The majority of Americans still place value in owning a home, despite a recession and recent housing crisis.
It is clear that a new system of accountability and transparency is needed to ensure that the past errors are not repeated. However, draft regulations implementing the Dodd-Frank Act's risk retention requirements for residential mortgages, in their current form, run a very serious risk of having a negative impact on those who strive to become safe and sustainable homeowners.
It's not fair to potential borrowers to be saddled with risky products or loans they cannot afford. Addressing these unintended consequences is vitally important. There must be a safe and sound system of mortgage finance in order to provide the essential need of housing for American families.
We endorse the concept of risk retention proposed in Dodd-Frank, forcing those who securitize riskier loans to hold a portion of the risk for loans they put into securities. We also strongly support the goal of average Americans to be able to purchase a home when they are qualified to do so. Our nation should not have to choose between the two.
We can achieve these goals through the qualified residential mortgage exemption in Dodd-Frank that excludes safe and soundly underwritten loans from risk retention requirements in order to encourage their origination to qualified homebuyers, creating a safe and secure pathway to home ownership.
Focusing on good loans is really the only way to reduce delinquencies. This exemption was designed to recognize that traditional loans are not, and were not, the problem, and that allowing securitization of these loans will foster the liquidity that keeps loans available and more affordable for homebuyers.
And therein lies the critical debate. As currently written, the proposed QRM rule implementing the risk retention provisions in Dodd-Frank goes far beyond what Congress intended. The rule would make homeownership more expensive, and perhaps out of reach, for a majority of moderate- and low-income families, first-time borrowers, minorities, and many more.
The rule imposes standards that the vast majority of first-time homebuyers cannot reach without sacrificing other goals. For example, the high down- payment requirements of at least 10 to 20 percent that are in the proposed rule, would require over a decade of saving for the average family - and would impact their ability to save for other worthy and necessary causes such as for their family's college and retirement.
Safe and secure mortgages, fully documented, using fully amortizing loan products, have successfully housed Americans for decades in this country without the requirement to have such large down payments. The proposed rule contains all the necessary protections, but the down payment and debt-to-income ratio requirements make it overly restrictive.
Congress has made its intentions clear on this issue - from how it wanted the rule written to its desire to decrease government support for the mortgage market through increased private investment. Yet this proposed rule may lead us down a path that not only expands government involvement in the mortgage market, but also could harm homebuyers, our housing finance system, and our economy as a whole. We need to be prudent as we introduce housing reform. We should not let the pendulum swing so far that it undermines our current tenuous recovery and the positive effects of homeownership on communities.
We are asking regulators to recognize the damage this proposed rule could cause and how that damage could harm our fragile economy. It is time for these flaws to be corrected.
In the end, even given the events of the last few years, homeownership is something America can, and will, always aspire to. A balanced risk retention and QRM rule is critical to keeping that dream a reality.
David H. Stevens is the president and chief executive of the Mortgage Bankers Association.
