By Dave Clarke
WASHINGTON (Reuters) - U.S. lenders would have to offer mortgages with at least a 20 percent down payment if they want to repackage the loan to sell to other investors without keeping some of the risk on their books, according to a proposal regulators are considering on Tuesday.
The Federal Deposit Insurance Corp board is scheduled to vote Tuesday morning on the proposal that is intended to restore lending discipline and define the safest form of mortgages that can be sold to investors.
Last year's Dodd-Frank financial law requires firms that package loans into securities -- a practice known as securitization -- to keep at least 5 percent of the credit risk on their books.
The provision is meant to force securitizers to have "skin in the game," so they don't churn out poorly underwritten loans and then pass along the risk to investors, as happened during the financial crisis.
Mortgages that meet strict underwriting standards are exempt from the risk requirement.
Mortgages sold to Fannie Mae and Freddie Mac would also be able to escape the risk retention requirement, at least while the mortgage finance giants remain controlled by the government.
The asset-backed securities market has struggled since the financial crisis and regulators have said they hope the rule will provide a level of certainty that will help it recover.
"If we are truly interested in restarting securitization, then we must restore investor confidence and the soundness of the securitization model," FDIC Chairman Sheila Bair said in a statement.
The Securities and Exchange Commission will consider the proposal on Wednesday and all the of the agencies involved have said they will vote on it this week. The proposal will then be put out for public comment.
Also on the FDIC's agenda on Tuesday is a proposal concerning "living wills" that large financial institutions will have to write to give regulators a blueprint for dismantling them should they run into trouble.
(Reporting by Dave Clarke; Editing by Tim Dobbyn)