TheMReport — News and strategies for the evolving mortgage marketplace.
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Local edition SECONDARY MARKET sustain homeownership opportunities for the next generation. Yet with the new bill, the NAACP sees policies that would make it virtually impossible for many in the middle class—and particularly people of color—to purchase homes in the future. industry's response to the original proposal issued in 2011. That proposal required lenders to keep a stake in the loans they sold in which borrowers were spending more than 36 percent of their income on payments and in loans with down payments of less than Washington, D.C. // Six fed- eral agencies have issued a notice revising their proposed qualified residential mortgage (QRM) rule that would require lenders to retain risk when selling mortgagebacked securities (MBS). The FDIC, HUD, Federal Housing Finance Agency (FHFA), Office of the Comptroller of the Currency, Federal Reserve, and Securities and Exchange Commission (SEC) jointly released their proposed revision, which was created in consideration of the The M Report | 63 se c on da r y m a r k e t Regulators propose ideas to ease the restrictions they think QRM requirements will bring. 20 percent. At the time, critics argued it would create an even more restrictive lending environment. Under the new proposal, the 36 percent income threshold has been raised to 43 percent, relaxing the exemption standards somewhat. The revised rule also eliminates the down payment requirement, opening up lending for low-income borrowers. The agencies also made adjustments to bring the QRM proposal more in line with the "qualified mortgage" (QM) rule handed down by the Consumer Financial Protection Bureau (CFPB) earlier in the year. The alignment opens up the scope of QRM eligibility, which was originally "limited to closed-end, first-lien mortgages used to purchase or refinance a one-to-four-family property, at least A na ly t ic s Relax! s e r v ic i ng Critics argued that proposal requirements would create an even more restrictive lending environment. one unit of which is the principal dwelling of the borrower." "[T]he agencies seek to ensure that relevant definitions in the proposed rule and in the CFPB's rules on and related to QM are harmonized to reduce compliance burden and complexity, and the potential for conflicting definitions and interpretations where the proposed rule and the QM standard intersect," the 500-page document reads. In addition to the new revisions, much of the original content has been kept, including a portion of the rule that would exempt commercial MBS (among other types of non-mortgage securities). The rule also still recognizes "the full guarantee on payments of principal and interest provided by Fannie Mae and Freddie Mac for their residential mortgage-backed securities as meeting the risk retention requirements" for as long as the enterprises are in conservatorship. The agencies are also requesting comment on an alternative definition of QRM that would include alternative underwriting standards, including an option that would create a 30 percent down payment requirement for the QRM definition. Comments are to be sent by October 30. Industry responses to the revised proposal were largely positive. "The re-proposed rule is a reflection of how well the notice and comment process can work," said David Stevens, president and CEO of the Mortgage Bankers Association (MBA). "Regulators proposed a rule and received a unanimous reaction from diverse groups within housing and real estate finance that the proposal would have unduly constrained the availability of mortgage credit for many borrowers. As a result, the regulators recognized the implications for consumers and the broad mortgage markets, and decided to alter and then repropose a much better rule." Stevens added that while the association is pleased with efforts to align the QM and QRM definitions, the potential 30 percent down payment requirement is "unnecessary" and worrying. Or ig i nat ion of Colored People (NAACP), reveals that the organization strongly believes homeownership to be the critical gateway toward creating safer and more stable, secure communities, especially in generating and maintaining income within communities of color. In her statement, Shelton notes that recent government policies have centered more on Wall Street and banks rather than helping the middle-class or lower-income population. Minorities in particular lost out when the housing collapse of 2007 caused home values to sharply fall. Despite this obvious need, Shelton says the industry is still seeing little to no public policies offering assistance and some that may even roadblock the path to homeownership. The NAACP, in light of this awareness of upcoming threat, applauded President Obama, enthusiastically supporting his refusal to endorse the CorkerWarner legislation, a bill that would remove the institutions of Fannie Mae and Freddie Mac and replace the Federal Housing Finance Agency (FHFA) with yet another government backstop, both of which they see as posing a direct threat to the middle class and minorities' financial well-being and ability to own or finance homes. Historically, up until the 1930s, home mortgages were only available to those elite upper-class individuals who could afford the shortterm loan requirements. However, following the Great Depression, the U.S. enacted the 30-year mortgage, making homeownership accessible to more people. Federal support via Fannie Mae and Freddie Mac, as well as the FHL Bank, was a big part of making that mortgage a reality by supplying mortgage interest deduction and other incentives. With this implementation came a growth in homeownership, building stronger middleclass communities. It is due to this fact that the NAACP is wary of a sudden shift, as any restructuring of the housing finance industry must