This decision to align the QRM definition with the QM definition achieves the “appropriate balance of limited credit risk to protect investors while mitigating potential adverse effects on borrowers, originators and the mortgage markets,” according to regulators.
The regulators also claim the alignment will streamline compliance and reduce regulatory costs.
Non-QRM loans that exceed the 43% debt-to-income ratio or fail to meet other requirements of the QM ability to repay rule will be subject to risk retention when securitized.
The Federal Deposit Insurance Corp. board of directors approved the QRM proposal at a Wednesday morning and agreed to issue it for public comment. The comment period ends October 30.
As a FDIC board member, Consumer Financial Protection Bureau director Richard Cordray voted to issue the QRM proposal.
“It recognizes that the QM rule embodies substantial new protections for consumers in the mortgage market but also tries to strike a sensible balance of countervailing concerns about access to credit in today’s tight credit,” Cordray said.
The CFPB director noted, however, that the CFPB designed the QM rule to protect consumers—not mortgage investors.
The QRM is mandated by the Dodd-Frank Act to ensure MBS issuers retain some of the credit risk as a way to protect MBS investors.
But the new proposal eliminates a tough requirement that would have required MBS issuers to maintain more “skin in the game.”
As expected, the new QRM proposal eliminates the premium capture reserve account that was proposed nearly two years ago and was widely opposed by securities and mortgage groups.
The reserve account would have required MBS issuers to retain excess sale proceeds from the sale in a reserve account during the life of the securitized assets.
Under the new proposal, securitizers will be required to hold 5% vertical or horizontal strips of the MBS for a limited period of time.
The Mortgage Bankers Association welcomed the changes to the QRM proposal.
“MBA applauds the regulators for carefully balancing the competing policy objectives in this rule, and looks forward to continuing to work with them to ensure that other portions of this rule are strengthened in order to bolster the real estate markets and also protect borrowers and investors,” MBA president and chief executive David Stevens said.