The mortgage industry breathed a collective sigh of relief when regulators unveiled a rule reproposal that would align the qualified residential mortgage (QRM) definition — a key element of Dodd-Frank’s risk retention framework — with the qualified mortgage (QM) provisions set forth under the Consumer Financial Protection Bureau’s (CFPB) ability-to-repay rule. However, industry participants hoping for workable final rules should familiarize themselves with the proposal and submit comments to regulators, said Kristie Kully, of counsel in the Washington, D.C., office of K&L Gates.
Public comments on the new proposal are due by Oct. 30.
Six regulatory agencies are working to implement provisions of the Dodd-Frank Act that require securitizers to retain at least 5 percent of the credit risk of the assets collateralizing asset-backed securities. The act also requires regulators to establish criteria for QRMs — certain mortgages that will be exempt from the risk-retention requirements.
Proposed rules first released by the agencies in 2011 that would have established a narrow QRM standard were condemned by the housing industry and consumer groups who expressed concern over a potential constriction of mortgage credit. In August, regulators released new proposed rules that would create a broad QRM definition by aligning QRM with the CFPB’s QM rules.
“There is reason to express relief about the shape of this QRM because now there is a much broader range of loans that will be exempt from the risk retention requirement” as compared to the proposal, Kully told Dodd Frank Update.
Industry participants, however, should not get too comfortable. While regulators proposed to create a broad QRM definition, Dodd-Frank arguably envisioned a narrow QRM. The regulators’ reproposal seeks comment on an alternative approach that would establish a narrow QRM definition. The so-called QM-plus approach would layer a 70-percent loan-to-value (LTV) ratio cap and other standards atop the CFPB’s QM requirements.
Kully said the restrictive QM-plus alternative “feels a bit like a throw away proposal,” but she urged industry participants to learn about these provisions and express their concerns to regulators.
“QM-plus may have represented views either of some — but not all — of the agencies, some of the consumer advocates or even some investor representatives in the industry that really want a tight QRM,” Kully said. “So I encourage all my clients and all other interested parties to take a look at that and point out to the agencies what impact that would have on the availability of credit. Maybe they’re looking for an excuse to dismiss that alternative and we certainly may want to give that to them.”
Kully and Ari Karen, a principle in the Bethesda, Md., office of Offit Kurman, will discuss the QRM reproposal and crucial provisions on which to provide comment during an October Research LLC webinar scheduled for Oct. 22.
View the risk retention reproposal
Learn about the webinar
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