Relaxed Mortgage Regs Could Free Up Credit

Banking regulators voted Tuesday to relax mortgage rules meant to prevent risky lending practices like those that helped spur the economic crisis while also expanding access to credit for homebuyers.

The Federal Deposit Insurance Corp. (FDIC) became the first of a half-dozen agencies to approve a final qualified residential mortgage (QRM) rule required by the 2010 Wall Street reform law.

The long-awaited regulations generally require lenders to keep at least 5 percent of the risk associated with loans on their books, thereby keeping their “skin in the game” in the event of default.

“The finalization of the rule should go a long way toward providing clarity to the markets and facilitating access to credit on sustainable terms,” FDIC Chairman Martin Gruenberg said.

The Federal Reserve and other regulators are expected to wrap up their work Wednesday on the rule, which stands as a victory for industry groups that balked at more stringent requirements floated in the wake of the economic crisis.

The final regulation, for instance, does not include steep down payment standards that were a part the initial draft and would have required borrowers to put up as much as 20 percent of the price of their home to qualify.

That provision, along with restrictive debt-to-income ratio and credit history requirements, sparked a torrent of comments from industry groups.

Ultimately, the final rule was drafted to hew closely to the related Consumer Financial Protection Bureau’s (CFPB) qualified mortgage (QM) regulations enacted in January to ensure borrowers have the ability repay their home loans.

Business groups heralded the regulations as providing a uniform set of standards that would help reduce regulatory burden by lowering compliance costs and, consequently, the cost of credit to consumers.



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