by. Henry Meier
In honor of the kids going back to school in the next couple of weeks (this is the time of year that I realize the summer break is way too long), I’m going to start this morning’s blog with a quiz:
Is a QRM a(n):
a) autoimmune deficiency disease?
b)something you should avoid getting when you go away to college?
c) a penalty for failing to comply with basic underwriting standards? or
d) a qualified residential mortgage under the Dodd-Frank Act?
If you said d) you are correct and it is actually a good thing, at least based on my initial look at proposed regulations published jointlyyesterdayby federal regulators not including the NCUA. In an attempt to ensure that corporations thatcreate mortgage-backed securities have “skin inthe game,” Dodd-Frank generally requires issuers of these securities to hold 5% of their investment in portfolio.The statute made an exception for bonds comprised ofqualified residential mortgages (QRMs). The regulators were given responsibility for determining when a mortgage would qualifyas a QRMwith guidance that their definition of a QRMcould not be more expansive than the CFPB’sdefinition of a qualified mortgage (QM). The first proposal scared the heck out of the financial industry. For instance, a mortgage would only qualify as a QRMif the borrower put 20% of the purchase price down. With its proposal yesterday, calmer heads prevailed. With the caveat that the devil is always in the details with this stuff, yesterday’s rule provides that if a mortgage satisfies the CFPB’sdefinition of a QM, then it is also a QRM.
