Analysts Weigh in on Potential Impact of Proposed QRM Rule

Analysts Weigh in on Potential Impact of Proposed QRM Rule

08/30/2013 BY: ESTHER CHO

Following the release of the revised Qualified Residential Mortgage (QRM) rule from six federal agencies, several analysts offered insight into how the revisions might benefit or impede progress in the mortgage market.

In the new proposal, the push for a 20 percent down payment in 2011 would be replaced with a no down payment requirement, which would bring QRM more in line with the Qualified Mortgage (QM) rule the Consumer Financial Protection Bureau (CFPB) released in January.

Another important revision that aligns with the CFPB’s QM definition is the 43 percent debt-to-income ratio requirement for borrowers rather than the original 36 percent limit.

Fitch Ratings stated it believes syncing QRM and QM proposals will make the transition to the new rules easier for originators and lead to reduced costs.

“Most of the existing prime jumbo originators have been implementing technology and internal methodologies to meet the requirements of QM. However, the uncertainty over QRM had posed some logistical challenges,” Fitch said.

According to the rating agency, adopting a QRM standard that mirrors the QM definition would also trigger more activity for the jumbo origination and securitization market.

A report from Keefe, Bruyette, & Woods (KBW) oted mortgage insurers, in particular, should find great relief from the revised QRM proposal.

“The originally proposed 20% downpayment requirement could have reduced the volume of MI business once the GSEs were no longer in conservatorship (and assuming they had a capital requirement of below 5% at that time),” the report stated.

While the recent proposal received praise for being less restrictive than the original proposal and for aligning with the QM rule, Capital Economics highlighted two areas of concern.

In a report, property economist Paul Diggle noted the inclusion of an even stricter 30 percent down payment as an alternative rule still leaves uncertainty about what the final rule might look like.

Though, he did add that the rule is unlikely to make it into the final QRM since “industry feedback will ensure that “regulators quickly drop this alternative approach.”

Of even greater concern, according to Capital Economics, is QM and QRM aren’t much help when it comes to the long-term goal of reducing the presence of the GSEs in the mortgage market.

“For lenders, the path of least resistance will be to continue issuing conforming mortgages which are bought or guaranteed by Fannie Mae and Freddie Mac, which automatically count as QMs and will now meet the QRMstandard. In the long-run, that’s going to make it harder to reduce the industry’s reliance on Fannie and Freddie and encourage the entry of private capital,” Diggle wrote.

Regulators are taking comment on the revised rule until October 30.

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