In a letter today, U.S. Senator Bob Corker, R-Tenn., a member of the Senate Banking, Housing and Urban Affairs Committee, urged federal banking regulators to simplify and synchronize underwriting standards for new mortgage lending rules to avoid permanently regulating the private sector out of the housing finance business. The qualified residential mortgage ("QRM") being implemented under the Dodd-Frank Act currently exempts loans sold to Fannie Mae, Freddie Mac, and the Federal Housing Administration. If these standards do not match those defined in the qualified mortgage ("QM") recently established by the Consumer Financial Protection Bureau, many lenders may only make loans that could be sold to Fannie, Freddie or the FHA, which would effectively regulate private capital out of the system for years to come.
"Forcing lenders to comply with two separate sets of rules isn't good policy, and in this case, it would set back the timetable on doing what we absolutely must do -- begin to move away from a complete dependence on the government for mortgage credit in our country," said Corker.
In his letter to the Treasury Department, FDIC, Federal Reserve, Federal Housing Finance Agency, Department of Housing and Urban Development, and the SEC, Corker said:
"I am writing to you today regarding the Risk-Retention and Qualified Residential Mortgage (QRM) standards being developed pursuant to Section 941 of the Dodd-Frank Act. Regardless of how one may feel about Congress telling federal agencies to draft both "qualified mortgage" underwriting standards and rules around so-called "risk retention," the reality is that the joint federal regulators now responsible for the QRM rules are in a position to materially impact what the system of housing finance in the United States will look like for years to come.
"To that end, the risk-retention requirement would require securitizers to retain a statutory minimum of five percent of the credit risk for any asset that is not a QRM. Loans insured by the federal government, including GSE-insured loans as long as the GSEs remain in conservatorship, would be exempted from the requirement.
"Since the rule carves out loans sold to Fannie, Freddie, and FHA, however, if the QRM rule is written differently than the QM rule, most financial institutions will only originate loans intended for sale to the FHA, VA, or to a GSE. As such, a perverse outcome of a QRM rule that is different than the QM rule would be that we might permanently enshrine the GSEs and other government agencies as the only large-scale source of mortgage credit in our country. With the federal government now standing behind over 90 percent of home loans originated in the United States, a situation that is simply not sustainable, such an outcome would not at all be healthy for our financial system.
"As such, I strongly encourage you to consider drafting a QRM rule that syncs up with the recently determined QM rule. Matching CFPB's version of a safe loan for any borrower with your definition of what constitutes a loan that is safe for securitization makes sense for our system, and it would be wholly consistent with the statute.
"I look forward to working with each of you closely on this issue and other issues related to housing finance."
A copy of the letter can be found here: http://www.corker.senate.gov/public/index.cfm/files/serve?File_id=48f43c94-a43c-47f4-8345-700223dab310