Smart Borrower Blog

Looser Mortgage Credit Requirements Approved By Regulators

Oct 22nd, 2014 @ 7:47 PM by Amber Nelson

The desire to bring investors back into the mortgage bond market has outweighed the desire to make home loans safe from another housing bubble. U.S. mortgage regulators approved new rules Tuesday that would make it much easier for borrowers to get a mortgage, but could leave the market open to risks again.

After the housing market crash in 2007, Congress passed the Dodd-Frank Act of 2010 that imposed all sorts of tougher restrictions on U.S. lenders, including mortgage lenders. In order to encourage bankers to make sound home loans, part of the Act required lenders to keep a small portion of all loans on their own books, instead of selling the entire thing off to bond investors.

There was an exception to this rule – lenders did not have to retain any part of a loan if it was a “qualified mortgage.” While the exact requirements were never fully spelled out, one of the proposed stipulations was that a qualified mortgage would have to have a 20 percent down payment. The hope was that if borrowers has that much invested they would be less likely to default, reducing risk to bond investors.

Yet that is exactly what regulators nixed on Tuesday. They argued that such a down payment requirement was prohibitive to lending and would keep private lenders from coming back into the market in full force.

“Finalizing this rule represents a major step forward to providing greater certainty to the housing finance market and paves the way for increased participation by the private sector,” said Melvin L. Watt, director of the Federal Housing Finance Agency. “Lenders have wanted and needed to know what the new rules of the road are and this rule defines them.”

But not all regulators were on board with the change. “This is unfortunate,” said Sheila C. Bair, former chairwoman of the Federal Deposit Insurance Corporation. “If the loan goes bad, you have much bigger losses with zero percent down than 20 percent down.”

The Office of the Comptroller approved the changes on Tuesday and the Federal Reserve and Securities and Exchange Commission are expected to follow suit in the next few days.


About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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