The Federal Home Loan Bank System is seeking an exemption from pending risk-retention rules so the Home Loan banks can continue to provide risk-sharing mortgage programs that they claim have exhibited "superior credit performance" for more than a decade.
About eight of the 12 Home Loan banks purchase conventional mortgages from their member banks, thrifts and credit unions, requiring credit enhancements that are reflected in the purchase price. On average, the credit enhancement is similar to a 2% to 3% risk-retention requirement, the banks say.
Federal regulators are close to finalizing a rule that might impose a 5% risk-retention requirement on such loans (which the banks hold in portfolio) along with other underwriting restrictions on down payments and debt-to-income ratios.
The banks are concerned the high retention requirement would make their loans too expensive and the underwriting requirements will reduce consumer demand.
