A senator has
asked federal banking regulators to simplify and align underwriting standards
for so-called Qualified Residential Mortgages (QRM) with those for Qualified Mortgages
(QM) which were released last week. In a
letter to the heads of six federal agencies, Senator Bob Corker (R-TN), a
member of the Senate Banking and Finance Committee, said that failure to synchronize
the two standards could permanently regulate the private sector out of the
housing finance business.
Under the Dodd-Frank
Wall Street Reform and Consumer Protection Act lenders are required to retain a
5 percent interest in loans they originate for sale; i.e. to keep "skin in the
game." Loans that are sold to Fannie Mae or Freddie Mac (the GSEs) and the
Federal Housing Administration (FHA) are automatically exempted from the 5%
retention requirement as are loans that meet the definition of QRM. That definition is currently being developed
by six agencies. The standards defined under the QM definition,
which generally address a lenders obligation to determine the borrower's
ability to repay the loan, were developed and released last week by the
Consumer Financial Protection Bureau (CFPB)...
In his letter Corker said, "Regardless of how one may feel about Congress
telling federal agencies to draft both "qualified mortgage" underwriting
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.
Forcing lenders to comply with two separate sets of rules isn't good policy,
and in this case, it would set back the timetable on doing what we absolutely
must do - begin to move away from a complete dependence on the government for
mortgage credit in our country."
Corker said that since the rule
carves out loans sold to the GSEs and FHA, if the QRM rule is written
differently than the QM rule most lenders will only originate loans intended
for sale to those institutions and to the Veterans Administration. "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
Corker told the regulators that matching CFPB's version of a safe loan for
any borrower with the regulators' definition of what constitutes a loan that is
safe for securitization makes sense for the system, and would be wholly
consistent with the statute.
The agencies to whom Corker sent his letter are the Federal Deposit
Insurance Corporation, Department of Housing and Urban Development, Securities
and Exchange Commission, Comptroller of the Currency, the Federal Housing
Finance Agency, and the Federal Reserve.