Regulators should use flexible guidelines in defining Qualified Residential Mortgages (QRMs), the class of mortgage loans to be exempt from the Dodd-Frank Act's risk-retention requirements, the Mortgage Bankers Association (MBA) says. In a letter to the Federal Reserve, the U.S. Treasury Department and others, the MBA outlined its perspectives for federal agencies to consider when establishing QRMs.
‘Because underwriting is an art and not a science, lenders should retain discretion within acceptable parameters to assure that qualified borrowers are not unduly denied credit for sustainable mortgage products,’ wrote John Courson, the MBA's president and CEO.
Conceding that explicit metrics will likely be required for compliance-monitoring purposes, Courson argued that such metrics ‘should be supported by empirical data that correlate them to a reduced risk of default.’
The MBA also offered its own recommendation for a regulatory definition of a QRM. According to the trade group's proposal, debt-to-income ratios (DTIs)Â should only be incorporated into the definition if compensating factors are also included.
Mortgage bankers are ‘particularly concerned’ about overly rigid DTI limits, Courson wrote, adding that if federal agencies decide to include DTI standards, they should not be lower than 50%, and that compensating factors – such as significant levels of liquid assets and residual income – should allow higher DTIs.
SOURCE: Mortgage Bankers Association