MBA Expresses "Profound Concern" Over Risk Retention Proposals
ThernMortgage Bankers Association (MBA) reacted quickly to the publication yesterdayrnof proposed rules governing Qualified Residential Mortgages (QRMs), thernmortgages which will be exempt from the risk retention requirement of thernDodd-Frank Act.</p
Inrna statement released by MBA yesterday afternoon, President and CEO John A.rnCourson said that it would take time for the Association to fully evaluate the complexityrnof the hundreds of pages of regulations, but its first reaction was a “profoundrnconcern” about its impact on residential mortgage financing and “thernnation’s economy today and for generations to come.” </p
Coursonrncited the “rigid and highly prescriptive nature of the proposed rule,”</bbecause such a narrow definition of the risk retention exemption would limitrnmortgage opportunities for qualified borrowers more than it would reduce thernnumber of problems loans. If enacted asrnproposed, Courson said, it would also reduce any role for independent mortgagernbanks and community lenders which, despite long histories as safe lenders may lackrnthe balance sheets or capital to hold loans or reserve against risk. </p
Thernregulations require specific underwriting standards including maximum front-endrnand back-end debt-to-income rations of 28 percent and 36 percent respectively,rna loan-to-value ratio of 80 percent for purchase mortgages and 75 percent forrnrefinances and credit restrictions including an absence of 60-day delinquenciesrnfor a two year period prior to the loan. MBA said that, while these factors canrnbe accurate predictors of loan performance, they should not each be consideredrnin isolation and the rule should allow for flexibility in interpreting each ofrnthe component parts.</p
Thernexemption for loans sold to Fannie Mae and Freddie Mac will help to ensurernliquidity in the market, however MBA says it will do little to shrink therngovernment’s footprint in the housing finance system and could slow the returnrnof the private secondary mortgage market.</p
ThernAssociation also takes issue with the inclusion of mortgage servicing standardsrnin the proposed regulation saying that it should be the subject of a separaterndiscussion and rulemaking. </p
Courson said that thernassociation was pleased to see risk retention applied to all asset-backedrnsecurities including those secured by automobiles and commercial business loansrnand that each has been provided multiple options in the allocation of retainedrnrisk. The statement specificallyrnmentions the 5 percent vertical slice applied to commercial mortgage-backrnsecurities (CMBS,) but Courson goes on to say that given the complex provisionsrnof the rule and its impact on the CMBS market the Association plans to seekrnclarification of the rule on commercial loans that will be eligible for arnreduction in the 5 percent retained risk to ensure that terminology andrneligibility requirements are consistent with industry norms and practices.
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