Tuesday, April 12, 2011

Senators Say Down-Payment Requirement Not Their Intent for Finance Law

Senators involved in writing part of a broad financial overhaul measure say that they are dismayed that the Obama administration proposes carrying out their plan by pushing home buyers to come up with hefty sums of cash at the closing table, the Washington Post reported today. The legislation, enacted last year, required banks that pool mortgages and sell them as securities to retain at least a 5 percent stake in those loans. The idea was that banks should have some "skin in the game" instead of selling off the loans and hence avoiding losses should the loans go bad. At the time, a group of senators - led by Sens. Johnny Isakson (R-Ga.), Mary Landrieu (D-La.) and Kay Hagan (D-N.C.) - successfully pushed to carve out exceptions for certain types of relatively safe mortgages. They left it up to regulators to determine which loans should be exempt. However, the proposal that regulators unveiled last month surprised the lawmakers. Under the plan, mortgages with a 20 percent down payment were deemed safe. That means banks would have to retain a stake in loans with smaller down payments, a costly requirement that the industry said that it would pass on to borrowers in the form of higher interest rates and fees.