Regulators Still Deadlocked on Mortgage Risk Retention Rule?

HUD secretary Shaun Donovan Tuesday reiterated his call for regulators to finalize a qualified residential mortgage rule that does not restrict access to “safe” loans that are being originated today.

The Department of Housing and Urban Development secretary stressed that the QRM rule mandated under the Dodd-Frank Act should be drafted to require risk retention only on irresponsible loans originated during the housing boom.

“Less than 15% of the loans originated in 2006 would qualify under the even broader definitions that are being considered for QRM,” he said Tuesday morning.

However, some regulators want a narrower definition.

“We need to remember that the goal of this debate” is not to place further limits on today’s tight credit standards “but, rather to ensure that access [to credit] we are encouraging doesn’t cause another crisis,” he said at a housing forum sponsored by the American Action Forum and Progressive Policy Institute.

The QRM rule will determine which single-family loans are exempt from risk retention. Securitizers must retain 5% of the credit risk on loans that are not exempt. (The Dodd-Frank Act exempted Fannie Mae, Freddie Mac and Federal Housing Administration loans from risk retention.)

Six regulatory agencies, including HUD, have been working on the QRM rule for over a year. The secretary’s comments indicate that regulators are still deadlocked on whether the definition of a QRM should be narrow or broad.