Federal Reserve Governor Daniel Tarullo said last week that regulators should consider aligning the risk retention rule’s “qualified residential mortgage” standard with the “qualified mortgage” standard.
“We want to be careful here about the incremental rulemaking not beginning to constrict credit to middle- and lower-middle-income people who might be priced out of the housing market,” Tarullo said, according to Bloomberg. “So I think it’s definitely the case that on the table should be consideration of making QRM more or less congruent with QM.”
The QRM rule, which is currently being drafted by six banking regulators, encourages borrowers to make larger down payments than average to avoid risk retention requirements that could lead to higher interest rates, while the QM rule revises underwriting standards implemented by lenders that deny loans to borrowers who cannot demonstrate their ability to repay.
Regulators drew criticism in 2011 after they published a draft version of the rule that mandated that homebuyers make a down payment of at least 20 percent of the home purchase price and meet strict income requirements to qualify for a low-interest loan. Consumer advocates said that the rule would have put many Americans out of the home market, making home loans more expensive while having little effect on loan performance, Fox Business reports.
Not all housing industry participants, however, are in favor of aligning the two rules. Private mortgage insurers, which protect lenders from defaults on home loans with down payments below 20 percent, are likely to benefit if the QRM rule allows its down payment limit to be waived when borrowers buy their coverage.