Federal regulators expect to finish writing this year a long-overdue mortgage regulation that was one of the most important provisions of the 2010 Dodd-Frank financial reform law.
“We’re in the home stretch,” Federal Reserve Governor Daniel Tarullo said at a Senate hearing Tuesday.
Federal Deposit Insurance Corporation Chairman Martin Gruenberg said that the six regulators involved in writing the rule are “in the end game.”
“I would hope, without making predictions, that we could complete the rulemaking by the end of the year,” Gruenberg said. Comptroller of the Currency Thomas Curry also said he hoped the mortgage regulation would be done by the end of the year.
The rule mandates that companies that package loans into securities keep some of the risk associated with the loans.
It was included in the 2010 Dodd-Frank law in response to the bad home loans that were created during the housing bubble and unloaded as securities to banks that did not recognize the risks involved. By making lenders keep some “skin in the game,” the measure was meant to reduce threats to the system hidden by complex securities deals.
Barney Frank, the former House Financial Services Committee chairman for whom the Dodd-Frank law is named, has said that the risk-retention rule was the most important provision of the financial overhaul.
The original proposal of the rule in 2011 required that mortgages include a 20 percent down payment, in addition to other requirements, to be exempted from the requirement that the lender retain a 5 percent stake in the loan.
After heavy lobbying by home lenders, banks and others in the housing industry, however, the agencies discarded the down payment requirement in late 2013, and proposed to simply set the definition of a qualified mortgage equivalent to separate parameters for safe mortgages instituted by the Consumer Financial Protection Bureau.
Regulators finished collecting comments from the industry on the new rule in October 2013, but have not finalized the rule. In addition to the Fed, the FDIC and the OCC, the agencies required by law to write the regulation are the Federal Housing Finance Agency, the Department of Housing and Urban Development, and the Securities and Exchange Commission.
