As the financial industry waits for rules from regulators on risk retention for mortgage loans as required by the Dodd Frank Act, the American Bankers Association said imposing imposing too broad a requirement is likely to cause lenders to leave the marketplace, reduce the amount of credit available to eligible borrowers, and harm the fragile economic recovery.
The ABA supports a broad safe harbor, known as the Qualified Residential Mortgage or QRM, which would not be subject to risk retention requirements. The letter, sent to the heads of the eight regulatory agencies involved in writing the new rule, said regulators need to consider other legislative and regulatory efforts already undertaken when implementing risk retention requirements.
“Using every new regulatory tool in isolation to correct every problem identified during the crisis will result in an over-regulated market that is unable to address the nation’s credit needs,” said Frank Keating, the new president and chief executive officer. “It is imperative that the QRM exclusion provide a safe harbor for properly underwritten loans with a low risk of default – this includes the majority of loans being made by depository institutions today.”
Reverse mortgage lenders should be fine when it comes to the QRM since Dodd-Frank explicitly excluded loans with FHA and VA guarantees from risk retention requirements, but until the rule is written there is no sure thing. The ABA would also like the QRM to include loans that are sold to Fannie Mae and Freddie Mac.
“We believe that defining the QRM exclusion narrowly to severely restrict loans from purchase by GSEs and therefore reduce their activities is an inappropriate use of the QRM exclusion,” Keating said. “GSE policy must be considered separately from the improved underwriting goals of risk retention.”
For a copy of the letter, see here.