Regulators Delay Mortgage Rules .

Regulators Delay Mortgage Rules .

by | Jun 6, 2012 | News


WASHINGTON—Federal regulators delayed new rules to establish standards for the mortgage-lending industry, a move that could further hold back the thin market in mortgage-backed securities not supported by the federal government.

The rule delay marks another setback in Washington’s attempts to redesign the $10.3 trillion U.S. mortgage market, years after the onset of the housing woes. The Consumer Financial Protection Bureau had hoped to finish the rules this summer but now says it intends to do so by the end of the year, just before a deadline, to allow time for public comment on new mortgage data.

Mandated by the 2010 Dodd-Frank financial overhaul, the consumer bureau’s rule for “qualified mortgages” will eventually outline what types of loans are available to most borrowers and provide some lawsuit protection to banks. The agency is seeking to balance the need to keep the housing market afloat with its own mandate to protect consumers from the kinds of risky loans that spurred the housing bust and financial crisis.

The Dodd-Frank law mandates the consumer bureau’s mortgage rule exclude many types of loans that helped fuel the financial crisis. These include loans in which borrowers make only interest payments for a set period and loans in which the principal balance can grow. Banks say they will make few loans outside the new standard.

Loans that meet this standard are expected to have some level of protection against lawsuits, though how much is in dispute.

Meanwhile, another set of mortgage rules mandated by law also appears to be stalled. Those rules, proposed more than a year ago, outline new standards for high-quality mortgages that would be exempt from new requirements requiring banks to keep some of the risk on their books when they sell mortgage-backed securities. Known as the “qualified residential mortgage” proposal, it ran into loud complaints from mortgage-industry groups and consumer advocates that it would hurt the housing market.

Currently, around nine in 10 new mortgages are issued with some form of federal guarantee, and establishing clear guidelines for the industry could boost appetite for mortgage securities sold without federal backing.

“The mortgage market needs clear and objective rules for private capital and investors to return,” said Tom Deutsch, executive director of the American Securitization Forum, an industry group.

However, Mr. Deutsch cautioned that a few months of delay is a better outcome than a poorly written rule. If the consumer bureau gets the rules wrong, it “could keep could keep private capital on the sidelines for years to come,” he added.

“Lenders are making too few loans today,” said Michael Calhoun, director of the Center of Responsible Lending. “There are qualified people that are being turned away.”

Consumer bureau officials said they are closely examining data on mortgage loans made from 1997 onward to figure out the best design for the mortgage rule.

“We want to ensure that consumers are not set up to fail with mortgages they cannot afford and we want to protect access to affordable credit,” the consumer bureau’s director, Richard Cordray, said in a statement.

In a speech earlier this month, Federal Reserve governor Elizabeth Duke said “uncertainties about the future are likely contributing significantly” to tight mortgage-lending standards.

Write to Alan Zibel at