FDIC Takes Up QRM Proposal at Board Meeting

Federal banking regulators will meet next Wednesday to approve and release a revised risk-retention proposal for a short public comment period.

The Federal Deposit Insurance Corp. has scheduled a board of directors meeting for Aug. 28 to act on the proposal, which is also known as the qualified mortgage rule.

The proposed QRM rule will define which mortgages will be subject to risk retention where a MBS issuer has to retain 5% of the credit risk.

Mandated by the Dodd-Frank Act, risk retention is designed to ensure MBS issuers will share in losses if they securitize risky loans.

The regulators are expected to exempt single-family loans that meet the requirements of the qualified mortgage rule from risk-retention requirements of the QRM rule.

The Consumer Financial Protection Bureau has already finalized the QM rule, which contains the ability to repay underwriting requirements.

Lenders that comply with QM underwriting requirements are shielded from litigation if the borrower defaults. Most Fannie Mae and Freddie Mac loans meet the QM requirements. And HUD and the Department of Veterans Affairs are writing their own QM rules.

So most GSE, FHA and VA loans will likely be exempt from risk retention once the QRM rule is finalized.