WASHINGTON, July 19 New rules under consideration by U.S. regulators could raise mortgage rates and reduce loan availability as the direct cost of making the home finance system safer, a government report said on Tuesday.
"Implementing mortgage-related provisions in the Dodd-Frank Act will involve tradeoffs between providing consumer protection and maintaining credit availability," the report from the Government Accountability Office said.
The GAO, Congress' nonpartisan investigative office, was required by the Dodd-Frank Wall Street oversight law enacted a year ago to examine provisions that impact the mortgage market.
It focused most heavily on a rule that requires lenders and bond issuers to keep a 5.0 percent stake in the loans they bundle for sale to investors.
The provision forces the mortgage industry to share any potential losses, and is meant to encourage less risky lending practices to avoid a repeat of the problems that helped trigger the 2007-2009 financial crises.
The Dodd-Frank law leaves it up to regulators to determine which home loans are safe enough to be exempt from the risk-retention rule. Those loans, known as qualified residential mortgages, or QRMS, are expected to have lower interest rates.
Federal regulators have proposed requiring homebuyers to make a 20 percent down payment and have optimal credit to qualify for these loans.
The GAO report looked at loan originations between 2001 and 2010 that would have met the likely criteria for the exempt loans as set out by Dodd-Frank. During that time, GAO found that "most mortgages would likely have met the individual criteria" specified in the law.
The agency did not, however, taken into account a proposal by federal regulators to require homebuyers to make a 20 percent down payment and to have optimal credit to qualify for a qualified mortgage.
The QRM standard has caused controversy. Critics argue it could make it harder for people to buy homes and drive up borrowing costs because lenders would charge higher rates for loans that do not qualify for the exemption.
"The ultimate impact of the Dodd-Frank Act's mortgage-related requirements is not yet known and will depend, in part, on regulatory actions, decisions to fund housing counseling, and mortgage market adjustments that have not yet occurred," the report said.
GAO considered input from mortgage industry stakeholders, and interviewed lenders, investors and consumers. (Reporting by Margaret Chadbourn)