Read as much as you want on BostonGlobe.com, anywhere and anytime, for just 99¢.

Proposal gives banks more leeway on mortgage bonds

WASHINGTON — Regulators want to ease a rule that would require banks to share some risk in the complicated mortgage investments that helped cause the financial crisis.

Under the proposal advanced Wednesday by the Federal Deposit Insurance Corp. and the Federal Reserve, banks could exempt relatively safe mortgages from the value of those securities.

Continue reading below

The broader requirements would still 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.

The broadening of the exemption is the latest sign of banks’ influence over the rulemaking process, which began after Congress passed the sweeping financial overhaul law in July 2010.

Banks applauded the change. The new exemption ‘‘will encourage lenders to continue offering carefully underwritten (mortgages), including those with lower down payments,’’ Frank Keating, president and chief executive of the American Bankers Association, said in a statement.

In the years before the crisis, banks packaged and sold bundles of risky mortgages with low teaser rates that climbed after only a few years. Many borrowers ended up defaulting on the loans when interest rates spiked. As a result, the value of the mortgage securities plummeted.

Loading comments...
Subscriber Log In

You have reached the limit of 5 free articles in a month

Stay informed with unlimited access to Boston’s trusted news source.

  • High-quality journalism from the region’s largest newsroom
  • Convenient access across all of your devices
  • Today’s Headlines daily newsletter
  • Subscriber-only access to exclusive offers, events, contests, eBooks, and more
  • Less than 25¢ a week
Marketing image of BostonGlobe.com
Marketing image of BostonGlobe.com