As banking regulators rewrite mortgage rules, unusual alliances have sprung up to oppose tighter standards
By EDWARD WYATT and BEN PROTESS
WASHINGTON — The weight of the mortgage crisis fell heavily on lower-income and minority communities, where first-time home buyers often fell victim to the predatory lending practices that resulted in an explosion of defaults and foreclosures.
That left consumer advocates and civil rights groups frequently at odds with bankers, mortgage lenders and their lobbyists during the debate over the financial regulation act last year, which aims to rein in the subprime mortgage excesses that inflated the housing bubble.
Now, as banking regulators are rewriting the rules for the mortgage market, unusual alliances have sprung up in opposition to tighter lending standards. Advocacy groups like the N.A.A.C.P. and the National Council of La Raza, a Latino civil rights organization, on the one hand, and the American Bankers Association on the other, are joining together to fight rules they say could make home loans less affordable for minority and working-class Americans.
The growing alliance between civil-rights organizations and banking lobbyists could extend beyond the current round of financial rule-making. If Congress turns its focus to restructuring Fannie Mae and Freddie Mac, for example, the same groups could voice similar concerns over anything that restricts the availability of credit for first-time home buyers. ...
For the uncommon alliance
the first point of attack is on a proposal that would require sellers of mortgage-backed securities to retain part of the risk should a package of loans go sour. The sellers would have to keep on their books at least 5 percent of the value of any baskets of loans they purchase from lenders and then resell to investors. One of the few exceptions to the requirement would be for mortgages on which the home buyer has made a down payment equal to 20 percent of the purchase price.
“Most people don’t have 20 percent to put down,” said Janis Bowdler, a project director in La Raza’s office of research, advocacy and legislation. “These rules will so significantly deter the ability of first-time buyers to break into the market that we will see a real decline in home ownership.”
... Any standards that apply to the private mortgage market will have to be reflected in government housing finance entities that help low-income and minority borrowers, said Barry Zigas, director of housing policy for the Consumer Federation of America. ...
Last year, according to the National Association of Realtors, 96 percent of first-time home buyers made down payments below 20 percent. ...
Some regulators say that the coalition of consumer and industry groups is jeopardizing rules that could, in the long run, protect borrowers from risky lending practices. In private meetings, some top agency lawyers now refer to the partnership as “the unholy alliance.”
But mortgage lenders, consumer and community groups, which are planning a joint news conference in Washington on Thursday to highlight their opposition to the risk-retention proposals, say they are just as certain that the regulations will not prevent risky loans from being made while hurting qualified borrowers.
“It is more likely that the credit restrictions that result will disproportionately fall on lower-income borrowers,” said Robert R. Davis, an executive vice president for the American Bankers Association. That, in turn, puts banks in a bind, because it gives the appearance of violating fair-lending practices.
The bonds between the former foes could unravel, in part because the wounds created by the implosion of the housing market remain fresh.