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Lending

Housing Coalition urges Fed to rethink QRM

The Coalition for Sensible Housing Policy urges prudential regulators to base the Qualified Residential Mortgage rule on the previously released Qualified Mortgage rule, according to a letter from the agency to the Federal Reserve.

Unlike the QM, which was defined by the Consumer Financial Protection Bureau on Jan. 10, the Federal Reserve and other major financial regulators will shape the final QRM rule.

The QM was created to define safe mortgage products and mortgage underwriting standards. However, the QM also defined the maximum range of the QRM, according to the CSHP’s letter to the Federal Reserve. The QRM's purpose is to regulate the risk retention of securitizers.

"The QM definition provides strong underwriting, documentation and product standards that demonstrably lower the risk of defaults consistent with the statutory requirements for the QRM.  Synchronizing the QRM definition with the QM would ensure that strong incentives for safe and sound lending are in place, while not impairing the return of private capital to all segments of the mortgage finance market,” the CSHP letter stated.

According to an alert issued by the law firm of Nixon Peabody, the proposed QRM currently has distinct differences when compared to QM. The Dodd-Frank Act stipulates the QRM can be no broader than the definition of the QM in both law and regulation, but it can be stricter.  

The proposed QRM, opposed to the QM, sets stricter or more defined standards such as capping the interest rate increases for adjustable-rate mortgages, setting a maximum loan-to-value ratio of 80% for a purchase money mortgage, mandating a 20% down payment for a purchase money mortgage and requiring a debt-to-income ratio of 36%, according to Nixon Peabody.

Additionally, the CSHP letter stated that the QM features are entirely consistent with the investor protection goals of Section 941 of the Dodd-Frank Act, which limits the QRM exemption from risk retention to loans with product features that are historically at a lower risk of default.

The CSHP is not alone in their appeal to mimic the standards of the QM to the QRM, according to Executive Vice President Bob Davis of the American Bankers Association, "Once you have QM properly defined, there's no reason to have a QRM more restricted than what’s in QM. So our position is, there should be no difference between QRM and QM."

"Aligning the QRM and QM standards will encourage safe and financially prudent mortgage lending, while also creating more opportunities for private capital to reestablish itself as part of a robust and competitive mortgage market," the CFPB said.

 

 

 

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