Federal regulators yesterday proposed major changes to lending rules that could raise the cost of borrowing for most homeowners, "kicking off what is likely to be a furious effort by the housing and banking industries to soften the proposal," according to an article in today's edition of The Wall Street Journal by Nick Timiraos and Victoria McGrane.

The Dodd-Frank financial overhaul law requires banks to hold 5 percent of the credit risk for mortgages and other loans that are bundled together and sold off as securities, the article said, adding that "the idea is that banks and other issuers of securitized loans will do a better job ensuring the quality of those loans if they are required to have more 'skin the game.'"

If approved, the article continued, "the proposal would eventually reset what constitutes a prime mortgage as only those to borrowers who make down payments of at least 20 percent, with higher equity levels required for refinances. The real-estate industry and consumer-advocate groups already have forged an unlikely alliance to push for less restrictive rules. They say the rules could substantially raise borrowing costs, particularly for first-time buyers....Critics of the rule say relatively few borrowers will be able to obtain the less costly, gold-standard mortgages. Around 46 percent of all homeowners with a mortgage had less than 20 percent equity in the homes at the end of 2010, according to Corelogic Inc., a real-estate data firm."

"Banks did win leeway for choosing how to retain the risk," according to an article in today's edition of The New York Times by Ben Protess, which added that Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation said at a public hearing yesterday that "this will encourage better underwriting by assuring that originators and securitizers cannot escape the consequences of their own lending practices." "The intent of this rule-making is not to kill private mortgage securitization - the financial crisis has already done that, she said," the article added.

"But for now," the article added, "the proposal is unlikely to cause much of a shake-up in the mortgage business. It does not apply to securities carrying a government guarantee, which represent more than 90 percent of the market."

A bank could securitize a loan without retaining a stake if the borrower puts 20 percent down and is current on other loans and meets an income threshold, the article said, adding that "the proposal would not exempt notoriously risky loans, like interest-only mortgages and adjustable-rate mortgages that feature potentially huge interest rate increases."

A separate article in The Times today by Binyamin Appelbaum said that "House Republicans announced a package of eight bills...that would wind down the mortgage finance giants, Fannie Mae and Freddie Mac, more quickly than the Obama Administration proposed." The proposals, it continued, would require Fannie and Freddie to pay their employees according to federal wage scales and they would be subjected to regular oversight by an inspector general and required to ask Treasury before borrowing money. At the same time, however, the companies would be required to charge the same prices as private investors and they would be preventing from serving their basic purpose as a source of cheap money for mortgage loans."

The Republican plan would require Fannie and Freddie to stop subsidizing mortgage loans through low-cost financing over the next two years, and to sell most of their enormous mortgage holdings over the next five years.