Regulators Finalize Mortgage Lending Rules to Align with QM

Regulators are finalizing rules around mortgage lending that should stand to clarify requirements for both borrowers and lenders in the mortgage market. 

The adoption of the new rules marks the end of an ongoing debate around qualified mortgage rules implemented by the Consumer Financial Protection Bureau this year, and how they stack up against rules held by other federal agencies including the Federal Deposit Insurance Corporation (FDIC) including risk retention. 

The risk retention requirement specifies that banks keep at least 5% of the risk on their books when they securitize loans; a measure taken following the housing crisis. 

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The regulators are essentially adopting the CFPB’s definition of Qualified Mortgage, simplifying the compliance process for lenders. Mortgage industry participants have long advocated for a definition from the other regulators that would match the QM definition under the CFPB. 

The Mortgage Bankers Association welcomed the decision following the announcement. 

“We are pleased with the final risk retention rule as voted on by the FDIC today. It’s positive for the housing market that the final QRM definition will generally mirror the qualified mortgage rule that lenders are operating under today. Doing such will likely not exacerbate the tight credit environment currently facing many borrowers.”

The FHFA called the finalizing of the rule a “major step” for the housing finance market. 

“Finalizing this rule represents a major step forward to providing greater certainty to the housing finance market and paves the way for increased participation by the private sector,” said FHFA Director Mel Watt. “Aligning the Qualified Residential Mortgage standard with the existing Qualified Mortgage definition also means more clarity for lenders and encourages safe and sound lending to creditworthy borrowers. Lenders have wanted and needed to know what the new rules of the road are and this rule defines them.”

Written by Elizabeth Ecker

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