A coalition of industry trade groups is urging Congress to synchronize the upcoming final rules for the qualified residential mortgage (QRM) with the already-issued rules on the qualified mortgage (QM).
The Coalition for Sensible Housing Policy has conducted a briefing on Capitol Hill to explain to congressional staff the problems that could occur if the QRM and QM definitions are out of whack. The QM definition was issued earlier this year by the Consumer Financial Protection Bureau, although another QM definition is reportedly being planned by the Federal Housing Administration; no date has been set regarding when the QRM definition will be finalized.
‘QRM was designed to protect investors and mortgage-backed securities,’ says Michael Fratantoni, vice president for single-family research and economics at the Mortgage Bankers Association, one of the trade groups within the coalition. ‘QM does a very credible job of protecting consumers. We're just saying, align the two – something that is safe for borrowers and safe for investors.’
Last week, the coalition sent a letter to regulators that voiced their concerns over possible problems between the two mortgage standards.
‘The riskier features and products at the heart of the recent financial crisis are not eligible for QM treatment, and they likewise should not be eligible for the QRM,’ the letter said. ‘Aligning the QRM and QM standards will encourage safe and financially prudent mortgage lending, while also creating more opportunities for private capital to reestablish itself as part of a robust and competitive mortgage market.
‘The QM definition provides strong underwriting, documentation and product standards that demonstrably lower the risk of defaults consistent with the statutory requirements for the QRM,’ the letter added. ‘Synchronizing the QRM definition with the QM would ensure that strong incentives for safe and sound lending are in place, while not impairing the return of private capital to all segments of the mortgage finance market. Furthermore, the QM features are entirely consistent with the investor protection goals of Section 941 of the Dodd-Frank Act, which limits the QRM exemption from risk retention to loans with 'product features that historical loan performance data indicate result in a lower risk of default.'’