Sen. Bob Corker (R-Tenn.) of the Senate Banking Committee recently urged regulators to design mortgage rules that do not make the mortgage market dependent on support from the U.S. government.
The qualified residential mortgage — or QR M —rule, which is being developed by the FDIC, the Department of Housing and Urban Development, the OCC, the SEC Federal Reserve and the Federal Housing Finance Agency, is intended to make loans safer. The rule contains a provision that would exempt the loans from a requirement mandating that mortgage originators hold on to a certain portion of securitized loans, Reuters reports.
Corker said, however, that the current proposal would also exempt loans backed by government-endorsed Fannie Mae and Freddie Mac, which could lead lenders to only issue loans to Fannie, Freddie or the Federal Housing Administration and could force private capital out of the U.S. mortgage market.
Corker also said that the proposal may not align with the qualified mortgage—or QM—rule on underwriting.
“Forcing lenders to comply with two separate sets of rules isn’t good policy, and in this case, it would set back the timetable on doing what we absolutely must do—begin to move away from a complete dependence on the government for mortgage credit in our country,” Corker said, according to Reuters.
Several banks have also expressed concern that the new rules would translate to a more significant government role in mortgage securitization. Industry participants have said that private issuers are waiting to see which standard is adopted by U.S. regulators.
Fannie and Freddie buy loans and either hold onto them or sell them to investors as guaranteed securities. During the housing bust and financial crisis, the lending giants were on the brink of failure, forcing the government to intervene and take over.
Corker said that if regulators fail to carefully craft the new rules, regulators could “permanently enshrine” Fannie, Freddie and other government housing agencies “as the only large-scale source of mortgage credit in our country,” Reuters reports.