A proposed mortgage definition that analysts say could arrive this week promises to have a strong impact on the sort of secondary mortgage market credit unions will face one day.
The regulation will propose a definition for a qualified residential mortgage. QRMs are mortgages that have the kinds of underwriting and terms that have historically not led to defaults and are thus deemed at less risk than others.
This is significant because institutions seeking to bundle and package mortgages into securities for sale on the secondary market will have to retain 5% of the loan's balance on their books as a risk premium meant motivate them to write and sell better mortgages unless they create their secondary mortgage securities out of QRMs.
Analysts say this makes the QRM definition extremely important for secondary mortgage market reform. A QRM definition that is too restrictive for many prospective homeowners to access could effectively limit the size of a secondary mortgage market for mortgages sold without any government guarantee. A QRM definition that is not sufficiently grounded in home default data or does not foresee a role for privately issued mortgage insurance could also drive up the cost of QRMs and restrict the market, analysts said.