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Proposal gives banks more leeway on mortgage bonds

Wednesday - 8/28/2013, 3:59pm  ET

WASHINGTON (AP) -- Federal regulators are proposing to ease a rule that would require banks to share some risk in the complicated mortgage investments that helped cause the financial crisis.

Under the proposal advanced by the Federal Deposit Insurance Corp. and the Federal Reserve, banks could exempt relatively safe mortgages from the value of those securities.

The broader requirements would still have banks hold at least 5 percent of the securities on their books.

But banks now could exempt mortgages issued to borrowers who have debt that doesn't exceed 43 percent of their annual income. Regulators had proposed exempting mortgages in which buyers put down 20 percent. But banks complained that would exclude too many buyers with solid finances.

Banks are applauding the change. The head of the American Bankers Association says the new exemption will encourage lenders to continue offering carefully underwritten mortgages, including those with lower down payments.

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