Having the Consumer Financial Protection Bureau's qualified mortgage definition and the pending qualified residential mortgage rule solidified is a key step in getting Fannie Mae and Freddie Mac out of the housing finance sector, said Gyan Sinha, a partner at KLS Diversified Asset Management.
From an investment perspective, having the final definition of the QM rule and the forthcoming QRM standards is a positive, according to speakers attending the American Securitization Forum in Las Vegas.
The idea of having a minimum amount of collateral is central to the idea of creating pools of loans because the behavior of those pools will be predictable and transfer into the secondary market, creating very safe securities, Sinha noted.
Thus, creating a secondary market to support housing finance is essential if the nation wishes to move away from the influence of government-sponsored enterprises. While Sinha stated it was a tall order, it's not impossible.
The implementation of the QM rule and the QRM standards will pave the way for secondary market professionals and investors to impact the sector.
"Clearly the ability to forecast when losses are likely to be is a key element, you can’t create safe assets with risky loans unless you understand the risk being moderated," Sinha said.
Assistant Director Peter Carroll of the Office of Mortgage Markets at the CFPB noted that concerns being raised in the industry after the unveiling of the QM rule remain major topics of discussion. The "Bureau wants and expects responsible lending practices" and as a result, will address the concerns accordingly, he said.
Some of the concerns are "safe harbor is not safe if you are a lender" and "providing compliance with QM," noted Michael Malloy, mortgage policy and counterparty relations executive at Bank of America Merrill Lynch (BAC).
"Issuance of a final rule is not the end of game, there will be a back and forth to what the rule means because it’s fundamental to the mortgage business," he said.