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Fitch: Proposed QRM Rule a Plus for U.S. Mortgage Lending
August 29, 2013 / 3:12 PM / 4 years ago

Fitch: Proposed QRM Rule a Plus for U.S. Mortgage Lending

(The following statement was released by the rating agency) CHICAGO, August 29 (Fitch) A proposed rule for the treatment of qualified residential mortgages (QRM), issued Wednesday by six U.S. regulatory agencies, will likely reduce uncertainty for residential mortgage originators, RMBS issuers and investors, and should also support stronger participation in jumbo loan activity by U.S. banks. Fitch sees the expected alignment of QRM rules with existing mortgage risk retention standards mandated by Dodd-Frank as a plus for lenders in simplifying the underwriting and securitization of prime borrower loans. The draft rule, if adopted, would exempt banks from a requirement to retain a portion of originated mortgages on the balance sheet, as long as certain minimum standards are met in underwriting the loan. As currently proposed, any loan that conforms to qualified mortgage (QM) rules adopted earlier this year by the Consumer Financial Protection Bureau (CFPB) will be eligible for exemption from risk retention requirements. Importantly, there is no requirement for a minimum down payment under the draft QRM rule, as long as the QM definition is satisfied and basic debt-to-income (DTI) requirements are met by borrowers. The inclusion of an onerous down payment minimum of as much as 30% could have led to a tightening of credit that may have slowed the revival of the prime RMBS market. However, the rulemaking notice by federal regulators does offer an alternative QRM proposal that would require qualifying loans to have a maximum LTV of 70%, while also meeting the existing QM definition. The proposal is open for public comment until Oct. 30. Fitch expects that the alignment of QRM with QM rules would help to ease the transition to the new rules for originators, as well as reduce the cost impact. 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. While the CFPB's QM rule is scheduled to go into effect on Jan. 10, 2014, it is possible that the QRM rule will be implemented after that date. However, potential problems associated with separate implementation dates would be limited if the rules are aligned. We noted in January after the CFPB action that the new QM definition will help in easing credit availability for traditional prime borrowers. We believe the adoption of a similar QRM rule represents a constructive step in restarting the jumbo origination and securitization market. Contact: Christopher Wolfe Managing Director Financial Institutions +1-212-908-0771 Roelof Slump Managing Director U.S. Structured Finance - RMBS +1-212-908-0705 Bill Warlick Senior Director Fitch Wire +1-312-368-3141 Fitch, Inc. 70 W. Madison Chicago, IL 60602 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com; Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com; Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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