MBA, Trade Groups Ask Agencies to Delay Credit Risk Retention Rule
The Mortgage Bankers Association and three dozen other industry groups sent a letter Friday to federal agencies, asking them to delay a review of the federal Credit Risk Retention final rule until the Consumer Financial Protection Bureau finalizes its Qualified Mortgage definition.
The agencies–the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the Federal Housing Finance Agency, and HUD—announced in December a review of the Credit Risk Retention final rule, passed in 2015.
The final rule provided that a securitizer of asset-backed securities must retain not less than 5 percent of the credit risk of the assets collateralizing the securities. Sponsors of securitizations that issue ABS interests must retain either an eligible horizontal residual interest, vertical interest, or a combination of both. The Act and the rule establish several exemptions from that requirement, including for ABS collateralized exclusively by residential mortgages that qualify as “qualified residential mortgages,” as defined in the rule.
The Act provides that the definition of QRM can be no broader than the definition of a “qualified mortgage” as that term is defined under the Truth in Lending Act and applicable regulations. QMs are a set of residential mortgage loans deemed to comply with the requirement for creditors to determine a borrower’s ability to repay. The agencies concluded that alignment was necessary to protect investors, enhance financial stability, preserve access to affordable credit, and facilitate compliance. Their rule also includes an exemption from risk retention for certain types of community-focused residential mortgages that are not eligible for QRM status but that also are exempt from the TILA ability-to-pay rules under the TILA. The credit risk retention requirements became effective for securitization transactions collateralized by residential mortgages in 2015, and for other transactions in 2016.
In the letter, MBA and the other organizations said while they support the Agencies’ commitment to review the definition of “qualified residential mortgage” and related provisions of the Credit Risk Retention Rule to consider changes in the mortgage and securitization market conditions and practices as well as changes made to the “qualified mortgage” definition by the CFPB, they said finishing the review before the Bureau finalizes its QM rule would be premature.
The letter noted the CFPB initiated an advance notice of proposed rulemaking to address the upcoming expiration of the category of loans that obtain QM status due to their eligibility for purchase or guarantee by either Fannie Mae or Freddie Mac—known as the GSE Patch, which is scheduled to expire on January 10, 2021. The Bureau indicated its intent to allow cessation of the Patch on that deadline or “after a short extension, if necessary, to facilitate a smooth and orderly transition.” In the ANPR, the Bureau posed questions related to termination of the GSE Patch and other elements of the general QM definition. The CFPB comment period for the ANPR closed in September, and it is expected that the agency will soon issue a notice of proposed rulemaking on QM.
“As the Agencies are well aware, QM and QRM are linked by law,” the letter said. “Specifically, the definition of QRM can be ‘no broader than’ the definition of QM. Therefore, to ensure the Agencies’ review of QRM is comprehensive and meaningful, we urge the Agencies to delay completing their review at least until the CFPB’s QM rulemaking is complete.”
The letter emphasized whether the definitions of QRM and QM should continue to be the same or whether changes need to be made, are questions that cannot be answered at this time. “It is only after the CFPB has made its final determination on the definition of QM, and following some period of experience under the new QM configurations, that the Agencies would be in a position to evaluate and seek comment on the market and consumer impacts of QM/QRM equivalency versus divergence of the definitions,” the letter said.