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Title: Establishing New Mortgage Underwriting Requirements and Eliminating a Risk Retention Requirement
Vote Smart's Synopsis:
Vote to adopt an amendment to S Amdt 3739 to S 3217 that repeals a requirement that mortgage securitizers retain an economic interest in a portion of the credit risk for any asset transferred, sold, or conveyed, and requires the establishment of mortgage underwriting standards, including a requirement that the down payment be at least 5 percent of the purchase price.
- Repeals a requirement that, no later than 270 days after the date of enactment, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Security and Exchange Commission establish the regulations on mortgage securitizers that do all of the following (Sec. 941):
- Establish asset classes with separate rules for securitizers of different classes of assets; -Establish underwriting standards for each asset class;
- Requires securitizers to retain not less than 5 percent of the credit risk for any asset that is transferred, sold, or conveyed through the issuance of an asset-backed security, or less than 5 percent if the securitizer meets the aforementioned underwriting standards;
- Prohibits securitizers from directly or indirectly hedging or otherwise transferring the credit risk that securitizers are required to retain;
- Specifies the permissible forms of risk retention;
- Specifies the minimum required duration of risk retention;
- Establishes a total or partial exemption of any securitization, as may be "appropriate in the public interest and for the protection of investors";
- Establishes the allocation of risk retention obligations between securitizers and an originator in the case of securitizers that purchases assets from an originator.
- Requires federal banking agencies, in consultation with the Federal Housing Finance Agency and the Department of Housing and Urban Development, to establish minimum standards for mortgage underwriting that do all of the following (Sec. 942):
- Require the borrower verify and document the income and assets relied upon to qualify for the loan, including previous employment and credit history;
- Require the down payment be equal to at least 5 percent of the purchase price of the property;
- For first lien residential mortgage loans with an initial loan to value ratio that is more than 80 percent and not more than 95 percent, require the down payment include a requirement for credit enhancements until the loan value ratio of the residential mortgage loan amortizes to a value that is less than 80 percent of the purchase price;
- Establish a method for determining the ability of the borrower to repay the mortgage based on the following factors:
- All terms of the residential mortgage, including principal payments that fully amortize the balance of the mortgage over the term of the mortgage; and
- The debt to income ratio of the borrower;
- Include any other specific standards the federal banking agencies jointly determine are appropriate to ensure "prudent underwriting" of mortgages.
- Requires federal banking agencies, in consultation with the Federal Housing Finance Agency and the Department of Housing and Urban Development, to review the aforementioned standards for mortgage underwriting ever 5 years, and authorizes the agencies to revise such standards (Sec. 942).
- Authorizes federal banking agencies, in consultation with the Federal Housing Finance Agency and the Department of Housing and Urban Development, no later than 180 days after the date of enactment, to establish exemptions from the underwriting standards for mortgage loan originators that are exempt from federal taxes, provided that the following criteria are met (Sec. 942):
- The lending activities of the mortgage loan originator do not "threaten the safety and soundness of the banking system";
- The mortgage loan originator is not compensated based on the number or value of residential mortgage loan applications accepted, offered, negotiated;
- The mortgage loan originator does not offer residential mortgage loans that have an interest rate greater than 0 percent;
- The mortgage loan originator does not gain monetary profit from any residential mortgage product or service provided;
- The mortgage loan originator has the primary purpose of serving low income housing needs;
- The mortgage loan originator has not been prohibited, by statute, from receiving federal funding; and
- The mortgage loan originator meets any other requirement that the federal banking agencies determine are appropriate for the "safety and soundness of the banking system."
- Requires federal banking agencies, in consultation with the Secretary of Housing and Urban Development and Secretary of the Treasure, to review the aforementioned exemptions to standards for mortgage underwriting ever 2 years, and authorizes the agencies to revise such standards (Sec. 942).