Elephants in the house

18 July 2011 By Agnes Crane

A big reason is the law scarcely touches Fannie Mae, Freddie Mac or the FHA. The reforms did aim to set new standards for home lending and force banks to keep skin in the game. But with the hulking government mortgage lenders’ future unknown, those worthy goals don’t mean much.

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Under the DoddFrank Act signed into U.S. law on July 21, 2010, the Federal Reserve, the Federal Deposit Insurance Corp and other U.S. regulators proposed a rule that would require banks to retain at least 5 percent of the risk when they repackage home loans into securities. Qualifying residential mortgages, which would require down payments to be at least 20 percent of the value of home purchases, would be exempt. The deadline for comment on the proposed rule, originally set for June 10, has been extended to Aug. 1.

Moody's Analytics estimates that interest rates for home mortgages that don't meet the QRM criteria could be 75 to 100 basis points higher than for those that do.

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