link here to article
This article in The Economist (via Manan Shukla) explains the new law that banks are resisting. If a mortgage is written with 20% down payment, and the payments do not exceed 28% of monthly income, the originator can package the loan in a security. If the mortgage does not pass that test, the bank must retain a 5% interest in the mortgage. This of course was intended to keep originators from passing on risky loans to the next person in the chain.
The banks complain only 3/5 of mortgages would pass that test and that it would hurt the real estate industry. This seems like a strange complaint. The banks can write any mortgage that the like at any interest rate. They just can't pass non-conforming mortgages up the chain without sharing the risk. If they don't want to share the risk, then the mortgage should not be made.
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