The qualified residential mortgage rules currently being hammered out by regulators should ease up from initial proposals, unless the government wants to see the mortgage market shrink even further, said speakers at the “Mortgage Underwriting and the Impact of QM” panel. The panelists debated the separate qualified mortgage, which is a new underwriting standard, and the qualified residential mortgage, which is the type of loan that would be exempt from coming risk-retentions provisions. While the QM standard will define the lending universe, panelists said the QRM standard would define what type of mortgage the capital markets will be able to fund.
Proposals circulating now require a 20% down payment for a QRM. “20% sounded neat on paper, but when people went back and looked at loan originations, including [government sponsored enterprise] loans, that disqualified a third of those loans,” said Ryan Stark, director at Deutsche Bank. He speculated the final rule would need to have a down payment limit closer to 5-10%.
Laurence Platt, practice area leader at K&L Gates, said he thought lawmakers were regretting the original stringent lending guidelines they set out in the Dodd-Frank Act. “Congress knew what they were doing [when they wrote the rule],” Platt said, adding that Congress initially said borrowers who couldn’t meet the QRM definitions shouldn’t be taking out mortgages. “At the time, they said those borrowers should be renting. Now they’re saying the regulators went beyond their intent. They have legislative remorse.”
Karen Gelernt, partner at Alston & Bird, agreed the narrowing of credit that was likely to be the result of the proposed QRM definitions was not Congress’s intent. “You’re causing people to not be able to buy a house,” Gelernt said. “It seems inconsistent with policy that’s part of the legislative history of this country—furthering home ownership.”