The majority of federal regulators want to exempt all residential mortgages that comply with the underwriting requirements of the qualified mortgage rule from risk retention.
But a minority of the six regulators who are working on the proposal still want to impose a downpayment requirement on QRM-eligible loans.
They appear to be concerned the majority approach could eventually lead to the return of risky piggy-back and no downpayment lending that was prevalent before the subprime meltdown.
Their QRM-alternative would require a 30% downpayment on first liens secured by a borrower’s principal dwelling. In a purchase transaction, the first lien could not exceed a 70% LTV. A second lien would be acceptable in a refinancing.
Policy experts at Federal Financial Analytics claim the “two options are so divergent and views on them so strongly held that the regulators will do what they always do in such cases: compromise.” FFA suggests it could lead to a QRM rule with a 10% downpayment requirement.
However, the majority proposal that would align the
Mortgage Bankers Association president and chief executive David Stevens said their QRM alternative would create more tightening an already difficult lending market. “It makes no sense and it would cause more harm than good,” he told NMN in an interview.
The QRM downpayment alternative would not impact Fannie Mae, Freddie Mac, and Ginnie Mae eligible loans—since they are exempt from risk retention under the Dodd-Frank Act.
But it could impact the private-label securities market, depending on how high the downpayment requirement is set.
The regulators realize that the QM rule has created a safer mortgage market, according to the MBA chief executive. “I am very confident we will end up with a QRM rule without a downpayment requirement,” Stevens said.
