ABA, Groups Urge Regulators to Maintain QRM, QM Alignment

As the federal banking agencies undertake a mandated review of the “qualified residential mortgage” definition and related provisions of the credit risk retention rule, the American Bankers Association and several other financial and housing groups yesterday emphasized their strong support for the “continued alignment of the QRM and [Qualified Mortgage] frameworks,” in light of the CFPB’s recently finalized QM rule, noting that not doing so would unnecessarily restrict credit, particularly to low-to moderate-income borrowers.

The Dodd-Frank Act required the CFPB to write a QM rule and for the banking agencies to establish QRM standards. The QRM standard is focused on investor protection and requires securitizers to retain no less than 5% of the credit risk when they create, sell or transfer asset-backed securities to third parties—except for securities wholly comprised of QRMs, which are deemed to be safe enough to not require credit risk retention. The agencies established an equivalency between QRM and QM in 2014, effectively codifying that loans that carry QM status are also considered QRMs, and no risk retention is required.

“We firmly believe that alignment between the QRM and QM frameworks facilitates a stable housing market and ensures access to conventional mortgage credit for borrowers across the country, including low‐ and moderate‐income and underserved households, and first‐time homebuyers,” the groups wrote. “In addition, alignment will preserve high-quality, empirically sound underwriting, borrower-friendly product features, and robust investor confidence.”