The Wells Letter on 'QRM'

If you missed the recent story we published on Wells Fargo's letter regarding the 'qualified residential mortgage' test, don't feel bad. The issue isn't going away. In a letter to six different regulators, Wells' suggests the QRM definition should be "simple and balanced" and that such a mortgage would be one with a loan-to-value ratio of 70% or below. On the surface it appears that Wells may've lost its mind. As one MBS investor told me, "Nice try, Wells." But keep in mind a few things: Wells suggests this ratio as an "example" and argues in its Nov. 16 letter to FDIC, FHFA and others that if the QRM definition is too broad it will cause a problem where "loans may have undetected processing defects." It appears that the bank's logic is this: a narrow QRM definition will actually create a large segment of borrowers outside the safe category, thus increasing liquidity to this market. Huh? At least that's how I read it. But is Wells dreaming here? And it should come as no surprise that many in the industry believe the bank is upping its power grab on the mortgage banking business. I ask readers this: how many of the loans that you are funding have LTVs of 70% or lower?