The American Bankers Association (ABA) is urging banking regulators to tailor the qualified residential mortgage (QRM) standard so that the majority of loans originated by depository institutions are exempt from risk retention.
"Our members believe strongly that imposing too broad a risk retention requirement — or imposing risk retention to achieve policy goals beyond improved underwriting — is likely to cause lenders to leave the marketplace and result in the constriction of credit to otherwise eligible borrowers," ABA says in a letter to the regulators.
Federal regulators are presently drafting a joint rule that requires mortgage securitizers to retain 5% of the credit risk. As mandated by the Dodd-Frank Act, regulators must designate the underwriting standards for qualified residential mortgages that are exempt from the 5% risk retention mandate.
But many industry and consumer groups are concerned regulators are moving toward a narrow QRM standard that requires well-documented, well-underwritten loans to have a minimum 20% downpayment to be safe enough for consumers and exempt from risk retention.
One regulator said that the agencies don't want to make QRM loans an illiquid, diminutive part of the mortgage market.