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Regulators Warned New Rules Could Sink Banks

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Regulators Warned New Rules Could Sink BanksThe eight regulatory agencies in charge of writing new rules for the mortgage industry under the Dodd-Frank Act recently received warning that imposing too many new requirements regarding risk retention would create major problems, according to a report from the American Bankers Association. If banks are required to carry more of the risk on home loans they grant, some could leave the marketplace entirely, while others reduce the amount of credit they grant to consumers.

The ABA’s letter suggested other regulatory and legislative alternatives to increased risk retention, the report said. Included in these was an exemption for so-called qualified residential mortgages, which would be free from proposed regulations and allow banks to continue granting consumers more credit for home loans.

“Using every new regulatory tool in isolation to correct every problem identified during the crisis will result in an over-regulated market that is unable to address the nation’s credit needs,” new ABA president and CEO Frank Keating said in the letter. “It is imperative that the QRM exclusion provide a safe harbor for properly underwritten loans with a low risk of default – this includes the majority of loans being made by depository institutions today.”

Many consumers faced tougher minimum loan qualifications during the recession, as banks made a greater effort to ensure loans would be paid back. However, improvements in consumer credit have encouraged lenders to slacken their restrictions.

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