QRM Rule Revision Victory for NAR

On Aug 28 regulators proposed easing a measure to require lenders to keep a stake in mortgages that they securitize, an effort designed to discourage the kind of risky loans that contributed to the subprime credit crisis.

The 505-page(!)  draft regulation written by six agencies drops a requirement that lenders retain a stake in mortgages with down payments of less than 20 percent, which appeared in an earlier version of the measure known as the qualified residential mortgage (QRM) rule. The first draft, released in 2011, drew protests from housing industry participants and consumer groups who said it would impede home lending.

The new measure “will bring a measure of clarity and consistency to the mortgage market that will facilitate its recovery,” Federal Deposit Insurance Corp. Chairman Martin Gruenberg said. The draft would align the qualified residential mortgage rule, designed to protect investors, with similarly named guidance governing risky home lending: the qualified mortgage, or QM rule, designed to protect borrowers. That regulation, issued by the Consumer Financial Protection Bureau in January, contains no down payment requirement. It offers legal protections to banks that make loans defined by the rule as non-abusive.

Both rules, mandated by the 2010 Dodd-Frank Act, will reshape who can lend and who can borrow because banks will probably make only those loans that conform to the new standards. The new plan marks a victory for a coalition of REALTORS, bankers and consumer advocates who lobbied for the two rules to be aligned.

Loans guaranteed by Fannie Mae and Freddie Mac, the mortgage financiers operating under U.S. conservatorship, would automatically be exempt from risk-retention requirements for as long as the companies remain in federal control. The two companies, which would be eliminated under proposals in Congress, currently guarantee about two-thirds of all new home loans.

The regulators are asking for public feedback on the full proposal by Oct. 30 before they vote to finalize the rule. Additional agencies involved in the rulemaking are the Federal Reserve, Department of Housing and Urban Development, Federal Housing Finance Agency, and the Office of the Comptroller of the Currency.

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