Federal regulators on Wednesday softened a proposed rule that would require banks to keep a stake in home loans that they parcel out to investors, for fear that the policy would disrupt the nascent housing recovery.
The move will likely quiet the outcry from industry groups and housing advocates who have cautioned against strict rules that could freeze home buyers out of the market. Banks have warned that a pile-on of new mortgage regulations would raise their costs and ultimately make it more difficult or expensive for consumers to get a loan.
In response, six agencies, including the Federal Reserve, have loosened the definition of the types of home loans — known as qualified residential mortgages or QRM — that are deemed secure enough to be exempt from the extra requirements.
Regulators initially defined qualified residential mortgages as those with at least a 20 percent down payment and no more than a 36 percent debt-to-income ratio. That 2011 proposal raised fears that the definition was so strict that it would limit access to credit for low- and moderate-income Americans.