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Regulators still buried by risk-retention comments

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Federal regulators are still working on the risk-retention rule after issuing a proposal in April, and lawmakers are growing impatient. The rule, required under the Dodd-Frank Act, requires lenders to maintain 5% of the credit risk on mortgages pooled into securities. Its exception, the qualified residential mortgage, would require heightened servicing standards, a strict debt-to-income limit and at least 20% down from the borrower, under the current proposal. The comment period for the rule ended Aug. 1 without any detail on when or what the next step will be from the federal regulators. During a Senate Banking Committee hearing Tuesday, Comptroller of the Currency John Walsh said he and the other rulemakers are working through reams of comments and concerns that have been made. Most input revolves around the downpayment requirement, he added. The general attitude towards risk retention from industry and consumer groups is that they believe it unnecessarily shuts out would-be homeowners from ever being able to afford a loan. "The QRM is meant to be a narrow definition. It is not meant to define what a mortgage is. It is meant to be an exception to the rule," Walsh said. "There have been many, many, many comments." In the December issue of HousingWire, Mike Heid, who heads up the mortgage department at Wells Fargo (WFC), said risk retention will work in conjunction with a similar but wider proposal establishing how lenders will determine a borrowers ability to repay a mortgage before writing it, known as the qualified mortgage. Getting QM right will be more important for both lenders and borrowers, because QM would set a real market standard, not an exception, Heid said. "Loans will still be made in the non-QRM space. That's not true in the non-QM space," Heid said in the interview. Treasury Deputy Secretary Neal Wolin expressed a similar relationship between QRM and QM during the committee hearing Tuesday. But like Walsh couldn't provide how much progress was being made. "It's still something that is yet to be determined. How the QRM and QM have different purposes is also something that needs to be worked through," Wolin said. Committee Chair Tim Johnson, D-S.D., who has consistently argued for a quick installation of Dodd-Frank rules, said regulators have left a long list of important decisions in limbo. "I want a resolution on the rulemaking soon," he said. Write to Jon Prior. Follow him on Twitter @JonAPrior.

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