The debate over how lawmakers should draft the qualified residential mortgage and qualified mortgage rules proposed under Dodd-Frank picked up momentum this past week with real estate professionals attacking the two rules for being somewhat redundant and unclear in their approaches. Real estate and relocation services provider Realogy Corp. used the open comment period on the qualified residential mortgage rule (QRM) to suggest replacing the QRM with a set of enhanced disclosure requirements that would force issuers of mortgage-backed securities to highlight all of the risks tied to each securitization deal. In its current form, the proposed qualified-residential mortgage would give borrowers who put at least 20% down on their mortgages a chance to be exempted from the credit-risk retention rule. The proposed risk-retention rule in its current form requires firms to hold 5% of the risk on securitized loans. New Jersey-based Realogy submitted a proposal suggesting lawmakers forget about the QRM and instead create an “enhanced disclosure approach.” “We believe the current QRM definition that includes a down-payment requirement of 20% would create unduly tight credit standards and place homeownership out of reach for millions of potential buyers,” said Richard Smith, president and CEO of Realogy Corporation. “This was not the intent of Congress when the Dodd-Frank Act was passed, and we remain hopeful that the regulators will make a course correction, wisely choosing not to damage an already fragile housing market.” In a written response to regulators, Realogy said “the focus should be on applying rigorous underwriting standards looking at various factors, not simply on the magnitude of down payment. Further, any minimum down payment percentage as QRM requirement should not exceed the percentage required under FHA rules in effect at any given time.” The Securities Industry and Financial Markets Association also piped in, adding to the viewpoint of the American Securitization Forum by suggesting the drafters of the rules need to establish clearer definitions and standards of conduct when it comes to how real estate professionals meet the provisions of the qualified mortgage standard — which requires lenders to ensure a borrower has the ability to repay a loan — and the QRM, which deals with risk retention during the securitization process. “The definition of qualified mortgage will also need to work seamlessly with its related construct, that of a qualified residential mortgage,” SIFMA said in its response to the QRM and QM. “This will require a high degree of coordination among the various regulatory agencies to ensure that standards are interpreted and applied consistently. To ensure that is the case, SIFMA proposes that any mortgage satisfying the definition of qualified residential mortgage should also automatically satisfy the definition of qualified mortgage.” Write to Kerri Panchuk.
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