- United States
-
Global Sites
Public policy insight for your business
After Dodd-Frank, regulators look to restructure mortgage industry
The financial regulatory reform bill, commonly known as the Dodd-Frank Act of 2010, includes a number of provisions that will significantly impact the mortgage industry. Federal agencies already have begun drafting new rules that will guide the implementation of the law.
At the center of the reform are rules that would set new requirements for residential mortgages. In late March, a joint group of federal regulators released draft guidelines to determine the criteria a mortgage would have to meet in order for the originator of the loan to be exempt from certain requirements, including retaining at least 5 percent of the credit risk. For a loan to be classified as a Qualified Residential Mortgage (QRM), a lender must follow a strict set of underwriting standards, including a 20 percent down payment from the borrower. The QRM proposal has drawn criticism from lawmakers, consumer groups and the mortgage industry. In particular, there are concerns that the QRM proposal may block otherwise creditworthy homebuyers from getting a loan or may make it more expensive.
The Federal Reserve Board also has issued a draft rule implementing the Dodd-Frank Act’s ability-to-repay requirement. The proposal expands the existing ability-to-repay rule under Regulation Z by requiring lenders to verify a set of eight criteria — including employment history, income, credit history and current debt obligations — to ensure that borrowers will be able to repay the loan.
Regulators are still in the process of collecting comments and may rewrite a number of guidelines. However, it will be critical for policymakers to strike the right balance to ensure that any new regulations do not negatively impact the accessibility or cost of obtaining a mortgage.