The CFPB’s proposal to allow QM treatment for certain seasoned mortgages will rewrite a decade’s worth of securitized lending if macroeconomic and interest-rate conditions turn favorable. Once the QM coast is clear for portfolio loans, we expect large banks not only to make more of them both for their portfolios and eventual securitization, but also to renew experimentation with covered bonds. If portfolios grow, the GSEs’ footprint will shrink – perhaps a lot, adverse selection will take on renewed importance in new bond and PLS markets, nonbanks will need a new gig, and MIs may finally crack bank portfolios.
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