In the latest installment of the Dodd-Frank saga, bank regulators are proposing that 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.

The proposed risk retention regulation would require lenders that securitize mortgage loans to retain 5 percent of the credit risk unless the mortgage is a qualified residential mortgage (QRM). Its purpose, according to bank regulators, is to create strong incentives for responsible lending and borrowing.

The FDIC and the Federal Reserve are seeking public comment on this proposal, and in the day since it was announced, they sure have received it. The Mortgage Bankers Association (MBA), the National Association of Home Builders (NAHB) and the National Association of Realtors (NAR) have voiced their dislike of the proposal.

NAR stated that this proposal will “unnecessarily burden homebuyers and significantly impede the economic and housing recovery.”

The NAHB said that “requiring a high down payment would disproportionately harm first-time homebuyers, who have limited wealth and on average account for 40 percent of homebuying activity.”

The MBA wasn’t quite so strong with their wording. “At first glance, while this rule may prove workable for commercial real estate financing, we have profound concerns about its implications for residential mortgage financing and the nation’s economy today and for generations to come,” the association stated.

What do you think? Is this proposal a bank regulator’s pipe dream or is it something that will actually help, rather than harm, the nation’s homebuyers and economy?