QRM Alternative Will Limit Borrower Access to Private Loans

Mortgage & Real Estate

Adding a 30% downpayment requirement to the qualified residential mortgage rule is unnecessary when it comes to protecting private-label MBS investors, according to the Mortgage Bankers Association.

It would only increase the cost of credit for borrowers seeking private loans, the MBA says in a comment letter, and push more borrowers into FHA and other government-backed loans.

Six regulatory agencies are seeking comments on an alternative QRM rule, which will set the risk-retention requirements for loans that dont meet the ability-to-repay standards of the qualified mortgage rule. The Dodd-Frank Act requires MBS issuers to retain 5% of the credit risk when they securitize non-QM loans.

The proposed QRM rule issued in August calls for aligning QRM and QM definitions so all QM loans would be free from risk retention.

Aligning the QRM and QM definitions will allow a greater number of borrowers to benefit from lower mortgage costs resulting from greater access to the private investors market, as well as safer and more sustainable loans, the MBA says in the Oct. 24 comment letter.

However, the QRM proposal also seeks comments on an alternative that would require securitized loans to have a 30% downpayment to avoid risk retention.

The alternative is unnecessary because the investor market can easily ascertain and price transparent credit attributes like loan-to-value ratios, the MBA says.

The alternative also includes hard-wired credit standards that taken together would limit the availability of QRM coverage to a small fraction of mortgage borrowers while largely excluding first-time buyers, minority borrowers and the underserved from the most competitive and affordable mortgage financing terms that are anticipated for QRM loans, the MBA comment letter says.

In related news, CoreLogic issued a white paper that says there is uncertainty about investor risk appetite for non-QM loans, which is expected to drive up the pricing of these riskier loans.

The Consumer Financial Protection Bureau did not include a downpayment requirement in the QM rule. The CFPB preserved the opportunity for high LTV loans to remain QMs, when possible, CoreLogic said.

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