WASHINGTON (Reuters) - A mortgage reform bill would let bank regulators help spread the risk of mortgage default across the housing finance sector, the chairman of the U.S. House of Representatives Financial Services Committee said on Tuesday.
Mortgage lenders will be forced to hold 5 percent of the risk of default under the new legislation but bank regulators will set the rules for that risk-sharing, Representative Barney Frank told the Reuters Global Financial Regulation Summit in Washington.
"We worked with the administration and I am going to offer an amendment today to give the regulators discretion over how to do the five percent," said Frank, a Democrat from Massachusetts.
Another provision of the legislation would demand that mortgage refinancing terms provide a "net tangible benefit" to the borrower.
Frank said that provision was still a bit unclear but its meaning would be found in the application of the law.
"Is it vague? To some extent, but that's what you do with the law and then they are defined by practice," he said. "In terms of net tangible benefit I would say to the person doing the loan, 'Would you tell your mother to do it?'"
(For summit blog: blogs.reuters.com/summits/)
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