Compromise could mean cheaper mortgages for consumers

Consumer mortgages could become cheaper as a result of a new rule federal regulators have put in place.

The Federal Deposit Insurance Corporation is the first of six financial regulators to release the final version of the long-awaited qualified residential mortgage (QRM) rule, which stems from the big 2010 banking reform bill the federal government enacted after the financial crisis.

According to Bloomberg News, the rule compels banks to retain 5 percent of the loans where borrowers spend more than 43 percent of their monthly income to repay debt. The clause replaced the original demand for larger borrower down payments.

Regulators passed the rule in response to a surge in subprime mortgage defaults in 2006 and 2007, which spurred the worst financial crisis since the Great Depression. Lawmakers concluded that lenders would be less likely to issue mortgages and securities that would blow up if they had to absorb some of the losses.

“Importantly, the final rule relies on sound and responsible underwriting rather than on an onerous down payment requirement to qualify as a QRM loan,” said Steve Brown, president of the National Association of Realtors.

The rule takes effect in 12 months. That will give lenders time to align their internal processing systems with the requirements.