Corker Amendment Removes 5% Risk Retention

Posted by Orb Staff on May 12, 2010 No Comments
Categories : From The Orb

Sen. Bob Corker, R-Tenn., has introduced an amendment that would direct federal regulators to establish minimum loan underwriting standards and eliminate the 5% risk-retention standard in Sen. Chris Dodd's financial regulatory reform bill.

Under the Homeowner Responsibility Amendment, minimum underwriting criteria would include a 5% minimum down payment; credit enhancement/private mortgage insurance if the borrower does not have an 80% loan-to-value ratio; fully documented income, including credit history and employment history; and a method for determining the borrower's ability to repay, including consideration of her or his debt-to-income ratio.

The 5% risk-retention standard in the current bill would be replaced with a Federal Reserve Board report to Congress on the impact of risk retention on capital markets, according to a summary of the legislation.

‘At the core of the financial crisis were home loans that should never have been written because the borrowers could not repay them," says Corker, whose amendment was co-sponsored by four other Republicans.

The amendment would additionally require the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Reserve to update the underwriting standards in no less than five years. The regulators would be allowed to exempt nonprofit organizations that meet certain criteria on a case-by-case basis, with a review of the exemptions required every two years.

Corker's amendment also includes a provision for the Government Accountability Office to study Federal Housing Administration underwriting standards and report back with statutory recommendations.

SOURCE: Office of Sen. George Lemieux

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