WE’RE HEARING that the Jan. 21 deadline for the qualified mortgage definition is causing a lot of excitement in the secondary market—and I do not mean in a good way.
As Mayer Brown partner Jason Kravitt drily put it at a recent Securities Industry and Financial Markets Association meeting, “What a day that will be.”
We all know QM’s supposed to be a good thing. But the problem for the securitized secondary market is that QM’s also the spoonful of sugar that’s supposed to make the assignee liability medicine go down, and assignee liability has always been a pretty bitter pill for the RMBS market to swallow.
As Susan Mills—a Citigroup managing director who spoke as the same SIFMA regulatory outlook meeting as Kravitt—put it, assignee liability is scary for the secondary market because it means that not only originators need to make sure borrowers have the ability to pay loans they make to them, people that securitize or warehouse those loans do, too.
For years, no one in the securitized market ever thought assignee liability would ever actually happen because it would ostensibly stop people from warehousing or securitizing. But it was always lurking about like a bogeyman.
With QM, assignee liability is theoretically less likely to freeze the market because it provides a standard by which certain “safe” loans can be automatically be protected from assignee liability.
It sure will be, um, exciting to see what exact standard or standards regulators come up with. We know Santa’s gone for this year already, but with this deadline not hitting until next year, we think it’s still worth reviewing some of the things on one industry expert’s QM wish list for the definition.
Mills tells us a “bright line” should be “specific” in terms of calculating the factors that determine a borrower’s ability to pay. She also wants exceptions to them, but she notes that unlike some she’s not picky about the type of QM protection that materializes, whether it’s a “safe harbor” or rebuttable presumption.
Will the securities industry get everything it wants in QM? Well, given that the deadline will be in a new year (and I consider it unlikely to happen before then), I want to be optimistic about it. But given that I would rather be pleasantly surprised than disappointed, I’m going to say no.