How will federal regulators define what’s a risky mortgage, triggering requirements that lenders retain a slice of the risk when the loan is pooled with others and securitized and sold to investors?

Regulators have backed down from a proposal that only mortgages in which borrowers are making a 20 percent down payment be exempt from risk retention, Bloomberg reports.

A 500-page draft version of the Qualified Residential Mortgage regulation will exempt loans from risk retention requirements if borrowers have a debt-to-income ratio of 43 percent or less.

A previous “QRM” proposal would have subjected loans with debt-to-income ratios of more than 36 percent and down payments of less than 20 percent to risk retention requirements.

Although borrowers putting down less than 20 percent would have been able to get loans, they would have paid a higher rate — how much higher, exactly, had been the subject of a debate.  Source: bloomberg.com.

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