By Katalina M. Bianco, J.D.
The Government Accountability Office has completed its first study on the impact of the ever-controversial qualified mortgage (QM) and qualified residential mortgage (QRM) regulations on the marketplace. Thus far, the initial effects are limited, but the regulatory agencies need to do further review to truly assess the effects of the regulations, the GAO reported.
QMs/QRMs. The GAO noted that federal agencies, market participants, and observers estimated that the regulations would have limited initial effects because most loans originated in recent years largely conformed to QM criteria. The QM regulations, adopted by the Consumer Financial Protection Bureau and effective since January 2014, address lenders’ responsibilities to determine a borrower’s ability to repay a loan. The regulations also set out standards that include prohibitions on risky loan features (such as interest-only or balloon payments) and limits on points and fees. Lenders that originate QM loans receive certain liability protections.
Securities collateralized exclusively by residential mortgages that are “qualified residential mortgages” are exempt from risk-retention requirements The QRM regulations align the QRM definition with QM, making securities collateralized solely by QM loans not subject to risk-retention requirements. Six agencies jointly issued the final QRM rule—the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Department of Housing and Urban Development, Federal Housing Finance Agency, and Securities and Exchange Commission—that will become effective in December 2015.
Initial effects. The GAO reports that the analyses it reviewed estimated limited effects on the availability of mortgages for most borrowers and that any cost increases for borrowers, lenders, and investors would stem mainly from litigation and compliance issues. According to agency officials and observers, the QRM regulations were unlikely to have a significant initial effect on the availability or securitization of mortgages in the current market because the majority of loans originated were expected to be QM loans, the GAO said. However, there are questions about the size and viability of the secondary market for non-QRM-backed securities.
Agency reviews. The agencies have begun conducting their reviews. The GAO reports, however, that the agencies’ efforts have not included elements important for conducting effective retrospective reviews. “To varying degrees, the relevant agencies have identified outcomes to examine, potential data sources, and analytical methods.” The GAO stresses that the current data lack important information relevant to the regulations and planned data enhancements may not be available before agencies start the reviews. For example, the CFPB proposed expanding Home Mortgage Disclosure Act data reporting requirements, but the earliest that the enhanced data will be available is 2017. The agencies also have not specified how they will conduct their reviews, including determining which data and analytical methods to use.
Recommendations and responses. The GAO recommends that the CFPB and the agencies responsible for the QRM regulations should complete plans to review the QM and QRM regulations. Plans should include identifying specific metrics, baselines, and analytical methods.
According to the report, the CFPB, HUD, and FDIC concurred or agreed with the GAO’s recommendations. The other QRM agencies did not explicitly agree with the recommendations but outlined for the GAO ongoing steps being taken to plan their reviews.
For more information about QMs and QRMs, subscribe to the Banking and Finance Law Daily.
