Federal regulators may relax some rules on lenders holding stakes in certain kinds of mortgage securities, according to a Monday Market Watch report.
The Federal Reserve and other regulators are expected to put forth a plan for the Qualified Residential Mortgage Rule that would soften a prior proposal that called for lenders to keep a financial stake in mortgages with down payments of less than 20%.
Both industry groups and consumer advocates have expressed concerns about the proposal, saying it would prevent many otherwise-eligible borrowers from getting credit.
“(M)andating large down payments would be a mistake for business and consumers,” the Center for Responsible Lending wrote in a statement last year. “…A 20% down payment would exclude 60% of creditworthy borrowers.”
“It is essential that any risk retention requirement protect investors from unsustainable lending practices while not unnecessarily restricting consumers’ access to credit,” a report from the Mortgage Bankers Association agreed.
The new proposal would still call for lenders to keep a 5% stake in loans that don’t qualify as QRMs, according to Market Watch. The proposal is an attempt to discourage lenders from making loans to people with inadequate credit worthiness.