MBA Outlines Support for Alternative QRM

The Mortgage Bankers Association responded on Thursday to the re-proposedrnRisk Retention rule submitted for comment by six regulatory agencies lastrnsummer.  In a letter to the agencies fromrnDavid H. Stevens, MBA’s CEO and President, the association expressed strongrnsupport for what is called the Preferred Approach which aligns the qualifiedrnresidential mortgage (QRM) definition to be issued by those agencies with thatrnof the qualified mortgage (QM) definition promulgated by the Consumer FinancialrnProtection Bureau (CFPB).  </p

The QRM rule originally proposed by the six agencies – the Officernof Comptroller of the Currency, the Securities and Exchange Commission, FederalrnDeposit Insurance Corporation, Federal Reserve, Department of Housing and UrbanrnDevelopment, and Federal Housing Finance Agency – would require a borrower tornmake a minimum of a 20 percent down payment or have 25 percent equity forrnrefinancing.  The borrower would alsornhave to meet relatively low maximum debt-to-income (DTI) levels and satisfyrnstringent credit history requirements. rnThe rule also required lenders to hold a portion of the loan risk in arnprescribed manner and for the life of the security. </p

(Read More: Consortium of 49 Groups Asks Regulators to Align QM, QRM)</p

In response to earlier industry comments, on August 28 thernagencies offered two new proposals.  ThernPreferred Approach would align the two definitions and includes arn”sunset” provision for the period of risk retention and allowsrnresponsible hedging of risk.The second proposal was for an Alternative “QM-PlusrnApproach which includes a 30 percent down payment requirement, a maximum 43rnpercent DTI, and hard wired credit standards. </p

(Read More: QRM Revision Removes 20 pct Downpayment Requirement; Alternative Raises it to 30)</p

In the MBA letter Stevens said data demonstrates that the existingrnQM definition sets forth a rigorous standard for sustainable mortgage lendingrnwhich results in a borrower’s ability to repay and will significantly lowerrndelinquencies and defaults. By aligning the two definitions a greater number ofrnborrower will be able to benefit from lower mortgages because of greater accessrnto the private investor market and will have safer and more sustainable loans.</p

Bringing the two definitions into alignment will also mean less ofrna regulatory burden on the industry which, Stevens said, is already greatlyrnconcerned about compliance costs while satisfying the respective legislativernintent of both QRM and QM. </p

Stevens set forth a number of reasons MBA strongly opposes thernAlternative proposal.  First, the downrnpayment requirement is inconsistent with the legislative intent of thernDodd-Frank Wall Street Reform and Consumer Protection Act regarding the QRMrnwhich passed, after considerable discussion of the matter, without anyrndownpayment requirement.  The Alternativernwould restrict too many customers access to the most affordable credit andrnwould especially exclude minority borrowers from the most competitivernloans.  He said the Alternative wouldrnalso raise borrower costs and would increase government involvement in thernmortgage market at a time when the intent is to reduce it.</p

The letter also commends the regulators for the elimination of thernPremium Capture Cash Reserve Account (PCCRA) for commercial and multifamilyrnlending and increased flexibility for how risk retention can be structured.

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