Regulators Signal No Changes to QRM Definition

The FDIC board yesterday determined that no changes will be made to the definition of “qualified residential mortgage” and related provisions of the credit risk retention rule, as recommended by ABA and other financial trade groups. This action will ensure the continued alignment of the QRM and Qualified Mortgage frameworks.

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 eliminating high-risk activities within the financial sector, 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.

FDIC staff concluded that QRM definition did not appear to be a material factor in credit conditions during the review period, and that risk retention remains an effective tool for aligning the interests of securitizers, originators, and investors, and reducing default risk on certain loans. No changes were recommended to the community mortgage exemption, and no change to the three-to-four unit mortgage exemption.