WASHINGTON (10/16/14)--Financial regulators are prepared to finalize a qualified residential mortgage (QRM) regulation Oct. 22, according to an agenda for an open board meeting posted by the Federal Reserve Wednesday.
The Wall Street Journal reports the standards for mortgages packaged into securities and sold to investors will be loosened, with the intent of making credit more readily available.
The Dodd-Frank Act requires companies issuing mortgage-backed securities (MBS) to retain part of the risk, with the intention that the risk would force closer attention to the quality of the loans.
Regulators proposed in 2011 that MBS issuers would have to hold 5% of the loan risk, unless borrowers made at least a 20% down payment, and this would be defined as a QRM. After organizations such as the Credit Union National Association said it was too restrictive, the proposal was withdrawn.
The current QRM rule includes a "broad exception for banks and other issuers of mortgage-backed securities from having to retain a portion of the credit risk on their books," according to The Wall Street Journal.
CUNA, in commenting on the proposal last year, supported aligning the definition of a QRM more closely with the Consumer Financial Protection Bureau's definition of a qualified mortgage, even though CUNA does not support the 43% debt-to-income ratio a borrower must meet for a QM.
Even so, one standard is better than having a QRM that is materially different form the QM, CUNA has maintained.
"Our main concern has been that how QRM is defined could affect the mortgage market generally and the types of loans that securitizers will be willing to package," said CUNA Deputy General Counsel Mary Dunn.
A National Credit Union Administration proposal would allow a credit union that meets certain requirements to securitize loans it has originated. Given the legal requirements and resources needed to securitize loans, the extent to which credit unions will securitize loans is unclear.