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Rules being developed by U.S. banking regulators could make it more difficult for consumers to get home loans, a new member of the Senate Banking Committee warned Wednesday.
Sen. Kay Hagan, (D., N.C.) said in an interview Wednesday that she is "very concerned" that regulators will be too stringent in defining which loans are deemed less risky and therefore exempt from requirements imposed by the Dodd-Frank financial overhaul passed last summer.
The financial overhaul law mandated that banks retain 5% of the risk of a loan if it is packaged into a security and sold to investors. The idea was that, with more "skin in the game," banks will be more cautious because they will stand to lose if a borrower defaults.
Hagan, along with Sens. Mary Landrieu (D., La.) and Johnny Isakson (R., Ga.), co-sponsored an amendment to the financial overhaul providing an exemption for safe mortgages, which gave regulators the task of defining which mortgages are safe.
In recent weeks, there has been concern in the banking industry that regulators will be strict in their definition, perhaps only allow loans with a 20% down payment to receive the exemption. Most of the lending industry favors a broader definition.
Hagan said she sympathizes with those concerns. "I certainly didn't want to narrow the availability (of credit), which I think there's a lot of concern about," she said. "If you do that, then I think you'll ultimately have a smaller number of entities that are able to provide those mortgages."
If the definition mandates a high down payment requirement, it could also harm the mortgage insurance industry, which allows borrowers to take out loans with lower down payments by collecting insurance premiums from borrowers.
Hagan's state is home to Genworth Financial Inc.'s (GNW) mortgage insurance division, as well as Old Republic International Corp.'s (ORI) Republic Mortgage Insurance Co. and American International Group Inc.'s (AIG) United Guaranty, another mortgage insurer.
Of mortgage insurers, Hagan said: "That's definitely an industry that needs to continue staying in business."
-By Alan Zibel, Dow Jones Newswires; 202-862-9263; firstname.lastname@example.org