Much is being said of the qualified residential mortgage, but most arguments by trade groups and the press at large fail to miss the important sticking points of the concept.
It is true that home ownership levels are not significantly lower, or even higher, in countries where 20% down on a mortgage is typical. The QRM is an easy way to swallow responsible lending as a concept. But in the United States, it will most certainly restrict originations in an already slow market.
Comparing mortgage finance in this country to any other, I've learned, is an entertaining distraction that is largely useless. For one, the QRM appears to be leverage for some sort of punishment for sins of the past. Yet, in the end, the wrong parties are being sentenced.
Switching to an European-like mortgage finance system cannot come part and parcel. Eventually, the same problems seen in Europe will make its way to the United States, for one cannot assume a mortgage finance system without assuming the ideologies of housing policy.
With the QRM, in all of its logic, the trade groups and bankers, who are so ensconced in their objections
, would do better by taking the moral high ground in their arguments. But they do not.
Instead of arguing the QRM would end mortgage originations, they should learn from mistakes of the past, and spout their cases accordingly.
More importantly, the QRM is fraught with moral hazard. Too many distressed borrowers clearly could not afford a mortgage. Too many didn't understand the terms of the mortgage.
Is it right to deny today's potential homeowners, with all of the comparatively onerous underwriting standards, by establishing a QRM?
The QRM is also a clear vote of no confidence against the work of the Consumer Financial Protection Bureau
. The CFPB is revamping mortgage origination forms
that clearly display the liability to the borrower.
Such a liability is not as acute with a QRM, so these new forms will only benefit a small percentage of the shrinking borrower base.
What more, the QRM assumes a greater desire for lenders to securitize loans than what currently exists. The QRM formulation, it is argued, is rooted in preventing the dodgy securitizations of dodgy mortgages, but not moreso than the implementation of risk retention.
The big lenders in the space are not as concerned with either. At least not to the extent the anti-QRM lobby would lead us to believe.
It's the big lenders who don't and won't worry with QRMs and risk retention. With the lion's share of the market, growing considerably in recent years, they've already proven they can operate outside the boundaries QRM and risk retention seeks to establish. It's the community banks that will be shut further out of origination, without access to the secondary market
. The QRM and risk retention will not punish big lenders, nor will they adopt it. These lenders operate without accessing securitization. To require risk retention on their balance sheets only acts as a further disincentive.
One such lender I spoke to said mortgage originations in the future will more likely circumvent Dodd-Frank reforms, than comply with them.
In fact, originations already do.
The mortgage of today, which is outside the proposed QRM, does not resemble the back-end risk funding potential of a securitization of yesterday. In fact, the hedging is happening on the front-end credit.
That is where the big lenders say the money is — and that is not where the QRM, risk retention, or even Dodd-Frank is looking.
Write to Jacob Gaffney
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