Pay Attention - Changes to Mortgage Rules Are in the Works

April 14, 2011 The Dodd-Frank financial overhaul law has added to requirements for banks. Banks are to be required to hold %% of the credit risks of loans that are bundled together and sold off as securities. The belief behind this new regulation is that if banks share some of the risk, they will make "better" loans. The regulations allow certain "gold-standard" residential mortgages to be exempted from the risk-retention requirement. As I understand it, these regulations have not yet been enacted and debate has become widespread. The real estate industry and consumer advocate groups have entered the fray as they contend that the rules will raise borrowing costs and that the "gold standard loans" will be available to only a small portion of prospective home buyers. These "gold standard" loans will require a 20% down payment and according to CoreLogic, Inc, a real estate data firm, about 46% of all homeowners with a mortgage had less than 20% equity in their homes in 2010. This is not surprising since the favorite loan of 201 was an FHA insured loan which only required from 3-3.5% down payment. At the present time, the regulations exempt government agencies and also Fannie Mae and Freddie Mac from these risk-retention guidelines. Reworking the financial marketplace is a complex endeavor and paying attention to the various twists and turns of the debate may well be limited to the government representatives, the government bureaucracies and various special interest groups. However, loans are the important component of home ownership in our country and making loans affordable affects how many citizens will be able to purchase a home in the future.