The
Mortgage Bankers Association (MBA) reacted quickly to the publication yesterday
of proposed rules governing Qualified Residential Mortgages (QRMs), the
mortgages which will be exempt from the risk retention requirement of the
Dodd-Frank Act.
In
a statement released by MBA yesterday afternoon, President and CEO John A.
Courson said that it would take time for the Association to fully evaluate the complexity
of the hundreds of pages of regulations, but its first reaction was a "profound
concern" about its impact on residential mortgage financing and "the
nation's economy today and for generations to come."
Courson
cited the "rigid and highly prescriptive nature of the proposed rule,"
because such a narrow definition of the risk retention exemption would limit
mortgage opportunities for qualified borrowers more than it would reduce the
number of problems loans. If enacted as
proposed, Courson said, it would also reduce any role for independent mortgage
banks and community lenders which, despite long histories as safe lenders may lack
the balance sheets or capital to hold loans or reserve against risk.
The
regulations require specific underwriting standards including maximum front-end
and back-end debt-to-income rations of 28 percent and 36 percent respectively,
a loan-to-value ratio of 80 percent for purchase mortgages and 75 percent for
refinances and credit restrictions including an absence of 60-day delinquencies
for a two year period prior to the loan. MBA said that, while these factors can
be accurate predictors of loan performance, they should not each be considered
in isolation and the rule should allow for flexibility in interpreting each of
the component parts.
The
exemption for loans sold to Fannie Mae and Freddie Mac will help to ensure
liquidity in the market, however MBA says it will do little to shrink the
government's footprint in the housing finance system and could slow the return
of the private secondary mortgage market.
The
Association also takes issue with the inclusion of mortgage servicing standards
in the proposed regulation saying that it should be the subject of a separate
discussion and rulemaking.
Courson said that the
association was pleased to see risk retention applied to all asset-backed
securities including those secured by automobiles and commercial business loans
and that each has been provided multiple options in the allocation of retained
risk. The statement specifically
mentions the 5 percent vertical slice applied to commercial mortgage-back
securities (CMBS,) but Courson goes on to say that given the complex provisions
of the rule and its impact on the CMBS market the Association plans to seek
clarification of the rule on commercial loans that will be eligible for a
reduction in the 5 percent retained risk to ensure that terminology and
eligibility requirements are consistent with industry norms and practices.