Proposed exemptions to the “qualified residential mortgage” need to be expanded in order to avoid harming the housing recovery, according to a diverse coalition of groups that includes trade organizations and consumer advocates.
The Coalition of Sensible Housing Policy has presented a white paper to financial regulators in an effort to expand the exemptions for a QRM. The risk-retention regulation is required under Dodd-Frank.
The study, entitled Proposed Qualified Residential Mortgage Definition Harms Creditworthy Borrowers While Frustrating Housing Recovery, details how proposed risk-retention regulation and the failure to properly define QRM exemptions “would significantly harm creditworthy borrowers while frustrating the nation’s fragile housing recovery,” a news release said.
The 44 members of the coalition include industry associations like the American Bankers Association, the Mortgage Bankers Association and the Mortgage Insurance Companies of America. Also claiming membership in the Washington, D.C.-based group are consumer groups such as the Black Leadership Forum, the Center for Responsible Lending and the NAACP.
The coalition reportedly has 326 members of Congress in its corner.
Two senators and two representatives held a press conference on Wednesday expressing concern that the proposed rule requiring a 20 percent equity position to qualify for the exemption goes beyond Congressional intent and could harm the housing recovery.
In addition, joint letters released today from 44 senators and 282 House representatives call the proposed QRM regulation “unduly narrow” and claim that well-underwritten loans at high loan-to-value ratios didn’t cause the mortgage crisis. The legislators are most concerned about the harm the rule would cause to first-time and minority homebuyers.
The members of Congress urged regulators to consider higher LTV loans with mortgage insurance as qualifying as a QRM.
“Congress considered and rejected a down payment requirement in the Dodd-Frank legislation because it determined that the cost of excluding responsible middle-class families would exceed the modest improvement in default rates,” the coalition statement said.
The report indicated that raising downpayments to 20 percent from 5 percent would only lower default rates by 75 basis points. At the same time, it would disqualify many potential borrowers. According to the groups, it would take 16 years for the average U.S. family to save 20 percent for a downpayment, while a 10 percent downpayment would take 10 years to accumulate.
In addition, many existing borrowers seeking refinances would be shut out by the rule because over half of them have less than 25 percent equity in their properties.
Despite that four-out-of-five borrowers would be ineligible based on the QRM definition, regulators haven’t even tried to estimate the cost of imposing risk retention, the groups said. But private estimates put the cost of an ineligible loan at nearly 100 BPS more than exempt QRMs.
The coalition cited the creator mortgage-backed securities, Lew Ranieri, who was quoted as saying, “The proposed very narrow QRM definition will allow very few potential homeowners to qualify. As a result, it will complicate the withdrawal of the government’s guarantee of the mortgage market… and delay the establishment of broad investor confidence necessary for the re-establishment of the [residential mortgage backed securities] market.”
