As required by the Dodd-Frank Act, the OCC, FRB, FDIC, and SEC are seeking views on the rules establishing qualified residential mortgages (QRMs) that determine when originators or securitizers must retain credit risk to align their incentives with those of asset-backed securities (ABS) investors. Because the law requires these agencies to consult with FHFA and HUD, they are also soliciting public views. While the regulators initially proposed QRM standards that would make risk retention the rule, not the exception, the final rule takes a generous approach. The current review does not seem interested in altering the QRM. But, even if were the agencies in fact to decide to do so, subsequent rulemakings would be required. Depending on how the agencies then decided to revamp the QRM, a new definition could erode the advantages now afforded government housing finance under current rules, alter investor protections for future private-label mortgage securities, affect the strategic value of various forms of credit enhancement, and challenge the dominant role of nonbank mortgage companies.
The full report is available to retainer clients. To find out how you can sign up for the service, click here.