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Obama: ‘Let’s Streamline the Process’ on Lending

President Barack Obama is adding his name to the growing list of people concerned that mortgage-lending standards have overcorrected, holding back the housing market.

During the market’s boom years, lenders extended credit widely, and common-sense practices such as verifying a borrower’s income often went out the window.

But now many in the mortgage industry and in government have been worried that the pendulum has swung too far back amid a slew of rules designed to prevent reckless loans. They say qualified borrowers are currently being shut out of the market, and Mr. Obama indicated he shares that view.

“Right now, overlapping regulations keep responsible young families from buying their first home,” Mr. Obama said in his State of the Union Address on Tuesday night. “Let’s streamline the process, and help our economy grow.”

Critics are likely to see no small irony there, given that many of the rules were mandated by Mr. Obama’s signature Dodd-Frank financial overhaul of 2010.

But there are more rules at issue than just the Dodd-Frank set, from appraisal restrictions to mortgage “put-backs” from investors to new rules for loan servicers, all of which are being hashed out by different regulators.

The remarks suggest that the White House, over the coming year, will make a bigger issue out of reducing barriers to credit for new buyers, as it has already tried to do for those seeking to refinance.

Many of these concerns don’t necessarily have to do with obvious underwriting standards such as down payments. Instead, borrowers and brokers have complained about lenders’ extreme caution about how borrowers must document their income, how appraisers value properties and other documentation and verification standards that make getting loans tough even for qualified consumers.

One way for the White House to act would be to weigh in on a stalled proposal from 2011 that outlines new standards for high-quality mortgages. These loans would be exempt from new requirements requiring banks to keep some of the risk on their books when they sell mortgage-backed securities.

This “qualified residential mortgage” proposal was mandated by the Dodd-Frank regulatory overhaul of 2010. But it ran into loud complaints from mortgage-industry groups and consumer advocates that it would hurt the housing market.

One solution: make this rule conform to another rolled out by the Consumer Financial Protection Bureau last month. The CFPB’s ability-to-repay rules were generally praised by most industry and consumer advocates, and some on the left and right believe it would make sense to match up the two regulatory approaches.

Mr. Obama also reiterated his call on lawmakers to pass legislation that would expand refinancing. But given resistance from Republicans, that legislation appears likely to remain stalled this year. As a result, the Treasury Department has been working on plans to spur refinancing that could be put in place without legislation.

Source: Alan Zibel and Nick Timiraos, The Wall Street Journal

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