Risk Retention Regs Scrutinized by Housing Advocates

Two of housing’s major players have weighedrnin with comments on proposed standards for mortgage risk retention under thernDodd-Frank Wall Street Reform and Consumer Protection Act.  The National Association of Realtors® (NAR) andrnthe Mortgage Bankers Association each sent letters to representatives of thernsix regulatory agencies involved in formulating the standards and expressedrnconsiderable reservations over their direction and intent, especially thosernthat seek to define Qualified Residential Mortgages (QRM).  QRM loans would be exempt from the requirementrnthat securitizers keep a minimum 5 percent investment in thernloans they package for resale.  </p

NAR questioned what it called the “undulyrnnarrow definition” of QRM.  NAR PresidentrnRon Phipps said, “NAR firmly believes Congress intended to create a broad QRMrnexemption – strong evidence shows that responsible lending standards andrnensuring a borrower’s ability to repay have the greatest impact on reducingrnlender risk,” The proposed rule that such mortgages have a minimum 20 percentrndown payment, stringent debt-to-income ratio requirements and rigid creditrnstandards “will deny millions of Americans access to safe, low-cost mortgages,rnNAR said. Further, non-QRM mortgages will have higher interest rates and fees,rnmaking home ownership more expensive or unattainable for many homeowners.  The Realtor letter flatly requested thatrnregulators withdraw the proposed rule “and go back to the drawing board.”</p

NAR estimatesrnthat a non-QRM mortgage would be 80 to 185 basis points more expensive forrnconsumers than a qualifying mortgage.  Thernadditional costs, they say, will arise out of multiple factors. Since banksrnmust hold back 5 percent of each non-QRM mortgage-backed security issued theyrnwill not be able to re-use that capital for additional MBS or otherrnventures.  The sidelined capital willrnneed to be managed, incurring costs. rnWith this capital locked up, only those with large portfolios will bernable to compete in this market and with fewer regulations, the larger varietyrnof mortgages in the non-QRM space might make it more difficult to creaternstandardized securities.  Also, non-QRMrnloans will be perceived as being more risky than QRM loans. </p

NAR saidrnthat the new regulations will also introduce volatility into the system,rnparticularly as the government’s role in securitization declines.  </p

The MBA letter said that the Associationrnbelieves that the proposed regulations and structure of the QRM deviaternsignificantly from what Congress intended and are likely to have a dramaticrnimpact on the housing finance system unless they are substantiallyrnrevised. MBArnlaid out a list of their concerns both with the QRM and with otherrnregulations.  They suggested thatrnstandards for the QRM be revised to:</p<ul class="unIndentedList"