The Mortgage Bankers Association responded on Thursday to the re-proposed
Risk Retention rule submitted for comment by six regulatory agencies last
summer. In a letter to the agencies from
David H. Stevens, MBA's CEO and President, the association expressed strong
support for what is called the Preferred Approach which aligns the qualified
residential mortgage (QRM) definition to be issued by those agencies with that
of the qualified mortgage (QM) definition promulgated by the Consumer Financial
Protection Bureau (CFPB).
The QRM rule originally proposed by the six agencies - the Office
of Comptroller of the Currency, the Securities and Exchange Commission, Federal
Deposit Insurance Corporation, Federal Reserve, Department of Housing and Urban
Development, and Federal Housing Finance Agency - would require a borrower to
make a minimum of a 20 percent down payment or have 25 percent equity for
refinancing. The borrower would also
have to meet relatively low maximum debt-to-income (DTI) levels and satisfy
stringent credit history requirements.
The rule also required lenders to hold a portion of the loan risk in a
prescribed manner and for the life of the security.
(Read More: Consortium of 49 Groups Asks Regulators to Align QM, QRM)
In response to earlier industry comments, on August 28 the
agencies offered two new proposals. The
Preferred Approach would align the two definitions and includes a
"sunset" provision for the period of risk retention and allows
responsible hedging of risk.The second proposal was for an Alternative "QM-Plus
Approach which includes a 30 percent down payment requirement, a maximum 43
percent DTI, and hard wired credit standards.
(Read More: QRM Revision Removes 20 pct Downpayment Requirement; Alternative Raises it to 30)
In the MBA letter Stevens said data demonstrates that the existing
QM definition sets forth a rigorous standard for sustainable mortgage lending
which results in a borrower's ability to repay and will significantly lower
delinquencies and defaults. By aligning the two definitions a greater number of
borrower will be able to benefit from lower mortgages because of greater access
to the private investor market and will have safer and more sustainable loans.
Bringing the two definitions into alignment will also mean less of
a regulatory burden on the industry which, Stevens said, is already greatly
concerned about compliance costs while satisfying the respective legislative
intent of both QRM and QM.
Stevens set forth a number of reasons MBA strongly opposes the
Alternative proposal. First, the down
payment requirement is inconsistent with the legislative intent of the
Dodd-Frank Wall Street Reform and Consumer Protection Act regarding the QRM
which passed, after considerable discussion of the matter, without any
downpayment requirement. The Alternative
would restrict too many customers access to the most affordable credit and
would especially exclude minority borrowers from the most competitive
loans. He said the Alternative would
also raise borrower costs and would increase government involvement in the
mortgage market at a time when the intent is to reduce it.
The letter also commends the regulators for the elimination of the
Premium Capture Cash Reserve Account (PCCRA) for commercial and multifamily
lending and increased flexibility for how risk retention can be structured.