MBA Outlines Support for Alternative QRM
The Mortgage Bankers Association responded on Thursday to the re-proposed Risk Retention rule submitted for comment by six regulatory agencies last summer. In a letter to the agencies from David H. Stevens, MBA's CEO and President, the association expressed strong support for what is called the Preferred Approach which aligns the qualified residential mortgage (QRM) definition to be issued by those agencies with that of the qualified mortgage (QM) definition promulgated by the Consumer Financial Protection Bureau (CFPB).
The QRM rule originally proposed by the six agencies - the Office of Comptroller of the Currency, the Securities and Exchange Commission, Federal Deposit Insurance Corporation, Federal Reserve, Department of Housing and Urban Development, and Federal Housing Finance Agency - would require a borrower to make a minimum of a 20 percent down payment or have 25 percent equity for refinancing. The borrower would also have to meet relatively low maximum debt-to-income (DTI) levels and satisfy stringent credit history requirements. The rule also required lenders to hold a portion of the loan risk in a prescribed manner and for the life of the security.
(Read More: Consortium of 49 Groups Asks Regulators to Align QM, QRM)
In response to earlier industry comments, on August 28 the agencies offered two new proposals. The Preferred Approach would align the two definitions and includes a "sunset" provision for the period of risk retention and allows responsible hedging of risk.The second proposal was for an Alternative "QM-Plus Approach which includes a 30 percent down payment requirement, a maximum 43 percent DTI, and hard wired credit standards.
(Read More: QRM Revision Removes 20 pct Downpayment Requirement; Alternative Raises it to 30)
In the MBA letter Stevens said data demonstrates that the existing QM definition sets forth a rigorous standard for sustainable mortgage lending which results in a borrower's ability to repay and will significantly lower delinquencies and defaults. By aligning the two definitions a greater number of borrower will be able to benefit from lower mortgages because of greater access to the private investor market and will have safer and more sustainable loans.
Bringing the two definitions into alignment will also mean less of a regulatory burden on the industry which, Stevens said, is already greatly concerned about compliance costs while satisfying the respective legislative intent of both QRM and QM.
Stevens set forth a number of reasons MBA strongly opposes the Alternative proposal. First, the down payment requirement is inconsistent with the legislative intent of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding the QRM which passed, after considerable discussion of the matter, without any downpayment requirement. The Alternative would restrict too many customers access to the most affordable credit and would especially exclude minority borrowers from the most competitive loans. He said the Alternative would also raise borrower costs and would increase government involvement in the mortgage market at a time when the intent is to reduce it.
The letter also commends the regulators for the elimination of the Premium Capture Cash Reserve Account (PCCRA) for commercial and multifamily lending and increased flexibility for how risk retention can be structured.