Clea Benson

Impending mortgage rules may make it hard to get loans

Mortgage bankers and real estate agents are warning that it could become even harder for borrowers to qualify for a home loan early next year as the industry faces new rules.

Regulators are preparing to release the language of two rules that take effect in January to set standards for nonabusive lending and require banks to hold a slice of risky mortgages. In addition, US banking overseers must also complete new capital standards mandated in the international Basel III accords next year.

The industry’s main worry is that the rules may overlap or conflict, creating what National Association of Realtors president Maurice Veissi called a perfect storm of regulation.


‘‘There’s this intersection of policies that are absolutely not being considered by this massive array of institutions, all involved in deciding the future of homeownership and rental opportunity,’’ David Stevens, president of the Mortgage Bankers Association, said in a speech Monday in Chicago.

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Mortgage credit is already tight. US regulators, including Federal Reserve chairman Ben S. Bernanke, have expressed concern that banks are preventing qualified borrowers from taking advantage of record-low rates.

James Parrott, a member of President Obama’s National Economic Council, told mortgage bankers that the administration is still concerned.

‘‘How do you correct for what happened in 2005, but not do so in such a way that we’re stuck where we are today, where there’s not nearly enough liquidity?’’ Parrott said.

Borrowers whose loans closed in September had an average credit score of 750, placing them in the top 40 percent of Americans, according to Ellie Mae, which provides automation solutions for the mortgage industry.


Consumer advocates say the industry’s fears are overblown. ‘‘All of these rules are reactions to the failure to regulate at all over the last decade,’’ said Alys Cohen, a staff attorney at the National Consumer Law Center.

The next few months will usher in a new phase of the government response to the financial crisis of 2008 as regulators begin to unveil exactly how they will set limits intended to prevent another housing bubble.

The Consumer Financial Protection Bureau is briefing other regulators about its plans for the qualified mortgage rule, which will require lenders to determine borrowers’ ability to repay loans. If banks meet the standards for a nonabusive mortgage , they’ll be offered a degree of legal protection.

Lenders say they’ll probably make only the safest mortgages as defined by the rule, commonly known as the QM regulation, after it is issued.

Once the QM rule is set, regulators will write a second measure: the qualified residential mortgage rule, or QRM rule, which will require lenders to retain stakes in risky mortgages when they wrap them into securities.


At the same time, regulators have proposed standards under the Basel III agreement that would require banks to hold more capital against risky mortgages. The MBA wrote a letter urging regulators to abandon their Basel III proposal on the grounds that it would hurt lending.

Consumer advocates say they agree that the rules are complex and must be carefully calibrated. However, they say, the mortgage industry needs to be more judicious with its complaints.

Clea Benson writes for Bloomberg News.