From the FINANCIAL TIMES:
Regulators have tentatively agreed on stringent new rules that will require lenders to retain a greater portion of loans they originate, instead of selling most of them to investors, a practice that helped to create the housing bubble, according to a person familiar with the situation.
The broad outlines of the new rule will require mortgages to carry a down payment of at least 20 per cent before banks can fully securitise them. Banks will be forced to retain 5 per cent of the credit risk on loans they originate with down payments of less than 20 per cent, this person said.
Regulators are hoping to avoid some of the problems that created the recent housing bubble by forcing banks to either tighten their underwriting standards or keep some skin in the game, essentially making them more responsible for the performance of loans they originate…
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EDITOR: It is encouraging that Congress and the Administration may do something useful to reign in abuse. We’ll see.
