U.S. federal regulators on Wednesday will unveil a reworked proposal aimed at reducing risk in the mortgage market and limiting the type of shoddy underwriting practices that fueled the housing bubble.
The Federal Deposit Insurance Corp (FDIC) will vote on whether to release for public comment rules requiring lenders and bond issuers to keep a stake in loans that they bundle and sell as securities, with the exception of mortgages that are labeled low-risk.
Five other agencies, including the Federal Reserve and the Department of Housing and Urban Development, were required by the 2010 Dodd-Frank law to work on the rules and are expected to put forth similar proposals shortly.
The plan, which is being re-proposed after an initial version drew wide criticism, is expected to loosen the definition of "qualified residential mortgages" that are exempted from the regulations.
Regulators originally said banks and bond issuers would have to keep "skin in the game," or hold part of securitized loans on their books, unless the mortgage included a 20 percent down payment.
That proposal in 2011 caused alarm across the housing industry and among consumer groups. They feared the rules, as originally set out, could restrict access to credit for some low-income borrowers.
In the new proposal for public comment, the agencies are expected to eliminate the downpayment requirement for qualified residential mortgages.
Instead, mortgages that meet a minimum standard already approved by another regulatory agency will be considered exempt from the risk retention rules.
"It's very important that they're making this re-submission," said Barry Zigas, director of housing policy for the Consumer Federation of America. "I think it's a reflection of the fact that there was a very, very broad range of unified comment on the difficulties the proposed rule might create."