QRM Revision Removes 20 pct Downpayment Requirement; Alternative Raises it to 30

In a sudden departure fromrnearlier actions, regulators today proposed two contradictory new approaches forrndefining Qualified Residential Mortgage (QRM). rnEither approach would change the requirements for meeting the QRMrnstandard, first proposed in 2011, for lenders who wish to sell on the secondaryrnmarket.  Conforming to the standard is requiredrnif the lender wishes to be exempt from retaining a 5 percent or larger portionrnof the loan risk.  The QRM requirement isrna provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act. </p

The first new approach outlinedrnby the six agencies involved in the rulemaking, the Federal Deposit InsurancernCorp., Federal Reserve and Office of the Comptroller of the Currency, FederalrnHousing Finance Agency, Department of Housing and Urban Development, and thernSecurities and Exchange Commission, would remove the 20 percent downpaymentrnrequirement for a loan already classified as a qualified mortgage (QA) by thernConsumer Financial Protection Bureau (CFPB). rnThe downpayment provision has particularly rankled some members ofrnCongress who claim they never envisioned such a restriction when they passedrnDodd-Frank.</p

The second approach – called anrnalternative by the agencies – moves in the opposite directions, maintaining thernrequirement for lenders to hold some of the credit risk if a loan is sold with lessrnthan a 30 percent downpayment.  </p

The proposed revisions, whichrnapply to other types of loans such as auto loans and commercial loans as wellrnas residential mortgages will be open for public comment until October 30,rn2013. </p

The action drew immediate andrnpositive responses from David H. rnStevens, President and CEO of the Mortgage Bankers Association (MBA) andrnGary Thomas, President of the National Association of Realtors® (NAR.)  Stevens called the rule a reflection of howrnwell the comment process can work. rn”Regulators proposed a rule and received a unanimous reaction fromrndiverse groups within housing and real estate finance that the proposal wouldrnhave unduly constrained the availability of mortgage credit for many borrowers.rnAs a result the regulators recognized the implications for consumers and thernbroad mortgage markets, and decided to alter and then re-propose a much betterrnrule.”</p

As to the rule itself, he saidrnMBA was extremely pleased that the proposal aligns the QM and QRM definitions</bfor risk retention purposes. "The QM standard already clearly stipulatesrnwhat is considered to be a safe and sound loan. Adding additional layers ofrnregulation would have contracted credit for first time home buyers andrnborrowers without large down payments, and prevented private capital from enteringrnthe market."</p