GAO study finds need for assessment of QM, QRM effects

August 5, 2015

WASHINGTON (8/5/15)--Most cost increases for borrowers, lenders and investors due to qualified mortgage (QM) and qualified residential mortgage (QRM) regulations likely stem from litigation and compliance issues. That’s what a U.S. Government Accountability Office (GAO) study released last week found, after speaking with federal officials, market participants and observers.

“The analyses GAO reviewed estimated limited effects on the availability of mortgages for most borrowers and that any cost increases (for borrowers, lenders, and investors) would mostly stem from litigation and compliance issues,” the report reads. “According to agency officials and observers, the QRM regulations were unlikely to have a significant initial effect on the availability or securitization of mortgages in the current market, largely because the majority of loans originated were expected to be QM loans.”

QMs are a category of loans that have certain features designed to make them more stable and more likely the borrower can afford the loan. The Consumer Financial Protection Bureau’s (CFPB) QM rule became effective in January 2014.

Federal regulators approved a QRM rule in October 2014, requiring investment banks to hold at least 5% of a loan’s risk on their books when securitizing loans, unless the loans meet the definition of a QRM.

This rule more closely aligned the QRM definition with the CFPB’s QM rule, which CUNA advocated for.

The GAO concluded that the CFPB, Department of Housing and Urban Development (HUD) and other agencies responsible for QRM regulations should complete plans to review the regulations, including identifying specific metrics, baselines and analytical methods.

According to the GAO, the CFPB, HUD and the Federal Deposit Insurance Corp. agreed with these recommendations. The other agencies, including the Office of the Comptroller of the Currency, Federal Housing Finance Agency, Federal Reserve and Securities and Exchange Commission did not explicitly agree but outlined ongoing efforts to plan reviews.