Regulators will meet next week to vote on the final version of a mortgage rule that is a much-delayed but important provision of the 2010 Dodd-Frank financial reform law.
The Federal Reserve Board of Governors announced Wednesday that it would meet Oct. 22 to vote on the final version of a rule initially proposed in 2011 that would require lenders to maintain a 5-percent stake in loans that are packaged into securities and sold to investors. The rule would exempt certain mortgages that meet safety requirements, known as qualified residential mortgages.
The provision is intended to require lenders to keep “skin in the game” and prevent defective loans from being bundled into securities that are sold to investors unaware of the risks, thereby preventing another crisis like the one generated by the bursting of the housing bubble in 2008.
Former Rep. Barney Frank, one of the Dodd-Frank law’s namesakes, called the rule “the single most important part” of the law, which was meant to prevent further financial crises and taxpayer bailouts of banks.
The regulation has been the subject of intense interest and lobbying since it was first proposed. Then, it included stringent terms for home loans that met the definition of a qualified residential mortgage, including a 20-percent down payment.
But after pushback from housing and real estate industry groups, the regulators tasked with writing the rule significantly loosened the terms of the requirements. Last year, they proposed to set it to be equivalent to a separate definition for mortgage safety maintained by the Consumer Financial Protection Bureau, one that does not include a down payment requirement.
The looser definition for qualified residential mortgages got the go-ahead this summer when the Securities and Exchange Commission, which previously had been the last holdout among the agencies writing the rule, signed on.
In addition to the Fed and the SEC, the agencies that will have to approve the rule are the Federal Deposit Insurance Corporation, the Federal Housing Finance Administration, the Department of Housing and Urban Development, and the Office of the Comptroller of the Currency.
