At the Mortgage Bankers Association’s (MBA) National Secondary Market Conference and Expo on May 16, MBA President and CEO David Stevens told attendees that the qualified mortgage (QM) rule falls short of being the long-term solution.
“Under the current rule, the government-sponsored enterprises (GSEs) can purchase good, sustainable loans that meet their underwriting standards but failed to meet the QM standard of 43 percent debt-to-income (DTI),” Stevens said in prepared remarks. “This is because the QM ‘patch’ provides a safe harbor exemption for these loans. If we had to underwrite loans solely based on the written QM rule without the patch, and the permanent exemption for the GNMA programs, credit would be much tighter.”
The problem, according to Stevens, is the fact that the patch is temporary, effective only as long as the GSEs remain in conservatorship or for seven years, whichever comes first.
“When the patch expires, or if GSE underwriting changes substantially, a whole segment of qualified potential borrowers will be frozen out of the market. The QM rule needs to stand on its own two feet. It should not be a rule that essentially punts all credit decisions to two companies that are not even regulated by the same agency,” Stevens said.
Stevens added that the same credit approval process for a borrower should be applied, regardless of whether the loan is being sold to a GSE or a private investor, as long as all the other terms are the same.
Given the temporary nature of the patch, Stevens said that now is the time to act.
“Let’s proactively re-write the rule now in a thoughtful way rather than in a panic response to events out of our control. As we re-write the rule, we should take into account the lessons learned about access to credit. We must be mindful of the dynamics affecting approval for a new generation that is more diverse and less traditional than we have ever seen in this country,” Stevens said.
Stevens was confident the group could achieve success in the movement, pointing to previous pushes by MBA that helped shape rules.
“It was MBA and its members who fought for a safe harbor in the Ability to Repay/Qualified Mortgage rule. People told us we were crazy, that it would never happen. But we went in, armed with data and convincing arguments about how the safe harbor would benefit consumers and emerged with a rule that is working today to protect borrowers while still allowing lenders to extend reasonable amounts of credit,” he said. “Dodd-Frank required six federal regulators to finalize the Risk Retention/QRM rule which has significant implications for mortgage backed securities. … MBA led a coalition of stakeholders who argued that a downpayment requirement was unnecessary and that QRM should align with the QM. Again, many said it couldn’t be done, but we persevered using facts, backed up by data, and today QRM aligns with QM, and there is no downpayment requirement.”