In a sudden departure from
earlier actions, regulators today proposed two contradictory new approaches for
defining Qualified Residential Mortgage (QRM).
Either approach would change the requirements for meeting the QRM
standard, first proposed in 2011, for lenders who wish to sell on the secondary
market. Conforming to the standard is required
if the lender wishes to be exempt from retaining a 5 percent or larger portion
of the loan risk. The QRM requirement is
a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The first new approach outlined
by the six agencies involved in the rulemaking, the Federal Deposit Insurance
Corp., Federal Reserve and Office of the Comptroller of the Currency, Federal
Housing Finance Agency, Department of Housing and Urban Development, and the
Securities and Exchange Commission, would remove the 20 percent downpayment
requirement for a loan already classified as a qualified mortgage (QA) by the
Consumer Financial Protection Bureau (CFPB).
The downpayment provision has particularly rankled some members of
Congress who claim they never envisioned such a restriction when they passed
The second approach - called an
alternative by the agencies - moves in the opposite directions, maintaining the
requirement for lenders to hold some of the credit risk if a loan is sold with less
than a 30 percent downpayment.
The proposed revisions, which
apply to other types of loans such as auto loans and commercial loans as well
as residential mortgages will be open for public comment until October 30,
The action drew immediate and
positive responses from David H.
Stevens, President and CEO of the Mortgage Bankers Association (MBA) and
Gary Thomas, President of the National Association of Realtors® (NAR.) Stevens called the rule a reflection of how
well the comment process can work.
"Regulators proposed a rule and received a unanimous reaction from
diverse groups within housing and real estate finance that the proposal would
have unduly constrained the availability of mortgage credit for many borrowers.
As a result the regulators recognized the implications for consumers and the
broad mortgage markets, and decided to alter and then re-propose a much better
As to the rule itself, he said
MBA was extremely pleased that the proposal aligns the QM and QRM definitions
for risk retention purposes. "The QM standard already clearly stipulates
what is considered to be a safe and sound loan. Adding additional layers of
regulation would have contracted credit for first time home buyers and
borrowers without large down payments, and prevented private capital from entering
He expressed concern, however
that regulators are still considering adding a large downpayment or equity
requirement to QRM. "As we detailed
in our original comments on the rule, such steep down payment requirements are
unnecessary to accomplish the purposes of the QRM standard and would severely
impair access to credit for all but the most well-heeled borrowers."
Thomas called the proposed rule
"A victory for homebuyers and the future of homeownership in this country." He said the new QRM rule will give
creditworthy buyers access to safe and affordable loan products without overly
burdensome downpayment requirements.
"The new standards, which align
with those applied to Qualified Mortgages, are stringent enough to protect
consumers from unscrupulous lending practices while also creating new
opportunities for private capital to reestablish itself as part of a robust and
competitive mortgage market," he said.
However, Thomas called the alternative
30 percent requirement a "restrictive measure that dramatically favors the
wealthy. Research shows that it would
take the average American more than 25 years to save enough money to buy a
modest home with a 30 percent downpayment.'