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MBA, Consumer Groups Join Forces on QRM Concerns

Sorohan, Mike
The Mortgage Bankers Association and several major consumer groups announced a campaign aimed at educating legislators, regulators and others on key issues involving a proposed rule that would create a “qualified residential mortgage" exemption to risk retention requirements in the Dodd-Frank Act.

MBA, the Center for Responsible Lending, the Consumer Federation of America, the National Community Reinvestment Coalition and the National Housing Conference joined together to create informational materials and to conduct briefings for Capitol Hill staff. Yesterday, the coalition held a briefing for House staff; following a press conference tomorrow at the National Press Club, the coalition will hold a similar briefing for Senate staff.

“Our primary goal is to provide a united front in opposition to the proposed rule's restrictive down payment, loan-to-value and debt-to-income requirements--measures that were never intended by Congress and that will restrict the return of private capital to the mortgage market and withhold credit from tens of thousands of qualified borrowers,” said MBA President and CEO David Stevens. “We are urging lawmakers and other thought leaders to join us in demanding that the regulatory agencies come up with a better rule.”

The coalition is urging lawmakers to take a closer look at the long-term impacts of the rule in light of the uncertain future of the GSEs, which are specifically exempted from the rule as long as they remain in conservatorship. “As a result, the downstream impacts of the proposed rule are unknown,” Stevens said.

The collateral materials document what MBA said a proposed rule issued by the federal finance agencies on risk retention, while well-intentioned, goes “beyond what Congress intended and would drastically limit affordable mortgage financing options for moderate-income families, first-time borrowers, minorities and many others.” Key points include:

• The proposed regulation will hurt consumers by limiting access to credit for well-qualified borrowers. In particular, the proposed down payment, loan-to-value and debt-to-income requirements are unnecessary and not worth the societal cost of excluding far too many borrowers from the most affordable loans.

• By prescribing hard-wired down payment, LTV and DTI standards, the government will effectively take ownership of risk rather than require private lenders assume the risk and underwrite sustainable loans for consumers.

• The impact will be worse for minorities, first-time borrowers and homeowners with limited equity and threatens to disturb the balance between the rental and homeownership markets.

• Excluding risky products and requiring sound underwriting, full documentation and verification are the right steps to return private investment to the housing market and ensure sustainable and affordable housing credit for as many families as possible.

• The QRM provisions in Dodd-Frank share the same purpose of ensuring well underwritten mortgages as the Qualified Mortgage (QM) proposed under Dodd-Frank’s separate ability to repay provisions, and the QRM should be aligned with the QM.

• Regardless of the deadline set by Dodd-Frank, the rule not be rushed. While a rule along the lines proposed, as well as the alternative proposal, will likely have a limited near-term impact on today’s mortgage market, it creates significant long-term challenges to the return of private capital and a normal, healthy mortgage market.

• The mortgage market is functioning today because of heavy government support--a position that is neither sustainable nor desirable long-term. With Fannie Mae and Freddie Mac securitizing, and government agencies including FHA, VA and the Department of Agriculture insuring or financing most of the nation’s mortgages, private investment capital remains largely on the sidelines. The rule, as proposed, could make it even harder for that to change. If finalized as proposed, the rule is likely to increase both the GSEs’ and agencies’ roles at a time when the future of the GSEs’ and the government’s role in housing has yet to be determined.

“This is an extremely important rule that will have an enormous impact on families, markets and the housing recovery for years to come,” the coalition said. “Congress should take immediate action to synchronize the risk retention/QRM and ability to repay/QM rulemakings. The comment period should be extended, and the rule should be delayed and reconsidered until the QM and other concerns can be resolved. Given the range of issues and what is at stake for consumers, getting this right is far more important than getting it done quickly."