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Bill Threatens Mortgage Firms

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Mortgage bankers are warning legislators that skin-in-the-game requirements included in pending federal legislation will put some mortgage firms out of business.

The Mortgage Bankers Association and several other groups — including the Consumer Mortgage Coalition, Community Mortgage Lenders of America and the National Association of Home Builders — issued a joint letter today to senior members of the U.S. House of Representatives Committee on Rules.

The groups are concerned about risk-retention requirements contained in H.R. 4173, the Wall Street Reform and Consumer Protection Act. Consumer borrowing costs will increase because the language establishes across-the-board credit-risk retention requirements.

The letter claims the legislation, as drafted, “would force some lenders out of business” and restrict the ability of all institutions to make loans. Higher reserve requirements would end up reducing lending by billions of dollars.

“We support the concept of establishing accountability requirements for lenders,” the letter said. “But a more prudent approach is to establish risk-retention requirements based on the level of risk with a clear distinction for safe, sound and simple mortgages.”

The trade groups are calling for approval of an amendment that would create a category of safer mortgages which would be exempt from the requirements.

The letter also said risk-retention requirements are unnecessary for commercial real estate and multifamily transactions because the risks are well defined and understood.

“Risk retention has been successfully addressed in the commercial mortgage-backed securities business model through a market-based solution in which specialized participants act as gatekeeper,” the letter concluded. “These participants possess a sophisticated knowledge of the underlying market and assume the risk retention role.”

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