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Banking Regulators Reach Deal On Risk Retention Servicing Standards

Posted on 3/2/2011

The federal banking agencies have reached an agreement on risk-retention standards that would include some new rules on servicing standards, according to press reports.

The agreement, which other financial agencies must still approve, would require a 20 percent borrower down payment for a loan to be a "qualifying residential mortgage," and therefore exempt from risk-retention requirements. Lenders also would have to document a borrower's income and would be restricted on how much a payment could adjust.

The agreement also calls for servicers to offer loss mitigation when a borrower's home is worth more than its value in a foreclosure. A creditor also would need to disclose how they would handle a delinquency on a second mortgage and if they service both the first and second lien.

ABA EVP Bob Davis told American Banker newspaper that ABA believes the 20 percent downpayment requirement is too high and will discourage low-risk mortgage lending. He added that while ABA would have preferred to see servicing addressed separately, "I'm encouraged there is a net present value test, because it ensures that there will not be an impediment to moving to foreclosure where foreclosure is the best option to resolve delinquency."

The FDIC Board is expected to release the full proposal during its March 15 meeting.

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