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June 16, 2014

Loosened Mortgage Rule Advances After SEC Drops Objection

“A relaxed rule aimed at improving mortgage quality moved closer to approval after the Securities and Exchange Commission removed a key objection, according to officials familiar with the process.

“The compromise approach is designed to assuage some regulators’ concerns that the rule may not go far enough to prevent the type of lax underwriting that helped fuel the 2008 financial crisis, the officials said. The SEC won a concession in which U.S. policy makers are expected to agree to re-evaluate, and potentially adjust, the rule two years after its effective date and every five years after that.

“The standard, expected to be made final in the coming months, is much looser than what was first floated in 2011, when policy makers said borrowers would have to put 20% down to get a loan or lenders would have to retain 5% of a loan’s risk once it was packaged and sold to investors.

“Under the revised approach, regulators wouldn’t require a down payment and would include a broad exemption for banks and other issuers of mortgage-backed securities from having to retain a portion of the credit risk on their books.”

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Read full Wall Street Journal article here

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