In a QRM quandary, industry holds its collective breath.

Author:Morse, Neil J.
Position:On the Road - Qualified Residential Mortgage

Consensus comments at the Mortgage Bankers Association's (MBA's) National Secondary Market Conference & Expo in New York City in May reflected considerable trepidation about Qualified Residential Mortgage (QRM) rules emanating from the Dodd-Frank Wall Street Reform and Consumer Protection Act. Tom Deutsch, executive director of the American Securitization Forum (ASF), New York, said: "QRM is still too tight. Some great loans would not meet those standards as currently written," using as an example a retiree with a lot of cash but no current job income.

"There is a whole lot of gray area with mortgage origination; all kinds of issues," Deutsch noted, adding on another topic that when it comes to efforts of "keeping people in their homes at nearly any cost, we really need to rip the Band-Aid[R] off. There are borrowers out there who will not be able to stay in their homes." Deutsch went on: "I'm scared to death of the shadow inventory ... that lends itself further to problems. Letting people live in their homes for free really doesn't generate a lot of interest [among investors] to buy more mortgage-backed securities."

Listening in the audience to Deutsch speak at the last general session of the MBA National Secondary Market Conference, Bill Godfrey, executive vice president, capital markets, for Mason-McDuffie Mortgage Corporation, San Ramon, California, challenged the panel of industry leaders over the scope of proposed regulations. "It seems like overkill and in disproportion ... with a $ 10 trillion mortgage market and [only] a 5 percent foreclosure problem, that equates to $250 billion at worse," Godfrey miscalculated, but his larger point was that "with QRM rules, we are losing perspective." Godfrey insisted that "the bigger problem is the danger of exacerbating the problem" with too many regulations, "making us the sacrificial lamb."

In reply, Jeff Foster, senior policy adviser, capital markets, U.S. Department of the Treasury, said: "We're trying not to over-react. The 5 percent risk retention doesn't mean higher costs [but rather] how and where risk is borne. If you make a loan, there should be a sense that a person can repay it," Foster remarked, conceding moments later that he was "struck by how much there is to do to get the Dodd-Frank rules right."

Roused by an audience of like thinkers at MBA's National Mortgage Servicing Conference in Dallas back in February, Jay Brinkmann, MBA's chief economist and senior vice president of...

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