NAR, Coalition Continue to Push on QRM Definition

NAR, along with 50 other members of the Coalition For Sensible Housing Policy, recently submitted a letter to federal regulators asking that the standards used in the recently released Qualified Mortgage rule (QM) be used to define the Qualified Residential Mortgage (QRM). The similarity in these terms makes them easy to confuse, so a short review is helpful.

A definition of a “qualified mortgage” was required by the Dodd-Frank Act, which became law in 2010. When the QM rule was finally published in January, 2013 its definition hinged on three components: the ability to repay (with a list of 8 criteria), a maximum debt ratio of 43 percent (with some exceptions) and no interest-only or negative-amortization components, balloon payments (except in certain instances) or repayment periods longer than 30 years.

The Dodd-Frank Act also specified that a lender must securitize mortgage loans to retain five percent of the credit risk unless the mortgage is a Qualified Residential Mortgage (QRM). As of yet, there is no definition of a QRM and therein lies the problem. NAR and its coalition partners strongly oppose an early attempt to define QRM (April 2011) that would have required a twenty percent down payment to meet this criterion. They say that such stringent requirements will “limit the ability of private capital to reach lower income households and first-time buyers.”

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