Minimum Underwriting Standards, Retention Study Proposed

Republican senators Bob Corker (Tenn.) and Johnny Isakson (Ga.) have teamed up to offer an amendment that calls for establishing minimum mortgage underwriting standards as well a study on risk retention. The standards would include a 5% minimum down payment and prohibit warehouse lenders and wholesalers from funding mortgages that don't meet the minimum standards. The federal banking regulators, not the new Consumer Finance Protection Agency that is contained in the financial services regulatory reform bill drafted by Sen. Christopher Dodd, D-Conn., would set the minimum standards. The Dodd bill currently requires mortgage-backed securities issuers to retain 5% of the credit risk. The Corker-Isakson amendment would strike that language and replace it with a study on risk retention by the Federal Reserve Board. Meanwhile, the Senate voted 93-5 to approve a compromise by Senators Dodd and Richard Shelby (Ala.) to create a new mechanism for managing the failure of large financial institutions without government bailouts. The bi-partisan agreement on the "too big to fail" issue shows that the Senate is now moving toward passage of the 1,400-page reform bill.