With the Consumer Financial Protection Bureau's qualified mortgage rule now in place, the private label market awaits the release of the federal regulators' Qualified Mortgage Rule.
The shape of QRM will determine if the nation can sustain a healthy securitization market, consumer discretionary analyst Jon Woloshin at UBS ($18.07 0%) said.
"We don't know where that stands, and we certainly hope that we'll get clarity on that. But as we noted, the balance for regulators is the balance of keeping skin in the game and not putting access risk on, versus making the QRM rule so stringent that it basically shuts out people willing to securitize mortgages," he said.
The QRM standard is a potential subset of the QM rule, with QM linking both together. Woloshin notes the terms in QRM cannot be any more liberal than what is defined in the QM rule.
However, if QRM is more restrictive than the QM rule, certain qualified mortgages that do not meet the QRM standards will have to comply with the risk-retention guidelines and keep an actual stake in the loans sold off into securitization, executive vice president Bob Davis of the American Bankers Association said.
"Our view from the very beginning is that once you establish properly the QM definition, those loans within that definition are not going to have the risk characteristics that lead to consumer default," he said. "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."
In regards to the qualified-mortgage rule, Davis said QM is going to result in a much homogenous pool of mortgages to go into securities, which will be true whether they’re going through government-related programs such as Fannie Mae and Freddie Mac or if the private-label market develops and takes off.
"So that is good from a stand point of investors because more information will be available about the loans pools, which are coming from market practice and regulation going forward," he said.
However, a looming risk for investors in regards to the QM rule is the cap on origination fees of 3%. This would make it very difficult for the mortgage broker at the expense of the larger underwriter – basically doubling fees, Woloshin noted.
Similarly, global securitized products strategist Vishwanath Tirupattur at Morgan Stanley said while the QM rule is mainly positive, one issue analysts raised concerns about was the 3% cap on total mortgage fees as well as higher costs on due diligence, resulting in 'higher costs on lending.'
Another concern Morgan Stanley analysts addressed is the QM rule's distinction between a loan that has a safe-harbor from future ability-to-repay litigation and the rebuttable presumption standard. Morgan Stanley believes the rebuttable presumption standard is less-than-ideal in its current form.
The safe-harbor standard applies to lower-risk loans that meet all of the QM requirements.
The second-type of QM comes with a rebuttable presumption of safe lending and applies to higher-cost loans. This loan type is presumed safe for the most part, but can still be challenged on narrow grounds in court later on.
"Under the CFPB's final ability-to-repay rule, a qualified mortgage that is not a higher-priced loan will be entitled to safe harbor, and a qualified mortgage that is a higher-priced loan will be entitled to only a rebuttable presumption of compliance. As a result, the market for higher-priced mortgage loans may be limited, at least initially," Ballard Spahr noted.
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