percent loan bundled for investors in the secondary market. Regulators proposed an exemption for so-called qualified residential mortgages when borrowers make payments down 20 percent.
Critics say that the rules would keep potential buyers first time out of the real estate market and drive up borrowing costs because lenders would charge higher rates for the loans that do not qualify for exemption. A commentary on the rule proposal expires on August 1.
The new rules are proposed jointly by six federal regulators: the Federal Reserve, the Department of housing and urban development, the FDIC, the Federal Housing Finance Authority, the Securities and Exchange Commission and the Office of the Comptroller of the currency.
An unlikely Alliance of mortgage and consumer groups-including the American Bankers Association, the Center for responsible lending and the national Community Reinvestment Coalition-have submitted a petition to make changes and regulators say the proposal could make it harder for borrowers to find affordable home loans.
Goldstein said regulators were trying to balance access to credit with strengthening the resilience of the housing finance system. Risk retention rules are "important" part of that effort, he said.
"Fundamental Flaws of the securitization market and the original model to deploy were a key factor for the housing bubble that helped plunge the worst recession since the great depression," said Goldstein.
He said that the final rule will address the main problem seen in financial crisis: a "lack of alignment of interests between the creators and securitizers compared to investors". (Reporting by Margaret Chadbourn; Editing by Ramya Venugopal)
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