WASHINGTON (Reuters) ? The Obama administration is exploring ways to support lending for rental housing as the troubled U.S. real estate sector has kept potential buyers on the sidelines, a top Treasury official said on Friday.
"We support a housing finance market that provides liquidity and capital to support affordable rental options and help alleviate the burdens that many low-income households face," Treasury Under Secretary Jeffrey Goldstein told a housing conference.
"We are also exploring how private channels can finance affordable multi-family housing, perhaps with limited, targeted governmental support," he said.
Goldstein said the administration's range of options to expand support for lending for multifamily rental properties includes reforms such as risk-sharing with private institutions.
He said private credit markets have generally underserved the multifamily segment that caters to low-income households, preferring instead to invest in high-end developments, Only 32 out of every 100 low-income families have access to adequate rental options, he added.
Goldstein defended efforts by regulators to ensure mortgage lenders retain some of the risk on loans they originate as part of the overall focus to strengthen the U.S. housing finance system. He said the effort needs to be balanced so it does not choke off credit.
"Better underwriting practices for mortgages are good for consumers, good for the financial industry, and good for the economy," he said.
The Treasury is involved with six federal regulators in implementing requirements from the Dodd-Frank Wall Street reform bill to curb risk-taking at financial firms. The legislation called on regulators to establish new guidelines for lenders and originators of securitized loans, the types of instruments that fueled the 2007-2009 financial crisis.
The proposed rules are intended to reduce risk-taking by forcing lenders to hold onto a 5 percent stake in any loan bundled for investors in the secondary market.
The law created an exemption for mortgages deemed to be safe enough, but left regulators to define the threshold. Regulators have proposed exempting mortgages when borrowers make down payments of 20 percent.
Shelia Bair, the outgoing chairman of the Federal Deposit Insurance Corporation, said extra costs that some borrowers might incur as a result of the new risk-retention rules will help prevent a repeat of the financial crisis.
In a speech at the National Press Club, she acknowledged pushback from the industry over the proposal from regulators on which loans might be exempt from the requirements.
"Given the controversy that has surrounded this rule, I have to say I regret that Congress carved out an exemption for ultra-safe mortgages as defined by the regulatory agencies," Bair said.
Critics have argued the rules would keep potential first-time buyers out of the housing market and drive up borrowing costs because lenders would charge higher rates for loans that do not qualify for the exemption. A comment period on the proposed rule expires on August 1.
An unlikely alliance of mortgage and consumer groups -- including the American Bankers Association, the Center for Responsible Lending and the National Community Reinvestment Coalition -- have petitioned for regulators to make changes to the rule, and say it could make it more difficult for borrowers to find affordable home loans.
(Additional reporting by Rachelle Younglai; Editing by Ramya Venugopal; Editing by Andrew Hay and Leslie Adler)
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