WASHINGTON — Mortgage lenders and consumer advocates, two lobbies usually busy opposing each other, have joined forces to urge regulators to ease up on proposed risk-retention requirements that they say will result in a credit crunch.
The Mortgage Bankers Association is teaming up with groups including the National Community Reinvestment Coalition, the Consumer Federation of America, the Center for Responsible Lending and the National Housing Conference to say that regulators took a narrow approach when they outlined in March which loans would be exempt from the new requirements. They plan to hold a joint press conference Thursday and are expected to meet with regulators and lawmakers.
"We're doing briefings on the Hill and we're hoping to meet with regulators, arm in arm with consumer groups that are strongly concerned about impacts to homeownership access for moderate-income families across this country with the way rule is written," MBA Chief Executive David Stevens said in an interview.
At issue are provisions in the Dodd-Frank Act requiring lenders to keep 5% of mortgages they securitize. Yet the law also ordered regulators to create a new class of safe loan, known as a qualified residential mortgage, that would not have to comply.
But a wide array of Washington insiders, from senior Democratic and Republican lawmakers to banks to housing advocates, have said the proposed criteria for getting the QRM label are too tight. They say the restrictions, including a required 20% down payment and limits on a borrower's debt-to-income ratio, would unfairly subject borrowers with meager savings to higher mortgage costs. (The proposal included a comment period ending June 10, but the agencies are considering extending that to August.)
"We may have different reasons for being in this union, but I think we all have good reasons for being very concerned about what's been proposed," said John Taylor, the reinvestment coalition's president and chief executive.
"What has been proposed essentially creates a separate and unequal system of finance for people of color and for blue-collar, working-class people where regardless of your creditworthiness, of whether you're someone who has a great credit score and pays your bills on time and plays by all the rules, if you're not well-heeled enough to come up with 20% or if you're household debt to income ratios are high … you're going to go into a separate and unequal category of financing where you're going to have to pay more."
Ethan Handelman, vice president for policy and advocacy at the National Housing Conference, agreed. "The reason you're seeing these alignments is because all of the players in the space, including mortgage bankers and consumer advocates, recognize that an overly restrictive definition of QRM will exclude large numbers of responsible low- and moderate-income families from homeownership."
It is unclear whether the agencies will change much in the final rule. In proposing their definition for a QRM, regulators stated repeatedly that they did not intend for the exemption to be the norm in the mortgage market.
"The QRM is the exception, not the rule, and as such, I believe should be narrowly drawn," Federal Deposit Insurance Corp. Chairman Sheila Bair said at the agency's March 29 board meeting.
But since then, even lawmakers who supported the risk-retention provisions in Dodd-Frank have demanded a broader definition. Last week, nearly 40 senators from both parties told the regulators in a letter that the 20% down-payment requirement went too far. That followed a letter in April from House members, including one of the law's authors, Rep. Barney Frank, D-Mass. "There is evidence that a 20% requirement does not result in sufficiently lower risk to justify the significantly enhanced hurdle to buying a home that this represents," the House members wrote in the April 15 letter.