New York Times
(8/28/2013 9:10 PM, Reuters)

Washington — Six federal regulatory agencies released a reworked proposal on Wednesday that would require lenders to maintain a stake in the loans they bundle and sell as securities, part of efforts to limit the type of underwriting practices that fed the housing bubble.

But the proposal also expanded the range of mortgages that would be exempt from the requirement.

The new rules, the latest version of a 2011 proposal, were required under the Dodd-Frank Act of 2010. Mortgages to borrowers who do not have to spend big chunks of their monthly income repaying the debt will be exempt from the requirement.

The regulators’ plan would exempt more loans than earlier proposals by eliminating a requirement that so-called qualified residential mortgages include a large down payment.

Housing industry and consumer groups have lobbied for more than two years against that requirement, which they said would harm the housing market recovery.

“Our goal as regulators is to provide clear rules that allow for robust markets that meet the needs of creditworthy borrowers in a safe and sound manner,” said Paul M. Nash, a senior official at the Office of the Comptroller of the Currency. “I believe the rule, as reproposed today, helps accomplish just that.”

The new rules are aimed at preventing banks from writing risky loans with impunity.

In the years leading up to the financial crisis, banks used shoddy underwriting standards under the assumption that they could sell loans to investors and avoid harm if the borrowers defaulted.

The Dodd-Frank law called for lenders and bond issuers to hold 5 percent of those loans on their books, giving them more incentive to make better loans.

Regulators originally said that banks and bond issuers would have to hold part of the securitized loans on their books for all loans except mortgages that included a 20 percent down payment.

After criticism from housing and consumer groups, regulators decided to drop the down payment requirement.

Instead, they said on Wednesday that mortgages that met a minimum standard already adopted by the federal Consumer Financial Protection Bureau would be exempt.

The agencies will seek public comment for 60 days before holding a final vote on the new rule.