Frank Keating, the president and CEO of the American Bankers Association, said on Monday that the proposed mortgage risk retention rule for qualified mortgages is tough enough and that tightening the rule would negatively impact the housing market.
Originally proposed in 2011, the mortgage risk retention rule was revised in August to exempt securitizations of qualified residential mortgages from risk retention standards. The rule would also acknowledge the full guarantee provided by government-sponsored enterprises Fannie Mae and Freddie Mac as meeting risk retention requirements while the entities are in conservatorship or receivership.
When originally proposed, the rule included a 20 percent down-payment requirement and 36 percent debt-to-income ratio for prospective borrowers. Keating said the rule would have “dissuaded” many lenders from issuing mortgage loans outside of the requirements—a move that he said would have limited credit and caused “disproportionate harm to low-income and first-time buyers.”
“With sound underwriting, banks don’t need such high down payments and low debt ratios to make a mortgage safe,” Keating said, according to USA Today. “The government recognized this with its qualified mortgage, or QM, standard, which allows for more flexible down payments and a higher debt-to-income ratio.”
Keating noted concerns among financial institutions and consumers that lenders were not given enough time to transition over to the new rules, adding that some banks will slow lending to ensure compliance with the new rule.
“With that in mind, the regulators wisely decided not to throw yet another wrench into the gears, and they said QM loans are safe and should require no additional risk retention,” Keating said, USA Today reports. “The new mortgage rules already have measures built in to protect against risk, since lenders must verify the borrower’s ability to repay the loan… Given the numerous consumer protections built in, QMs are safe loans and need not be subject to further risk retention.”