Regulators Grappling with QRM Rule Making

Mortgage & Real Estate

A key federal regulator is signaling that banking agencies are not close to formulating final regulations that address risk retention on mortgage securitizations. 

Acting Comptroller of the Currency John Walsh told Senate Banking Committee members Tuesday that his fellow regulators still have to make a “series of decisions” before issuing the risk retention rule.

He noted that the six regulators working on the rule have yet to decide whether there should be a broad or narrow “qualified residential mortgage” exemption to the 5% risk retention requirement mandated in the Dodd-Frank Act. “That’s one of the things we are going to be grappling with,” Walsh testified.

The regulators issued a joint QRM proposal last March for public comment. The draft requires a 20% downpayment for mortgages that would be exempt from risk retention. 

Walsh insists Congress intended the QRM exemption to be narrowly drawn to encourage risk retention on securitizations. “The QRM definition is drawn pretty narrowly in order to identify mortgages that are so well underwritten that no risk retention is needed,” Walsh said. 

But many in Congress argue that the QRM definition should be broad and the downpayment should be 5% or lower.

At Tuesday’s hearing, Sen. Robert Menendez, D-N.J., said creating a QRM exemption with a 20% downpayment requirement would hurt the housing market and prevent a “whole universe of very responsible borrowers” from obtaining low cost mortgage credit.

“This housing market doesn’t need any more body blows,” Menendez said.

Daily Briefing | Tuesday, December 6, 2011

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