Comptroller of the Currency Thomas Curry testified on Capitol Hill in front of Congress and fellow regulators, warning that the proposed qualified mortgage rule carries significant risk in its current form.
Testifying in front of the Senate Committee on Banking, Housing and Urban Affairs, Curry said loan originators, securitizers, consumers and policymakers continue to comment on some of the systemic risks that QRM brings to the table.
“These comments included the role of risk retention and the QRM exemption in the future of the residential mortgage market,” Curry said.
Many commentators on the QRM standard believe the criteria remains too stringent, particularly the 80% loan-to-value requirement for purchase-money mortgages.
Additionally, commentators noted that they were divided on the current risk-retention practices of Fannie Mae and Freddie Mac. Many oppose the GSEs and private securitizers receiving different treatment, while others favored it, in recognition of the market liquidity currently provided by both government-sponsored enterprises, Curry noted.
“We recognize this is a significant policy area and are continuing to review the issue,” he said.
The definition of QRM seeks to set out a conservative, verifiable set of underwriting standards that would clarify and provide confidence to mortgage originators, investors and securitizers about the loans that would qualify for the exemptions.
On Jan. 9, the CFPB revealed the ability-to-repay and qualified mortgage guidelines, creating two types of qualified mortgages with different legal liability standards.
Lawmakers and prudential regulators overseeing the financial services industry urged swift action to be taken in finalizing the QRM rule to bring certainty back to the mortgage finance system.
“For the U.S. housing market to continue on its path to recovery, consumers, lenders and investors need greater certainty regarding the boundaries of mortgage lending,” said Senators Kay Hagan, D-N.C.; Mary Landrieu, D-La; and Johnny Isakson, R-Ga., in a letter.
They added, “The QRM rule published over a year ago proposed an overly rigid, narrow standard that will result in many responsible borrowers being denied the opportunity to purchase a home with sustainable terms and pricing they can afford. We respectfully urge you to act quickly to revise the rule to accurately reflect the language—and intent—of Dodd-Frank.”
Six agencies previously issued a joint notice of proposed rule-making seeking comment on the proposal to implement a rule on risk retention in mortgage securitization, FDIC Chairman Martin Gruenberg said.
The proposed rule would require sponsors of asset-backed securities to retain at least 5% of the credit risk of the assets underlying the securities and not permit sponsors to transfer or hedge that credit risk.
The proposal would also provide borrowers, originators and investors with options for meeting risk-retention requirements as well as proposed standards for QRM, which would result in certain exemptions from the risk-retention requirement.
“After initial discussions about QRM, in view of the fact that the statute provides that the definition of QRM can be no broader than the definition of QM, staff turned its attention to the non-QRM issues pending issuance by the Consumer Financial Protection Bureau (CFPB) of its QM rule,” Grenberg said. “With the recent issuance of the QM rule by the CFPB, the inter-agency group plans to turn its attention back to issues regarding QRM.”
The overall underlying priority each regulator made clear while testifying was that agencies must work together to finalize and streamline the final rules.
“The agencies are working closely together to determine next steps in the risk-retention rulemaking process, with a view toward crafting a definition of a qualified residential mortgage that is consistent with the language and purposes of the statute and helps ensure a resilient market for private-label mortgage-backed securities,” said Governor Daniel Tarullo of the Fed.
