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April 15, 2011 at 08:48 AM
A proposed rule to improve the safety of securitized mortgages by instituting risk retention was said at a House hearing on Thursday to be too strict. The rule states that qualified residential mortgages (QRM) can be exempted from the rule’s requirement for 5% risk retention, but there are conditions governing just what constitutes a QRM.
Testimony before the House Capital Markets Subcommittee on risk retention garnered testimony from a wide variety of bodies, including consumer advocacy and mortgage banking, who said that one condition required for a mortgage to qualify as a QRM was set too high: a 20% down payment.
While the rule has been approved by federal regulators, testimony pointed toward an unintended consequence: It would disqualify the vast majority of those wishing to buy a home. Ellen Harnick, senior policy counsel for the Center for Responsible Lending, said in her testimony that the proposed rule did the opposite of what the Center said was the best outcome: QRMs as the loans of choice for most borrowers, and other loans subject to strict regulation to address abuses.
The rule would make QRMs "available only to a small proportion of creditworthy families," she said, because of "down-payment, debt-to-income and credit history requirements so extreme they would exclude much of the middle class, along with large numbers of creditworthy families of color and low- and moderate-income borrowers, from access to QRMs."
