Final clarify from the Consumer Finance Protection Bureau (CFPB) as to what constitutes a "qualified mortgage" (QM) under Dodd-Frank legislation will be key to the continued development of the private label market for U.S. residential mortgage backed securities, according to Fitch Ratings.
In an outlook on the sector released Tuesday, Fitch noted that the lack of a clear definition is one issue that has held back issuance.
“Securitization of QRMs exempts issuers from risk retention and premium capture requirements, so resolving these definitions will be a critical breakthrough for restarting the private-label RMBS market,” said Fitch senior director Suzanne Mistretta. “Finalization will, at a minimum, provide clarity to the market and allow institutions, particularly banks, to assess the costs of re-entering the market.”
Mistretta explained that QM serves as a good measure for how restrictive QRM will be, because it cannot be any broader than the terms set under the CFPB's QM rule.
The CFPB has until Jan. 21 to issue the QM, also known as the ability-to-repay rule as mandated by the Dodd-Frank Act; but according to a press reports, the QM could come as early as this week. Industry expectations are that originators can meet the new QM standards by approving loans through agency underwriting models, or confirming that borrowers’ debt payments do not exceed 43% of pretax income.