WASHINGTON--Three federal agencies approved long-delayed U.S.
mortgage market standards Tuesday, completing a less onerous rule
than regulators originally proposed in the wake of the 2008
financial crisis.
The Federal Deposit Insurance Corp., Office of the Comptroller
of the Currency and Federal Housing Finance Agency dropped a
requirement that borrowers make a 20% down payment to get a
so-called "qualified residential mortgage" amid concerns such an
approach would hamper the ability of consumers to get home loans.
Instead, banks will simply have to document a borrower's ability to
repay their loans and ensure they only have a certain level of debt
compared with their income.
The long-expected regulation wraps up a key unfinished piece of
the 2010 Dodd-Frank financial overhaul law but is far from the rule
regulators initially set out to enact. In the wake of the crisis,
regulators wanted to ensure banks were only making loans that could
be repaid. They proposed that banks either have "skin in the game"
and hold 5% of the risk from the mortgages they packaged into
securities and sold to investors--or require that borrowers make a
20% down payment to get a loan.
But housing industry trade groups and consumer advocates opposed
the original proposal, arguing it would harm the fragile housing
market and prevent many creditworthy borrowers from getting loans.
So banking regulators backed down and issued a new proposal last
year dropping the down-payment requirement and replacing it with a
separate set of standards aimed at ensuring borrowers can repay
their loans.
Officials said they were sensitive to mortgage industry concerns
about the health of the U.S. housing market, and didn't want to add
an extra layer of complexity that could constrain lending.
Martin Gruenberg, the FDIC's chairman, said the rule "promotes
compliance" and minimizes costs for lenders by providing a unified
federal standard for mortgage lending.
The FDIC's board voted 4-1 to approve the proposal. Jeremiah
Norton, an FDIC board member, raised questions about whether the
regulators have the authority to delegate their rule-writing
responsibilities to the Consumer Financial Protection Bureau,
saying that Congress specifically intended for the two rules to be
separate.
The rule's passage "means more clarity for lenders and
encourages safe and sound lending to creditworthy borrowers," said
Mel Watt, director of the Federal Housing Finance Agency, in a
prepared statement. "Lenders have wanted and needed to know what
the new rules of the road are and this rule defines them."
The Federal Reserve, Securities and Exchange Commission and
Department of Housing and Urban Development were expected to join
the other regulators and approve the rule Wednesday. The rule,
which goes into effect in fall 2015, will be reviewed for its
impact on the economy four years later, and every five years after
that.
Write to Alan Zibel at alan.zibel@wsj.com
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