A Republican senator has weighed in on the issue of aligning the qualified residential mortgage (QRM) standard with the qualified mortgage (QM) standard under the recently issued ability-to-repay rule.
In a letter to a half-dozen regulators, Senate Banking Committee member Bob Corker, R-Tenn., outlined his concerns that if not properly aligned the QRM could constrict the markets.
“Regardless of how one may feel about Congress telling federal agencies to draft both ‘qualified mortgage’ standards and rules around so-called ‘risk retention,’ the reality is that the joint federal regulators now responsible for the QRM rules are in a position to materially impact what the system of housing finance in the United States will look like for years to come,” Corker said.
The risk-retention requirement would require securitizers to retain a statutory minimum of 5 percent of the credit risk for an asset that is not a QRM. Loans insured by the federal government, including GSE-insured loans as long as the GSEs remain in conservatorship, would be exempted from the requirement.
“Since the rule carves out loans sold to Fannie, Freddie and FHA, if the QRM rule is written differently than the QM rule, most financial institutions will only originate loans intended for sale to the FHA, VA or to a GSE,” Corker warned. “As such, a perverse outcome of a QRM rule that is different than the QM rule would be that we might permanently enshrine the GSEs and other government agencies as the only large-scale source of mortgage credit in our country. With the federal government now standing behind over 90 percent of home loans originated in the United States, a situation that is simply not sustainable, such an outcome would not at all be healthy for our financial system.”
Corker said matching the CFPB’s version of a safe loan for any borrower with the definition of what constitutes a loan that is safe for securitization “makes sense for our system.”
Corker also said such a move would be consistent with the statute.
The letter was sent to Comptroller of the Currency Thomas Curry, Federal Reserve Chairman Ben Bernanke, HUD Secretary Shaun Donovan, Federal Deposit Insurance Corp. Chairman Martin Gruenberg, Federal Housing Financial Agency Acting Director Edward Demarco and Securities and Exchange Commission Chairman Elisse Walter.