The market has been calling for regulators to focus on synching the Qualified Mortgage rule with the Qualified Residential Mortgage standard to ensure safe and sound lending policies remain without stalling market innovation.
The mortgage industry got its wish Wednesday when a new proposed QRM rule came out, lessening the requirements for lenders who want to sell mortgages off to the secondary market without having to retain a slice of the credit risk.
Six regulators, including the Federal Deposit Insurance Corp., Federal Reserve and Office of the Comptroller of the Currency, announced two approaches to redefining the QRM rule.
The first approach is simple: A loan already classified as a qualified mortgage by CFPB standards could move forward with no downpayment requirement under QRM, allowing these mortgages to escape risk retention requirements.
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. The two approaches are very interesting. On one hand, the market seems to get a much easier standard, but on the other, a higher downpayment would take effect. The first approach, or no downpayment requirement, is the preferred approach at this point.
"QRM equaling QM is a very good thing because it’s recognition that the system in place actually works," explained Mortgage Bankers Association CEO and president David Stevens.
He added, "Without a downpayment restriction in place, it’s going to alternatively be a good thing to make sure we do not throw a road block in a housing market seeking to recover."
The revamped QRM proposal is seen as a victory for homebuyers in the country, said National Association of Realtors president Gary Thomas.
"The new standards, which align with those applied to Qualified Mortgages, are stringent enough to protect consumers from unscrupulous lending practices while also creating new opportunities for private capital to reestablish itself as part of a robust and competitive mortgage market," Thomas stated.
After listening to commentary, regulators are now willing to do away with the 20% downpayment standard and are asking for feedback on the two new approaches by Oct. 30.
Click here to read the full revised proposal.