Six federal agencies issued on Wednesday a revised proposed rule meant to align the Dodd-Frank Act’s risk retention requirement with a recent CFPB underwriting rule and address concerns by the financial industry.
The proposal revises a proposed rule issued in 2011 by the Federal Reserve, Department of Housing and Urban Development, FDIC, Federal Housing Finance Agency, OCC and SEC, and requires banks and other entities that bundle mortgages into securitizations to retain risk in those transactions.
Mortgages that meet certain standards, however, such as “qualified residential mortgages,” are exempt from the rule. The proposal also requests comment on an alternate definition of a QRM to include certain underwriting standards issued by the CFPB.
The previously proposed definition of a QRM drew criticism from the financial industry, which said the strict requirements would make mortgages more expensive for potential borrowers, Financial Times reports.
“An overwhelming majority of commenters criticized the agencies’ proposed
QRM standard,” the agencies said in the proposal. “Many of these commenters asserted that the proposed definition of QRM, particularly the 20 percent down payment requirement, would significantly increase the costs of credit for most home buyers and restrict access to credit. Some of these commenters asserted that the proposed QRM standard would become a new ‘government-approved’ standard, and that lenders would be reluctant to originate mortgages that did not meet the standard.”
Much like the original proposal, securitizations of commercial loans, mortgages or auto loans with low credit risk would not be subject to risk retention under the new proposal.
The rule would also recognize the full guarantee on principal payments and interest provided by Fannie Mae and Freddie Mac for residential mortgage-backed securities as meeting the risk retention requirements while the government-sponsored enterprises are in conservatorship or receivership.