This qualified residential mortgage proposal will not require 20% downpayment loans for PLS issuers to escape risk retention—where they would have to retain 5% of credit risk.
The QRM proposal will also drop a requirement that the issuer can't reduce the amount of a risk-retention reserve until the MBS is extinguished.
These provisions, particularly the 20% downpayment, proposed nearly two years ago ran into such opposition from Congress, industry and even consumer groups that the six regulatory agencies working on the QRM rule are expected to take a new approach when they issue the QRM rule for another round of public comments.
“The proposed easing of this rule is yet another sign of how regulators are working to provide regulatory clarity and are seeking to expand mortgage credit availability,” according to Edward Mills, a policy analyst at FBR Capital Markets.
“This should be beneficial to housing generally,” he said in a report entitled “Regulators Set to Ease Mortgage Securitization Rule.”
He also noted that the removal of the 20% downpayment requirement would be “seen as a significant win for the private mortgage insurers who insure mortgages with LTVs of 80% to 95%.”
The Dodd-Frank Act mandated the issuance of the QRM rule so securitizers would have “skin in the game” and suffer losses if they pooled risky mortgages.
Mortgages that meet the requirements of the qualified mortgage rule issued by the Consumer Financial Protection Bureau are generally exempt from risk retention.