Federal Agencies Make No Changes to QRM Definition

Six federal agencies issued notice on Tuesday that they will not modify their current definition of a Qualified Residential Mortgage.

The notice supports earlier feedback by the Mortgage Bankers Association and other industry trade groups that the current QRM definition should align with the Consumer Financial Protection Bureau’s definition of a Qualified Mortgage. MBA had cautioned that modifying the QRM definition before the CFPB issued final rules with respect to the Qualified Mortgage framework would be disruptive and cause confusion in the housing markets.

“After completing the review, the agencies have determined not to propose any change at this time to the definition of qualified residential mortgage, the community-focused residential mortgage exemption or the exemption for qualifying three-to-four unit residential mortgage loans,” the agencies said.

Pete Mills, MBA Senior Vice President of Residential Policy and Member Engagement, praised the agencies’ announcement. “The decision by the agencies to maintain consistency between the QRM and QM definitions is well-reasoned and should promote stability in the market,” he said. “Aligning the frameworks used for consumer and investor protections is sensible in theory and, more importantly, has worked well in practice over the past six years.”

In 2014, the agencies—the Office of the Comptroller of the Currency; the Securities and Exchange Commission; the Federal Reserve; the Federal Housing Finance Agency; the Federal Deposit Insurance Corp.; and HUD—established the equivalency of QRM with QM as defined in section 129C of the Truth in Lending Act. The objectives of the QRM framework are to ensure investors are confident in the quality of mortgages underlying securitizations and that borrowers are able to obtain financing for sustainable home loans.

A broad coalition, including MBA, lenders, insurers, real estate professionals, consumer advocacy organizations and civil rights groups supported these objectives; they said in the period since the QRM and QM frameworks have been in place, these objectives have been met, and the mortgage finance system has functioned well.

In December 2020, the CFPB finalized amendments to the Ability-to-Repay/Qualified Mortgage provisions of Regulation Z. The new rule revised the QM General Definition and will replace the GSE Patch and the standalone 43 percent debt-to-income (DTI) ratio threshold with a framework that continues to reinforce strong underwriting, safe product features, and affordability, by imposing a new rate spread cap.

Data analysis by the CFPB confirmed that the QRM standard need not be narrower than the standard for the new General QM Definition, showing alignment of the QRM and QM frameworks generates strong incentives for responsible lending and borrowing.

In a June letter, MBA and a half-dozen industry trade groups asked federal regulatory agencies to hold implementation of new credit risk retention guidelines until the CFPB implemented its updated Qualified Mortgage general definition. The letter notes while the agencies delayed the Qualified Residential Mortgage review until the CFPB issued final rules with respect to the Qualified Mortgage framework, and the CFPB has since delayed the timeline by which use of the revised QM General Definition becomes mandatory (although market participants have begun to voluntarily adopt the terms of final QM regulation, issued in December 2020), the associations strongly support the continued alignment of the QRM and QM frameworks.