In a letter to the SEC and the federal banking agencies, Senator Roger Wicker (R-MS), a member of the Banking Committee, expressed concern that the proposed risk retention regulations would prevent private capital from returning to the residential mortgage sector. He noted that the Dodd-Frank Act exempts FHA from the risk retention requirements that are the subject of the regulators' qualified residential mortgage carve out deliberations. He fears doing this may inadvertently set the stage for another bailout.
One of the most important challenges the SEC and the banking agencies have in defining QRMs is what to do about low down payment mortgages. These loans arc critical to first-time home buyers. He is afraid banks may push first-time homebuyers to FHA loans so they will be exempted from retaining five percent of the credit risk. This could drive first-time home owners out of the private secondary market and into taxpayer guaranteed loans. The Senator noted that we are at an unusual time when political leadership agrees that we need to demand prudential credit standards for home ownership.
However, when virtually all first time homeowners have access to government subsidized credit through FHA, he fears some in Congress will unwisely return to enlarging this class of borrowers who have access to taxpayer guaranteed mortgages. The regulations should encourage private sector capital to return to the housing market, and private capital needs to be on a level playing field with the federal government. Prudently underwritten low down payment mortgages in the private sector are critical to a sustainable recovery of the housing finance market. As the Dodd-Frank Act allows, the Senator urged the SEC and the banking agencies to give due consideration to include loans backed with private mortgage insurance in their definition of
Qualified Residential Mortgages.