A final rule on risk-retention requirements has been completed by federal regulators, and the mortgage industry is reacting favorably. The rule aligns the qualified residential mortgage definition with the Qualified Mortgage.
A final rule on credit risk retention was jointly released Tuesday by the Department of Housing and Urban Development, Federal Deposit Insurance Corp., Federal Housing Finance Agency, Federal Reserve Board, Office of the Comptroller of the Currency and Securities and Exchange Commission.
The rule, required by section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires securitizers of mortgage-backed securities to retain 5 percent of the credit risk from their issuances.
However, loans deemed to be “qualified residential mortgages” — or QRMs — are exempt from the credit risk requirement.
Comptroller of the Currency Thomas J. Curry told the FDIC Board of Directors that under the final rule, QRM is equal to the Consumer Financial Protection Bureau’s definition for QM, according to a copy of his prepared text.
A statement from American Bankers Association President and Chief Executive Officer Frank Keating said the definition for QRM by law can’t cover more loans than the existing QM rule, “but it might have been more restrictive.” He noted that the trade group is “largely pleased” with the rule and said that it has strongly advocated the alignment between QRM and QM.
“This will encourage lenders to continue offering carefully underwritten QM loans, and avoid placing further hurdles before qualified borrowers, allowing them to achieve the American dream of homeownership,” Keating said.
Curry called the rule an important milestone in Dodd-Frank implementation and said it will provide more certainty in the securitization markets.
FHFA Director Melvin L. Watt issued a statement indicating that the rule defines “the new rules of road” for lenders who have been eager to understand them. He said aligning QRMÂ with the QM definition will encourage prudent lending to creditworthy borrowers.
“Finalizing this rule represents a major step forward to providing greater certainty to the housing finance market and paves the way for increased participation by the private sector,” Watt stated.
The trade group U.S. Mortgage Insurers issued a statement echoing Watt’s comments about how the QRM-QM alignment encourages responsible lending and increases available credit.
“This combination will help ensure a sustainable mortgage market that balances credit access and credit discipline, without greatly increasing compliance costs,” USMIÂ stated.
The final rule will become effective one year after it is published in the Federal Register — likely in the next few days.
“I’m very pleased that we have committed to reviewing the QRM standards in four years,” the OCC’s Curry said. “By then, we should have enough experience with the standards to know whether they strike the right balance between long-term financial stability and the home-financing needs of American families, and we can adjust them if necessary.”
After this story was published, Mortgage Bankers Association President and CEOÂ David H. Stevens issued a statement supporting the final rule. He said the trade group was delighted that plans for restrictive down payment requirements were abandoned.
“But it is important to realize that this rule will not have a significant impact in making mortgage credit more available, as there remain structural and market barriers that need to be addressed for the private label securities market to fully return.,” Stevens said.
