The “qualified mortgage” rule may do more than just provide a benchmark for the related securitization risk retention rule, “qualified residential mortgage”; according to Edward Pinto a resident fellow at the American Enterprise Institute, it may serve as the blueprint for QRM.
Federal Reserve Chairman Ben Bernanke said in testimony given before the Senate Banking Committee on Wednesday, that QRM rules make look identical to the QM standards the CFPB announced last month.
Pinto said in a blogpost on Wednesday that the Dodd-Frank imposed QM is only meant to set “minimum” mortgage underwriting standards; QRM on the other hand is supposed to be a quality measure that ensures “prime” loans will be made responsibly. Loans meeting the QRM standard are exempt from the Dodd-Frank 5% risk retention requirements.
The QM rules set no minimum down payment standard, no minimum standard for credit worthiness, and no maximum debt-to-income ratio but Dodd-Frank indicated that QRMs are to have underwriting and product features that historical loan performance data indicate result in a lower risk of default,explained Pinto.
“Somehow the absurdity of having the same rule set a minimum standard for low quality and a minimum standard for high quality simultaneously has been lost on regulators," he said. “Under this bizarre definition, it appears a borrower can have no down payment, a credit score of 580, and a debt ratio over 50% so long as approved by a government-sanctioned underwriting system. Fannie [Mae] and Freddie [Mac] made such loans as recently as six years ago.”