Regulators have officially gone back to the drawing board in trying to implement Dodd-Frank Act restrictions on securitized mortgages.
The Federal Deposit Insurance Corp. announced Wednesday that on April 28 its board of directors will discuss in a public meeting issuing a "second proposal" requiring lenders to retain some of the credit risk for mortgages they securitize. The meeting is scheduled for 10 a.m.
The FDIC, along with five other agencies required to implement the restrictions, have faced tough criticism over their original risk-retention proposal since it was unveiled in March 2011.
Dodd-Frank allows the regulators to exempt certain ultra-safe loans — known as "qualified residential mortgages" — from the required 5% risk retention for other loans they securitize. (The Office of the Comptroller of the Currency, Federal Reserve Board, Securities and Exchange Commission, Federal Housing Finance Agency and Department of Housing and Urban Development are also working on the regulation.)
But banking and housing advocates argued the agencies' original proposed standards for meeting the QRM criteria, including a 20% down payment, would mean higher costs for lower-income borrowers unable to afford such a big cash payment. Other critics targeted the proposed creation of "premium capture" reserve funds where securitizers would set aside funds to comply with the 5% retention requirement.
Meanwhile, another factor complicating the regulators' efforts is how the QRM designation compares with a similar but different standard for safely-underwritten mortgages in a recent rule issued by the Consumer Financial Protection Bureau. That rule, which was finalized well after the original QRM proposal, establishes criteria for "qualified mortgages" that are considered to be in compliance with new CFPB underwriting requirements. To prevent the confusion stemming from overlapping — but conflicting rules — many observers expect the agencies to propose a new set of QRM criteria to be in line with the CFPB rule