Regulatory Delays Leave RMBS Market in Limbo

The continued uncertainty and regulatory delays surrounding key mortgage rules mandated by the Dodd-Frank Act are keeping potential issuers of private-label MBS on the sidelines, according to Fitch Ratings.

The Consumer Financial Protection Bureau has delayed the issuance of the qualified mortgage rule until after the November elections. The QM rule will determine the types of single-family loans that are safe enough for consumers. Lenders that adhere to the QM underwriting standards will be shielded from litigation.

The QM rule will also set the parameters for other federal regulators to issue the qualified residential mortgage rule, determining which QM mortgages are exempt from risk retention.

The QRM rule will be critical for securitizations and the original proposal issued in March 2011 calling for the securitizer to establish a premium capture reserve account that reflects the credit risk the issuer must retain.

Fitch analysts consider the PCR account to be problematic and they are looking for the regulators to make changes.

The proposed premium capture reserve account “could cause valuation and accounting difficulties and slow securitization activity,” Fitch said in a commentary issued on Tuesday.

“While key aspects remain under review and until final determinations are made with regard to QRMs, these delays and associated uncertainties may preempt a robust return of the RMBS market, including activity from commercial bank issuers that traditionally have played a meaningful role in this sector," the ratings agency said.