Moody's Seeking Input on QM and Non-QM Loans – NMP Skip to main content

Moody's Seeking Input on QM and Non-QM Loans

Mar 25, 2014

Moody's Investors Service is requesting comments from market participants on its proposed approach to evaluating incremental risks of qualified mortgage (QM) and non-qualified mortgage (non-QM) loans in its ratings of U.S. residential mortgage backed securities (RMBS). The Consumer Financial Protection Bureau (CFPB) issued its Ability-to-Repay (ATR) rules, establishing the QM category. In a new request for comment, “Moody’s Approach to Assessing Incremental Risk Posed by the Ability to Repay Rules in US RMBS,” the rating agency notes that the ATR rules creative incentives that could lead to incremental risks for RMBS trusts. “The broad scope of the ATR rules allows borrowers to claim they were wrongly given loans that they would not be able to repay,” said Yehudah Forster, Moody’s vice president and senior credit officer. “Moody’s proposes changes to the RMBS methodology that would flag loans at risk for ATR claims and then lays out the framework for assessing that risk.” Since the RMBS trusts bear the costs of ATR claims raised by borrowers as a defense to foreclosure, the incremental risk for losses increases as the trust covers expenses to defend against the claim, and penalties if the claim is successful. Moody’s new approach will identify potential underwriting flaws that could result in ATR violations or disqualification of loans’ QM status. “Data discrepancies, or debt-to-income ratios and points and fees close to the QM thresholds would all raise red flags that these loans are at risk of ATR challenges,” cautions Forster. Moody’s will scrutinize the originator or aggregator’s ATR procedures and loan-level third-party diligence reviews for risk of ATR violations, and assess the strength of the representation and warranty structure. Moody’s will assess non-QM loans in the context of the overall transaction. “Some transactions will contain non-QM loans from high-quality buyers, who pose minimal ATR risk,” adds Forster. However, for transactions containing non-QM loans from non-prime borrowers or Rebuttable Presumption QM loans, Moody’s would incrementally increase loss severity levels to account for the losses resulting from ATR claims. In the new approach, Safe Harbor QM loans would pose no additional risk to an RMBS transaction because borrowers are less likely to bring ATR claims, and if they do, those claims are easy to defend. “Absent red flags, we do not propose any changes to our risk assumptions for these loans.”
About the author
Published
Mar 25, 2014
Jobs Report Comes In Weak After Mortgage Rates Surge

Employers added just 29,000 jobs in September, sending Treasury yields lower and offering a potential counterweight to the recent rise in mortgage rates

Oct 02, 2026
Price Cuts Hit Four-Year High As Mortgage Rates Top 7%

More than one in five listings took a price cut in September, but pending sales still posted their sharpest annual decline since March 2025

Oct 01, 2026
Serious Mortgage Delinquencies Rise 19% After Five Months Of Improvement

ICE data shows 574,000 mortgages were at least 90 days past due in August, while early-stage delinquencies remained below year-ago levels

Sep 29, 2026
Smaller Down Payments Give Buyers More Room, But Rates Limit The Savings

The typical down payment fell 9% from a year ago, while shifting market conditions are giving originators different affordability conversations across the country

Sep 25, 2026
Mortgage Rates Break 7% Just As Builders Find A Way To Move Buyers

New-home sales rose 6.4% in August as builders cut prices, offered incentives, and sold more lower-priced homes. Now mortgage rates are moving against buyers again

Sep 25, 2026
Borrowers Want Digital Closings, But Some Originators Remain Hesitant

ServiceLink finds 45% of surveyed LOs cite borrower reluctance as a barrier, even though most recent buyers say digital options would influence their choice of mortgage provider

Sep 23, 2026