Six regulating agencies have released a new draft of the so-called qualified residential mortgage rule, which is designed to make lenders keep some skin in the game when selling mortgage loans in the securitized market. The new proposal is a softer measure that mirrors related rules that were created recently by the Consumer Financial Protection Bureau.
Why QRM matters to borrowers
When the qualified residential mortgage rule goes into effect next year, lenders will be required to keep a 5 percent stake in loans that don't meet QRM standards. Generally, lenders don't like to keep partial risk on the loans they originate. Normally, they originate the loan, bundle it with others, then sell the package of loans to investors on the secondary market. The result is called a mortgage-backed security.
QRM is an attempt to prevent lenders from doing what they did during the housing boom, when they gave loans to borrowers who couldn't afford them, then sold the loans on the secondary market (quickly, before they went bad). When huge numbers of homeowners defaulted on the loans, the financial system nearly crashed in 2008.
With the new rule, lenders will prefer to issue loans to borrowers who meet QRM standards. But after two years of discussions on what those standards should be, regulators have decided to make the requirements for QRM the same as the qualified mortgage rule, issued by the CFPB earlier this year.
FYI, Congress came up with the terms QM and QRM
The CFPB's QM rule was designed to protect consumers. It defines what constitutes a safe mortgage. (The QRM rule is designed to protect the banking system.)
The lending industry and housing advocates have long asked regulators to align the two rules.
Barry Zigas, director of housing policy for the Consumer Federation of America, says he is pleased with the proposal.
"It's very consistent with what we recommended in our comments," he says.
Don't like the rules? How about 30 percent down?
But for those who disagree with the new proposal, regulators offer an alternative: a rule that requires borrowers to put 30 percent down to get a qualified residential mortgage, or a QRM loan.
There was overwhelming opposition from the lending industry and consumer advocates when the original rule was proposed two years ago, calling for a 20 percent down payment requirement in the QRM rule. Regulators know the alternative measure that calls for an even higher down payment won't go far.
And so do lenders.
"I expect a minority of the comments to support the 30 percent requirement," says David Stevens, president and chief executive officer of the MBA.
The proposals are open for comments until Oct. 30.
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