Friday, June 03, 2011

Large House Delegation Urges SEC and Bank Agencies to Make Risk Retention Regulations Less Proscriptive

A bi-partisan group of 160 House members urged the SEC and the banking agencies to make the proposed Dodd-Frank risk retention regulations less proscriptive in a number of areas as a matter of legislative intent and economic recovery. In a letter to the SEC and the banking regulators, the representatives said that prudently underwritten privately insured loans should be included in the qualified residential mortgage definition. In addition, the proposal to require a minimum 20 percent down payment under the qualified residential mortgage definition would reduce available affordable mortgage capital for otherwise qualified consumers.

Further, unnecessarily strict qualified residential mortgage definition would particularly harm first-time and minority home buyers, said the House members. They are also concerned that proposed regulations establishing overly narrow debt-to-income guidelines would reduce access to credit and push a broad range of borrowers into FHA insured loans at a time when the FHA is already playing too large a role in the mortgage market. The members believe that overly proscriptive elements regarding credit history are best left in the context of establishing broad underwriting standards and principles.

Section 941 of Dodd-Frank specifically names mortgage guarantee insurance as one of the factors to be included in the qualified residential mortgage definition. The congresspersons noted that Dodd-Frank recognizes that private capital does not exclusively come from a lender or an investor. Rather, it can also be provided by a private mortgage insurer. The qualified residential mortgage regulations should reflect this important reality, said the House members, since this was Congress’ intent in clarifying this point in Dodd-Frank.

Loans with private mortgage insurance default less often than uninsured loans, noted the members. Mortgage insurers provide additional scrutiny on a loan application, supplementing the lender’s review. In addition, mortgage insurers have well-established procedures that can mitigate and even cure loan deficiencies. These safeguards protect lenders and investors, said the letter, and should be considered as Congress seeks to create sustainable home ownership through the private sector with less reliance on government supported mortgage finance products.

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