WASHINGTON Jan 22 An influential Republican U.S. senator on Monday urged regulators to carefully craft a mortgage rule so that it does not keep the mortgage market dependent on government support.
Senate Bob Corker, a member of the Senate Banking Committee who has been an outspoken voice on housing reform, called for changes to the new mortgage standards that are being drafted by six regulatory agencies.
One such rule defines Qualified Residential Mortgages, or QRMs. These seemingly safer loans would be exempt from a "skin in the game" requirement that calls for mortgage originators to keep a portion of securitized loans on their books.
The problem with the current proposal, Corker said, is that the QRM rule would also exempt loans backed by government-controlled Fannie Mae and Freddie Mac. That would likely mean lenders would only make loans that could be sold to Fannie, Freddie or the Federal Housing Administration, and would push private capital out of the U.S. mortgage market, he said.
Combined, those three government entities currently own or guarantee about 90 percent of new U.S. home loans.
Corker also said the QRM proposal is problematic because it may not match up with another important mortgage underwriting rule known as the Qualified Mortgage rule.
"Forcing lenders to comply with two separate sets of rules isn't good policy, and in this case, it would set back the timetable on doing what we absolutely must do - begin to move away from a complete dependence on the government for mortgage credit in our country," Corker said in a statement that was released with his letter to multiple government agencies, including the Treasury Department and banking regulators.
Banks have also expressed concern that the new lending rules would mean a larger government role in mortgage securitization and the industry has said private issuers are currently sitting on cash as they wait to see what standard is adopted.
To provide a steady stream of funds, Fannie Mae and Freddie Mac buy loans and either hold them or repackage them as securities, which they sell to investors with a guarantee.
When millions of mortgages soured during the financial crisis, Fannie and Freddie were driven to the bring of collapse and had to be taken over by the government.
If new standards are not designed carefully, regulators could "permanently enshrine" Fannie Mae, Freddie Mac and other government housing entities "as the only large-scale source of mortgage credit in our country," Corker said in his letter.
The QRM rule is being developed by the Federal Deposit Insurance Corp, Department of Housing and Urban Development, Office of the Comptroller of the Currency, Securities and Exchange Commission, Federal Reserve and Federal Housing Finance Agency.