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Mortgage Insurance Companies of America, a trade group that advocates for private mortgage insurers, released its recommendations on how the qualified residential mortgage rule should be drafted to include private mortgage insurance as an exception to a rigid 20% down payment. Dodd-Frank financial reform enacts a definition of qualified residential mortgages as requiring 10 to 20% down payment on a home, in order to get a mortgage. Mortgage insurers, private parties that cover the loans in the event of default, say those requirements are too strict. With appropriate mortgage insurance, they say as little as 3% down should be enough for QRM. MICA submitted its official response to the current Dodd-Frank proposal Monday. Dodd-Frank currently defines qualified residential mortgages as those with 20% down payments among other parameters. Under guidelines created within the scope of the Dodd-Frank Act, any mortgage meeting the QRM rule can be securitized without the lending facility retaining a 5% credit risk. But MICA and mortgage insurers have been arguing for months that the 20% down payment rule is too strict and erases the potential for borrowers to enter the market with lower down payments and the backing of mortgage insurance. MICA sent regulators their opinion on how to draft the QRM Monday, suggesting  the QRM definition should include mortgage insurance and underwriting criteria that would require debt-to-income ratios up to 45% and loan-to-value ratios topped off at 97%. MICA said it engaged actuarial and consulting firm Milliman Inc. to compare loans written with low down payments and mortgage insurance and those written with no insurance and piggybacked to other loans. "Milliman’s statistical analyses confirm that loans underwritten with private mortgage insurance at origination have historically been associated with a lower rate of default when compared to similar loans without mortgage insurance after taking into consideration influential underwriting characteristics and economic trends, " the trade group said. Mortgage insurers have been fighting for inclusion of private mortgage insurance in the QRM since the first quarter. Genworth Financial (GNW) submitted a letter to federal regulators Monday, arguing the qualified residential mortgage rule should include loans with down payments as low as 5%, as long as underwriting guidelines and mortgage insurance are incorporated. Not long after the proposed guidelines for the QRM were released by regulators, Standard & Poor's released a study saying the rule as crafted could seriously impede mortgage insurers' ability to rebuild their capital with new business. The fight comes at a time when analysts are confident mortgage insurers have at least one to two years to get their footing, while still struggling with headwinds from a slowdown in the housing market and liquidity concerns. Write to Kerri Panchuk.

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