The chief congressional proponent of the risk retention rule says federal regulators have gone too high in setting a 20% downpayment requirement on single-family loans that meet the “qualified residential mortgage” test.
“I am persuaded by a number of people that 20% is too high a number,” said Rep. Barney Frank, D-Mass., at a Congressional hearing late last week.
As chairman of the House Financial Services Committee last year, Frank pushed for a 5% risk retention requirement as a way to prevent securitizers from packing risky loans into MBS. Congress approved his risk retention provision as part of a financial services reform bill that became known as the Dodd-Frank Act.
At the hearing Frank said mortgages with lower downpayments and solid underwriting standards should be able to meet the QRM test and be exempt from risk retention.
But he stressed that private MI is not a “relevant factor” in terms of lowering default risk. “It doesn’t discourage people from making bad loans,” he said.
At the same hearing the Federal Housing Administration said it, too, is concerned that the 20% downpayment requirement is too high. Acting FHA commissioner Bob Ryan warned that it will deny a number of creditworthy borrowers from obtaining low-cost QRM loans.
Ryan noted the Department of Housing and Urban Development is interested in receiving comments regarding the “performance benefits” of moving it to 10% from 20%.
