Federal regulators back-pedaled, to the approval of the real estate industry and consumer advocates, on a proposal to tighten rules governing the mortgage securities market. The initial plan drew criticism from those interests, which were concerned about the potential impact on mortgage credit availability.
Six agencies -- including the Federal Reserve, Federal Deposit Insurance Corp., and the Securities and Exchange Commission -- on Aug. 28 issued a revised plan requiring banks and other issuers of mortgage-backed securities to retain 5 percent of the credit risk of the bonds on their books. This version carries an exemption so sweeping that it would not apply to securities containing most home loans made under today's stricter underwriting standards -- not just those with a 20 percent or more down payment, as stipulated in the original proposal. Rather, the rule would apply to the types of higher-risk loans that were popular before the 2008 financial crisis. The rule effectively sets boundaries for what kind of loans might be offered, and on what terms, once lending standards loosen.