Today, the National Association of REALTORS® and 25 other organizations including the National Housing Conference (NHC) released a white paper, Proposed Qualified Residential Mortgage Definition Harms Creditworthy Borrowers While Frustrating Housing Recovery. The paper details concerns with the proposed qualified residential mortgage (QRM) definition, explaining that the definition is too narrowly written and that high down payment and low debt-to-income ratio requirements will make it hard for creditworthy borrowers to afford a home in the future.
The QRM definition was included in the risk retention rule released in March by federal regulators, which would require that sponsors of asset-backed securities retain at least five percent of the credit risk of the assets. Underwriting standards for QRMs, which are loans that are exempt from the risk retention requirement, laid out in the proposal include 20% down payment, strict debt-to-income ratios and borrower credit history restrictions.
The white paper argues that Congress provided a clear framework for improving the mortgage finance system through the Dodd-Frank Wall Street Reform Act and purposely did not include high minimum down payments as a requirement for QRMs because it is not considered a significant factor in defaults. In fact, it reinforces the point that well-underwritten low down payment home loans have been safely used for decades. The paper also states that the definition “should be redesigned to align with Congressional intent: encourage sound lending behaviors that reduce future defaults without harming responsible borrowers and lenders.”
Earlier this week, regulators extended the deadline for public comment on the proposed risk retention rule (which includes the QRM exception) until August 1 to allow interested parties more time to analyze the issues and submit comments. NHC and other organizations that have been active in cautioning policymakers on the unintended consequences of the QRM rule applaud the regulators’ decision to extend the deadline to allow for additional input to ensure this rule is defined properly. In another recent twist to this debate, FDIC Chairman Sheila Bair stated on Thursday said that the Qualified Residential Mortgage exemption should be eliminated from the risk retention proposal if possible.