QRM proposal makes road ahead unclear for mortgage insurers
The discussion over whether private mortgage insurance should be included in the definition of a qualified residential mortgage, and therefore exempt from Dodd-Frank risk retention requirements, continues to keep mortgage insurers in the dark about their future. The PMI Group Inc. (PMI), a private mortgage insurer, stepped forward asking for more discussion after regulators proposed guidelines saying lenders and securitizers will be exempt from the 5% risk-retention rule on mortgages that meet QRM standards — mortgages with 20% down payments, among other guidelines. The presence of private mortgage insurance as some type of alternative to a 20% down payment is not included in the current proposal. "While we are disappointed that the regulators chose a very narrow and restrictive definition of QRM, we are encouraged that they are seeking comment on an alternative QRM definition that would involve a 10% down payment and more reliance on private mortgage insurance," said David Katkov, PMI's executive vice president and chief business officer. "Additionally, we believe that prudentially underwritten mortgages with less than a 10% down payment and private mortgage insurance should also be included in the definition." The PMI Group said regulators are accepting public comment on the guidelines for 60 days. The company said it intends "to actively engage in the rulemaking" process and will provide regulators and policymakers with feedback. Broadly, reaction is mixed to the QRM proposal from Tuesday. In a note to clients Wednesday morning, analyst Jim Vogel of FTN Financial said policy makers turn to skin-in-the-game as one broad cure for housing finance ills. "That's a dangerous myth," he writes. "Dozens of large housing-related failures occurred despite 100% commitment of capital and personal wealth to single-family real estate. It didn't work before but it will in the future? No. Magical transformations only happen after reality tv editors get done with the raw footage." The additional question of whether mortgage insurers should be included in the QRM exception has stirred much debate. Analysts with Institutional Risk Analytics suggested last week that private mortgage insurance should never take the place of a prudent 20% down payment in the future. However, an association representing private mortgage insurers pushed back last week, saying a clear role for private mortgage insurers "would enable financial markets to originate 1.3 million insured, low down payment loans annually for the next three years." Write to Kerri Panchuk.