Industry readies pushback against mortgage risk retention proposal
Hours after federal regulators released the new proposal on what mortgages will be exempt from risk retention rules, the industry began to push back. Under the Dodd-Frank Act, regulators were required to write guidelines for qualified residential mortgages. Lenders and securitizers would not have to retain 5% of the risk on these loans. But industry trade groups said these guidelines are "too narrow" and will not only price out many homebuyers from the market but muddy the waters on Fannie Mae and Freddie Mac reform. Bob Davis, the executive vice president for the American Bankers Association, told HousingWire in an interview Tuesday that if the QRM rule went into effect today, it would not change the status quo because loans backed by the government, including Fannie Mae, Freddie Mac and the Federal Housing Administration, were exempted from risk retention. Because these three entities already back most mortgages being written in the U.S., 95% of the market would be exempt from risk retention rules. "It has no immediate impact because there is no nongovernment-sponsored market right now," Davis said. "That's going to remain the case for some period of time." Leaders at the American Securitization Forum and the Securities Industry and Financial Markets Association agreed earlier Tuesday. Mortgage Bankers Association CEO John Courson said the 20% down payment requirement for a QRM would dampen already lagging housing demand. "We believe that such a narrow construct of the risk retention exemption would limit mortgage opportunities for qualified borrowers more than it would reduce the number of problem loans," Courson said. National Association of Realtors President Ron Phipps used the word "narrow" as well, and said the new rules will cost consumers more, further restrict mortgage credit and housing recovery overall. "Adding unnecessarily high minimum down payment requirements will only exclude hundreds of thousands of buyers from home ownership, despite their creditworthiness and proven ability to afford the monthly payment, because of the dramatic increase in the wealth required to purchase a home," Phipps said. Davis at the ABA said the industry has two avenues to push back: one, through the 60-day commentary window and through statutory adjustments to Dodd-Frank. The latter would obviously have to go through Congress, but House Republicans have already pushed reform repeals. "Perhaps this requirement should be removed in its entirety and we leave it to other safety and soundness criteria," Davis said, adding that this sort of rule would be better served under the governance of the upcoming Consumer Financial Protection Bureau. Courson said that while aspects of a loan such as the down payment, debt-to-income ratio and past-payment history are accurate predictors of loan performance, he suggested a different route for determining what loans should be considered QRM or not. "The rule should allow for consideration of a borrowers entire credit profile before determining whether risk retention is necessary on a given loan," Courson said. "For example, we believe that a lower down payment loan could be less risky if a borrower has a strong history of making payments on time and if the borrower's debt-to-income ratio is on the lower end of the scale. The rule should provide more flexibility in this regard." Write to Jon Prior. Follow him on Twitter @JonAPrior.