Bair says imminent QRM proposal friendly to community banks
Federal Deposit Insurance Corp. Chairman Sheila Bair told the Senate Banking Committee Thursday that regulators will soon release its qualified residential mortgage rule that will determine how much risk loan originators retain after securitization.
Bair added that smaller, community banks will have room to breathe under the rule, which is aimed at larger institutions.
Under Dodd-Frank, federal regulators including the FDIC, must set a new QRM standard. Lenders are required to retain 5% of the credit risk on any mortgages written outside of these guidelines. Smaller community banks are concerned that such a rule would be too onerous.
"The QRM rule is close to being done. The direction of the rule will be focused on issuers and securitizations, not small originators," Bair said. "It will not be burdensome on community banks."
One possible threshold for a QRM will be the downpayment. Regulators are currently mulling a possible 20% down payment standard for these loans, meaning that for any loans made with less than 20% down, banks are required to retain the risk.
Bair told attendees at a Mortgage Bankers Association summit held in January that she would support the 20% downpayment yardstick, but major lenders are reportedly pushing for that to be lowered to 10%.
Acting Comptroller of the Currency John Walsh backed Bair, saying that his office, which is on track to fully acquire the Office of Thrift Supervision, is reaching out to the 2,100 community banks that will come under its umbrella.
"We are continuing our outreach to understand their concerns," Walsh said.
Most bank failures are smaller institutions, but Bair said the worst may be over. She said that the 157 total closings in 2010 will prove to be the peak.
"While it should still be elevated, the amount of failures will be lower in 2011," Bair said.
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