CBA Comment Letter to Regulators regarding QRM Proposed Rule

Dear Sirs or Madams: The Consumer Bankers Association (CBA) appreciates the opportunity to comment on the credit risk retention proposal issued on August 28, 2013 by the Board of Governors of the Federal Reserve System, the Department of Housing and Urban Development, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Securities and Exchange Commission (the “Agencies”). This proposal is a revision to the one the Agencies issued in 2011 to implement the provisions of the credit risk retention requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) that will be imposed on securitizers of asset-backed securities. As compared to the proposal issued in 2011, the current proposal from the Agencies would revise the definition of a qualified residential mortgage (QRM) that would be exempt from the Dodd-Frank Act five percent risk retention requirement, as well as make other changes to the 2011 proposal. 

Summary of CBA’s Comments

 CBA supports many of the changes the Agencies have made to the 2011 proposal, especially the provisions aligning the QRM definition with the qualified mortgage (QM) definition, as outlined in the QM final rule issued this past January by the Consumer Financial Protection Bureau (CFPB).

 However, HUD offers an “alternative approach” to the current proposal, which CBA opposes for the following reasons:

 Imposing a 70 percent loan-to-value (LTV) ratio requirement under the alternative approach is unwarranted. Although loans with high LTV ratios may pose additional risks, these can be mitigated by a strong underwriting review process with appropriate levels of documentation.

 A 70 percent LTV ratio requirement would provide significant barriers to achieving homeownership, especially for first time and low -to moderateincome borrowers.

 Under this alternative approach, loans qualifying as QMs under the CFPB rules because they are eligible for government-sponsored enterprise (GSE) purchase would not qualify as a QRM. We urge HUD not to adopt this provision as the GSE secondary market will remain a significant component of the overall mortgage market for years to come.

 CBA also opposes the provisions in the alternative approach that for purchase money loans, the collateral must be a first lien on the borrower’s principal dwelling and there can be no other recorded or perfected liens of which the originator has knowledge. 

To read the full Comment Letter, download the PDF.