Mortgage industry groups are calling for the creation of a strong safe harbor clause that will shield lenders from litigation if they originate loans that comply with ‘Qualified Mortgage’ underwriting standards.
“Unless there is a true safe harbor for the QM, institutions will operate substantially below the threshold to help manage their litigation risk and credit will be tighter," said Bob Davis, executive vice president of the American Bankers Association.
As spelled out in the Dodd-Frank Act, the QM establishes an “ability to repay” standard and “Qualified Residential Mortgage” defines which loans are exempt from risk retention.
As proposed by the Federal Reserve, the industry could follow certain QM underwriting standards to achieve a safe harbor and a related set of underwriting standards to achieve a "presumption of compliance."
Industry groups clearly prefer a legal safe harbor. "In fact, the Mortgage Bankers Association (MBA) would support even stricter [underwriting] standards than those proposed by the board," according to recent testimony by an MBA official. The comment period on the QM proposal ended July 22.
However, industry groups don't want the QRM to be substantially stricter than the QM. That would leave QM loans that don’t meet the downpayment and debt-to-income requirements of the QRM subject to risk retention.
Therefore, some industry groups are urging the Consumer Financial Protection Bureau (CFPB) to craft QRM standards that mirror QM standards as closely as possible. “Any additional requirements beyond the QM should be kept to a minimum,” Davis said.
The CFPB inherited rulemaking of the QM rule on July 21.
For ASR’s coverage on the Qualified Mortgage debate, please click here.