The Mortgage Bankers Association has significant doubts about the regulations meant to provide mortgage issuers rules for making safer loans.
At issue are the regulations proposed to oversee the underwriting of so-called qualified residential mortgages. Under the proposed rules, firms which issue securities backed entirely by QRMs would not have to reserve 5% of the loans' value to ensure that they maintain a stake in the life of the security after they sell it. Securities which are backed by mortgages that do not meet QRM standards would have to keep that 5% stake thus, reformers hoped, helping to build a much stronger market for QRMs.
This is significant for credit unions because the eventual shape and rules of the reformed secondary mortgage market will have a direct impact on the types and terms of mortgages CUs will be able to offer their members.
As reflected in its recent testimony before Congress, the MBA believes the proposed standards for what would qualify as a QRM are far too strict to be practical.
Testifying before the House Financial Services Committee's Subcommittee on Capital Markets and Government Sponsored Enterprises Henry Cunningham, a mortgage issuer from North Carolina and a member of the MBA's board of directors, pointed out on April 14 that the new rules would have disallowed most of the mortgages issued in 2009.
“This is notable because 2009 was, by most accounts, the most cautiously underwritten, liquidity-constrained market in generations,” Cunningham wrote in prepared remarks, pointing out that credit scores for mortgages have risen as loan to value ratios have fallen, indicating the industry is producing significantly safer loans.
“It is questionable why regulators would want to define QRM even narrower than the underwriting practices that prevail in today’s much tighter credit market, such that two out of every three borrowers either will not qualify for a loan, or will have higher payments because of the loan’s non-QRM status.” Cunningham added.