WASHINGTON (Reuters) - Dozens of lawmakers are urging federal regulators to water down a mortgage proposal designed to make the housing market less risky, according to a letter obtained on Wednesday.
More than 160 lawmakers in the House of Representatives contend that a federal plan aimed at restoring lending discipline in the housing market would reduce the availability of affordable mortgages and impede the economic recovery.
Calling the proposal an “overly burdensome government dictate,” the bipartisan group of lawmakers said the requirement could “threaten a full-fledged economic recovery from years to come.”
The proposed rule, mandated by the Dodd-Frank Wall Street reform law, requires firms that package loans into securities to keep at least 5 percent of the credit risk on their books.
However, the safest mortgages, known as “qualified residential mortgages,” or QRMs, are exempt from the 5 percent credit requirement as long as they meet certain qualifications, such as a 20 percent down payment.
“We strongly urge you in this process to consider lower down payment loans that have mortgage insurance as constituting a QRM,” said the letter spearheaded by Republican John Campbell and Democrat Brad Sherman.
The letter, dated May 31, was addressed to six financial regulators, including the Federal Reserve, Federal Deposit Insurance Corp and the Department of Housing and Urban Development.
The representatives’ plea comes just days after a bipartisan group of senators told regulators they overreached in defining a safe mortgage.
The rule was proposed in March and was open for public comment until early June. Regulators are considering giving the public more time to comment, sources said, which would delay the process and give lawmakers and industry more time to lobby against the plan.
One industry group, the National Association of Realtors, has argued that the 20 percent down payment would halt the housing recovery.
Reporting by Rachelle Younglai; Editing by Neil Stempleman