Advocates and Bankers Join to Fight Loan Rules

That left consumer advocates and civil rights groups frequently at odds with bankers, mortgage lenders and their lobbyists during the debate over the financial regulation act last year, which aims to rein in the subprime mortgage excesses that inflated the housing bubble.

Now, as banking regulators are rewriting the rules for the mortgage market, unusual alliances have sprung up in opposition to tighter lending standards. Advocacy groups like the N.A.A.C.P. and the National Council of La Raza, a Latino civil rights organization, on the one hand, and the American Bankers Association on the other, are joining together to fight rules they say could make home loans less affordable for minority and working-class Americans.

The growing alliance between civil-rights organizations and banking lobbyists could extend beyond the current round of financial rule-making. If Congress turns its focus to restructuring Fannie Mae and Freddie Mac, for example, the same groups could voice similar concerns over anything that restricts the availability of credit for first-time home buyers.

“I think everybody agrees that the enthusiasm for promoting home ownership went way too far,” said David Stevens, chief executive of the Mortgage Bankers Association. “But now the risk is that we go too far the other way. We still need to be able to make affordable mortgages that don’t just go to the wealthy, who can afford the biggest down payments and who have the most positive credit ratings.”

For the uncommon alliance, the first point of attack is on a proposal that would require sellers of mortgage-backed securities to retain part of the risk should a package of loans go sour. The sellers would have to keep on their books at least 5 percent of the value of any baskets of loans they purchase from lenders and then resell to investors. One of the few exceptions to the requirement would be for mortgages on which the home buyer has made a down payment equal to 20 percent of the purchase price.

“Most people don’t have 20 percent to put down,” said Janis Bowdler, a project director in La Raza’s office of research, advocacy and legislation. “These rules will so significantly deter the ability of first-time buyers to break into the market that we will see a real decline in home ownership.”

The initial proposals on “risk retention” by sellers of mortgage-backed securities are likely to have limited effect, largely because Congress provided an exemption for loans that are sold to the Federal Housing Administration and Ginnie Mae, the Government National Mortgage Association. Regulators want to extend that exemption to Fannie Mae and Freddie Mac. Those and other government-sponsored housing finance enterprises currently purchase about 90 percent of new mortgage loans made today.

Republicans in Congress and the Obama administration have vowed to get the government out of the mortgage business, letting the private market take over Fannie and Freddie’s functions of supporting the market for home loans. But lenders and consumer advocates say any privatizations could disrupt lending, making matters worse and outweighing the protections they were designed to offer.

Any standards that apply to the private mortgage market will have to be reflected in government housing finance entities that help low-income and minority borrowers, said Barry Zigas, director of housing policy for the Consumer Federation of America. “Are you going to tell taxpayers that the F.H.A. should have lower standards and take more risk than you expect private investors to take?,” he said.

Even the legislators who wrote the law on risk retention say that the proposal misses the mark. A bipartisan group of three United States senators — Mary L. Landrieu, a Louisiana Democrat, Kay R. Hagen, a Democrat from North Carolina, and Johnny Isakson, a Georgia Republican — wrote to regulators last month that a required 20 percent down payment “goes beyond the intent and language of the statute.”

Edward Wyatt reported from Washington and Ben Protess from New York.

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