On Aug. 28, 2013, the Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency (OCC), Securities and Exchange Commission (SEC), Federal Housing Finance Agency (FHFA), and U.S. Department of Housing & Urban Development (HUD) issued a revised qualified residential mortgage (QRM) proposal. The proposal, which revises a proposal originally published in 2011, implements Section 941 of the Dodd-Frank Act.
Section 941 requires sponsors of asset-backed securities to retain not less than five percent of the credit risk of assets that serve as collateral for such securities. Section 941 exempts securitizations that consist exclusively of QRMs from the risk retention requirements, deeming such securitizations secure enough to be exempt from the extra requirements.
The revised proposal includes significant modifications of the Agencies’ original proposal. The major changes relating to the QRM exemption include:
►A mortgage that meets the requirements for a qualified mortgage as defined by the Consumer Financial Protection Bureau’s Ability-to-Repay rule will meet the QRM definition, as well.
►The proposal provides for a total debt-to-income ratio of 43 percent, rather than the front-end and back-end ratio of 28 percent and 36 percent that had been originally proposed.
►The proposed downpayment requirement has been eliminated.
The Agencies are also seeking comment on an alternate approach, a so-called “QM-Plus,” which would add the following standards to the QM criteria:
►For purchase money loans, a maximum loan-to-value (LTV) of 70 percent and a requirement that the loan be a first lien, with no other recorded liens.
►For refinance loans, maximum combined loan-to-value (CLTV) of 70 percent.
►Payment history requirements for all debt obligations, and requirements related to bankruptcy, judgments, repossessions, foreclosure and loss mitigation actions.
In addition, under the proposed QM-Plus definition, loans that qualify as QMs because they are eligible for GSE purchase or fall within small creditor or balloon loan exemptions would not qualify as QRMs.
Comments on the revised proposal are due by Wednesday, Oct. 30, 2013.
Laurie Spira is chief compliance officer with Torrance, Calif.-based DocMagic Inc. She may be reached by phone at (800) 649-1362, ext. 6446 or e-mail [email protected]