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Lending

QRM revisions strike the right balance

Mortgage industry remains cautious on 30% downpayment option

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The release of a revised proposal by federal regulators to define the Qualified Residential Mortgage rule received a round of applause from market participants Wednesday.

Policymakers offered two approaches to redefining the rule.

The core proposal would align the QRM rule with the Qualified Mortgage rule, which sets standards for safe lending.

The alternative approach would require lenders to retain a stake in the credit risk when mortgages sold off are originated without at least a 30% downpayment requirement.

An earlier version of QRM proposed a 20% downpayment requirement for all QRM loans.

Consistency between both standards seems to be the bright spot in the regulators announcement, confirming that regulators took into consideration the unanimous reaction from various groups in the housing market.

"The hope has always been that these new mortgage regulations would give banks more clarity and certainty about which mortgages are risker, giving them the incentive to write more lower-risk mortgages," pointed out Trulia (TRLA) chief economist Jed Kolko.

He added, "Consistency between QM and QRM standards helps reinforce the clarity for banks."

The new proposed QRM version will give Americans more access to mortgage credit while helping to keep the mortgage finance system safe and sound, according to The Nation Housing Conference.

"This new proposal shows that regulators listened to the comments from the wide range of stakeholders involved," said Chris Estes, president and CEO of the National Housing Conference.

He continued, "Aligning the QRM rule with the QM rules will allow more American families to become homeowners and ensures that housing markets can remain strong in the future. This is especially important for communities that are still rebuilding from the foreclosure crisis."

While the new direction regulators are taking is viewed as positive, the finalized details will determine who can purchase a home affordably.

"The debate over QRM all too often breaks down on the notion of the size of the down payment," said members of the Coalition for Sensible Housing Policy.

They continued, "The housing crisis was not caused by high LTV lending, but rather by lapses and shortcuts in solid underwriting and by the introduction of complex loan products that were too risky for most consumers."

It’s also important to note that the risk retention rules will impact other asset classes, including commercial mortgage-backed securities, explained Mortgage Bankers Association president and CEO David Stevens.

"In that vein, MBA is gratified that the Premium Capture Cash Reserve Account (PCCRA) proposal was eliminated from the re-proposal. The PCCRA would have required all issuer profits to be placed in a first-loss position, which would have eliminated the financial incentive for issuing CMBS," Stevens said. 

Although the National Association of Federal Credit Unions appreciates the call to align both QRM with QM, some issues remain.

"While the second proposal is an improvement to the first, we believe it will still have a negative downstream effect on credit unions," explained NAFCU senior vice president of government affairs and general counsel Carrie Hunt.

She concluded, "As such, we will thoroughly study the proposal and work with the FHFA and the other agencies to provide relief for credit unions from the rule's effect on their mortgage lending."

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