A Piece of the Action

Kevin Drum: The mortgage industry chafes under proposed new regulations...

The Fed and other regulators have proposed a set of rules that would put new limits on home mortgages: Borrowers would have to put 20 percent down and would have to show that their mortgage payments would amount to no more than 28 percent of their gross monthly income.

 Except that's not what they proposed.  Once again, the mortgage industry cannot tell the truth.

As it turns out, regulators aren't saying that mortgage originators can't make any kind of loan they want. 20 percent down, 10 percent down, 5 percent down, whatever. Go to town. What they are saying is that if mortgage loans are bundled up into securities and resold, they want the issuer of the security to retain 5 percent of the total offering. That's part of Dodd-Frank, and it's designed to give issuers an incentive to make sure their mortgage securities aren't full of toxic waste. If they have to keep a piece of the action on their own books, they'll want to make sure their securities are safe and sound.

However, there's an exception: If your mortgages all conform to the new rules, you don't have to retain that 5 percent chunk. That's all that's happening. You can make any kind of loan you want, but if it's anything other than super safe, you have to keep a piece of it on your books.

I believe that's called "shared sacrifice." The mortgage industry is, surprise, not ok with that.