WASHINGTON (Reuters) - U.S. lenders and bankers of the community has rang to legislators Tuesday over proposed federal rules to reduce the risk on mortgage, saying that the guidelines could hurt the small banks and impair the credit markets.
The rules - mandated by the adoption of the Act of revision Dodd - Frank Wall Street - are under study by regulatory agencies to establish guidelines for the initiators of securitized loans, the types of instruments which are blamed for the financial crisis of 2007-2009.
Regulators intend to reduce the risk by forcing lenders to hold a 5 percent stake in any common debt instrument on the secondary market.
"This proposal should be adopted, it will certainly be driving many banks of mortgage credit and many borrowers of closure of the credit market entirely," Christopher Dunn, chief operating officer of South Shore Savings Bank in South Weymouth, Massachusetts, told a hearing of Senate Banking Committee, on behalf of the American Bankers Association.
The guidelines present "fly to standards of practice and clear", said. This type of "regulatory burden is significant" small institutions and will affect access to credit for consumers.
The Act creates an exemption for mortgage loans, deemed to be sufficiently safe and gave regulators the task of defining suitable loans. Regulators proposed an exemption for so-called qualified residential mortgage loans when borrowers are 20 per cent payments. A comment on the proposed rule period expires August 1.
"We must achieve a proper balance," said Senator Jack Reed, a Rhode Island Democrat, at the hearing. "If you have any of these rules of the road, you will get exactly what we - who was at stake and without low money.".
FREDDIE AND FANNIE REFORMING
The Group of experts representing small lenders also expressed unease about proposals ends Fannie Mae (FNMA.)(OB) and Freddie Mac (WMAC.)(OB).
Government sponsored enterprises are crucial for the housing market because they provide funding for the banks and corporations purchase mortgage loans and keep them on their books or their packaging for sale to investors.
"I have concerns ranging from a GSE market in a private market." "You must put in place a system," said Jack Hartings for America's independent community bankers.
He said "The ESCO must not be released to businesses on Wall Street that has fueled the financial crisis with haphazard subscription, abusive loan terms and an endless stream of complex securitization products,".
Legislators in the Senate have not produced a legislative approach to revamp the housing finance system. The Republican led House of representatives of the United States, however, has introduced a variety of bills aimed at curbing the role of Government in the system of mortgage loans, including legislation that would create private entities to replace Fannie and Freddie completely.
Many small institutions worry that if Fannie and Freddie have been eliminated, the banks would have an advantage over smaller competitors.
Hartings said Committee community banks and small institutions represent approximately 20 percent of the mortgage market and provide access to loans for borrowers underserved by large banks.
Legislators agreed by small banks should not be adversely affected by new regulations.
"We just to make sure that we do not regulatory barriers that place small banks an unfair competitive disadvantage," said Senator Richard Shelby of Alabama, top of the page of the Republican group.
(Reports by Margaret Chadbourn;) (Editing by Andrea Ricci)
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