TribLIVE

| Business

 
Larger text Larger text Smaller text Smaller text | Order Photo Reprints

Proposal would loosen rule on mortgage bonds

Email Newsletters

Click here to sign up for one of our email newsletters.

On the Grid

From the shale fields to the cooling towers, Trib Total Media covers the energy industry in Western Pennsylvania and beyond. For the latest news and views on gas, coal, electricity and more, check out On the Grid today.

By The Associated Press
Wednesday, Aug. 28, 2013, 8:27 p.m.
 

WASHINGTON — Regulators want to ease a rule that would require banks to share some risk in the complicated mortgage investments that helped cause the financial crisis.

Under the proposal advanced on Wednesday by the Federal Deposit Insurance Corp. and the Federal Reserve, banks could exempt relatively safe mortgages from the value of those securities.

The broader requirements would have banks hold at least 5 percent of the securities on their books.

Banks could exempt mortgages issued to borrowers who have debt that doesn't exceed 43 percent of their annual income. Regulators had proposed exempting mortgages in which buyers put down 20 percent, but banks complained that would exclude too many buyers with solid finances.

Banks applauded the change.

The new exemption “will encourage lenders to continue offering carefully underwritten (mortgages), including those with lower down payments,” Frank Keating, president and CEO of the American Bankers Association, said in a statement. “As a result, it will help the economy and ensure the largest number of creditworthy borrowers are able to access safe, quality loan products at competitive prices.”

In the years before the crisis, banks packaged and sold bundles of risky mortgages with low teaser rates that climbed after only a few years. Many borrowers ended up defaulting on the loans when interest rates spiked. As a result, the value of the mortgage securities plummeted.

Banks had very little of their own money invested in those securities. That led them to take greater risks that helped stoke the crisis.

Mortgages backed by government-controlled mortgage giants Fannie Mae and Freddie Mac wouldn't be subject to the 5 percent requirement. The two companies together own or guarantee about half of all U.S. mortgages, worth about $5 trillion.

Subscribe today! Click here for our subscription offers.

 

 


Show commenting policy

Most-Read Business Headlines

  1. Shale gas violations down as DEP steps up inspections
  2. Macy’s prepares outlet stores
  3. ‘Rank and yank’ doesn’t meet all expectations
  4. Hackers have wide reach
  5. Trib Total Media puts 9 Western Pa. newspapers up for sale
  6. After 90 years, Goodyear forces iconic blimp into retirement
  7. Fund fees within investor control
  8. Regulators expect lawsuit over oil, gas rules process
  9. Mylan shareholders approve $34 billion hostile takeover bid for Perrigo
  10. Federal Reserve Vice Chairman Fischer in spotlight as meeting nears
  11. Week yields lessons on China