Federal regulators announced on Tuesday they have finalized a rule establishing a risk retention framework for mortgage lenders securitizing and selling loans. The so-called qualified residential mortgage rule, which was put up for consideration by FDIC's board of directors Tuesday morning, would require banks to retain at least 5 percent of a loan's risk when packing mortgages to sell to investors in the secondary market. The rule comes as a response to last decade's housing bubble, when lenders let their standards slip and passed on the risk to investors, resulting in an economic crash as those mortgages defaulted.
The finalized rule is more closely aligned with the Consumer Financial Protection Bureau's qualified mortgage rule implemented early this year. Both rules exclude from qualification mortgages with debt-to-income ratios exceeding 43 percent, and both prohibit loans with riskier features like balloon payments or terms longer than 30 years. Regulators expressed optimism that the finalized rule will give the housing finance sector greater certainty, opening the door for more activity from private investors.
U.S. Department of Housing and Urban Development Secretary Julián Castro announced in a speech on Monday the points of HUD's Blueprint for Access meant to ease the risk of lenders while expanding credit. The plan includes an overhaul to HUD's Single Family Housing Policy Handbook, a Supplemental Performance Metric which provides a more in-depth analysis of a lender's portfolio performance, and a Loan Defect Taxonomy, which will greatly reduce the number of codes used to describe loan defects.