THE CLEAREST lesson of history, it has been said, is that people never learn the lessons of history. As if to prove that aphorism, federal regulators are relaxing rules governing the mortgage-backed securities business — less than a decade after an epic financial crisis, rooted partly in government indulgence of excessive risk-taking in the mortgage-backed securities business.
The 2010 Dodd-Frank financial reform bill insisted that private-sector issuers of mortgage-backed securities retain some risk associated with the underlying home loans. The sound idea behind this was that issuers would be more likely to underwrite loans properly if they had “skin in the game.” Initially, regulators proposed that issuers keep 5 percent of the risk unless the borrowers put at least 20 percent down. But the relevant agencies — the Federal Reserve, the Department of Housing and Urban Development and the Securities and Exchange Commission — have decided to water that down and accept ability-to-pay verification and a 43 percent debt-to-income ratio in lieu of the 20 percent down payment.