Proposal gives banks more leeway on mortgage bonds

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Associated Press

Posted on August 28, 2013 at 1:02 PM

Updated Wednesday, Aug 28 at 1:02 PM

WASHINGTON (AP) — Banks may be allowed to hold a smaller stake in the mortgage investments they sell if those loans are made to homebuyers with stronger finances.

The Federal Deposit Insurance Corp., the Federal Reserve and other agencies on Wednesday proposed loosening an exemption to rules intended to prevent the types of risky investments that caused the 2008 financial crisis.

The rules are still being finalized. And the broader requirements still would have banks hold at least 5 percent of the securities on their books.

But banks now could exempt mortgages issued to borrowers who have debt that doesn't exceed 43 percent of their annual income. Regulators had proposed exempting mortgages in which buyers put down 20 percent. But banks complained that would exclude too many buyers with solid finances.

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