A bipartisan group of nearly 40 senators has signed a letter urging the modification of strict regulations imposed on qualified residential mortgages. The letter says the extensive additional requirements cut down on borrowers’ chances to get a loan, and that the heightened restrictions weren’t the original intent for QRM exemptions.
QRMs are exempt from the risk retention requirement of the Dodd-Frank Act, which requires a loan’s securitizer to keep 5% of the loan so that the securitizer still has something at stake in the event of a default. This is meant to reduce giving out poorly underwritten loans.
However, in March, a proposed new rule for QRMs required, among other provisions, a 20% downpayment for non-FHA-insured residential loans. This is troubling to those cosigning the letter, which states that “the proposed regulation goes beyond the intent and language of the statute by imposing unnecessarily tight down payment restrictions.”
The letter says that the original statute requires the QRM definition to be based on “underwriting and product features that historical loan performance data indicate result in a lower risk of default,” and that these new regulations swing the pendulum too far, reducing the availability of affordable mortgage capital for otherwise qualified consumers.
“Well underwritten loans, regardless of down payment, were not the cause of the mortgage crisis,” the letter reads. “The proposed regulation also establishes overly narrow debt to income guidelines that will preclude capable, creditworthy homebuyers from access to affordable housing finance.”
Sens. Mary Landrieu (D-La.), Kay Hagan (D-N.C.), Jeanne Shaheen (D-N.H.), and Johnny Isakson (R-Ga.) initiated the letter, which was sent to heads of the Federal Reserve, the Department of Housing and Urban Development, and the Federal Housing Finance Agency, among others.
The Mortgage Bankers Association has previously spoken out against QRM regulations, citing higher costs and diminished access to credit for many consumers. Additionally, another letter was sent by 15 trade groups asking for an extended comment time for the new rule so that needs and questions of affected entities can be properly addressed.
View the letter here.
Written by Alyssa Gerace