WASHINGTON — A bipartisan group of senators is calling on regulators to expand their proposed exemption from risk-retention rules mandated by the Dodd-Frank Act.
The nearly 40 lawmakers said a 20% down payment — which would be required to earn the label of "qualified residential mortgage" — goes too far and would keep too many borrowers from getting a loan.
"The proposed regulation goes beyond the intent and language of the statute by imposing unnecessarily tight down payment restrictions," the senators, including Democrats who supported Dodd-Frank, said in a May 26 letter to the bank regulators. "These restrictions unduly narrow the QRM definition and would necessarily increase consumer costs and reduce access to affordable credit."
The proposal, released in March, would implement provisions of the law requiring lenders to retain 5% of the credit risk for loans they securitize. But a key component of the rule is the criteria for a QRM, which Dodd-Frank said would be exempted. Commenters have until June 10 to weigh in on the proposal, but the agencies have received numerous requests for the comment period to be extended.
Regulators have said QRMs are intended to be the exception, not the rule, meaning borrowers with small down payments will still be able to find credit.
But the senators said other criteria for getting the exemption were too strict as well. Their criticism followed similar concerns expressed at a hearing last month by House members, including Rep. Barney Frank, D-Mass., one of the law's principal authors.
"The proposed regulation also establishes overly narrow debt to income guidelines that will preclude capable, creditworthy homebuyers from access to affordable housing finance," the senators wrote.
"The extensive additional requirements for QRMs in the proposed rule swing the pendulum too far and reduce the availability of affordable mortgage capital for otherwise qualified consumers. Many borrowers would simply be forced to pay much higher rates and fees for safe loans that nevertheless did not meet the exceedingly narrow QRM criteria. Sadly, in many cases, some creditworthy borrowers may not be able to get a mortgage at all."