Diverse Groups Respond to Proposed Rule for Qualified Residential Mortgages

RISMEDIA, April 8, 2011—The National Association of Home Builders (NAHB) hosted a media teleconference recently, along with other industry and consumer groups and finance experts, to discuss the negative impact that overly restrictive lending rules recently proposed by the Federal Deposit Insurance Corp. would have on the housing market and larger economic recovery. The plan unveiled by the FDIC would require a minimum 20 percent down payment for “qualified residential mortgages,” or QRMs, that would exempt lenders from forthcoming risk retention rules under the Dodd-Frank financial reform law passed last year.

Below are statements from the panelists outlining their position on the proposed rule:

Barry Rutenberg, First Vice Chairman, National Association of Home Builders: “Requiring a high down payment would disproportionately harm first-time home buyers, who have limited wealth and, on average, account for 40 percent of home-buying activity. It would take an average family 12 years to scrape together a 20 percent down payment. Borrowers who can’t afford to put 20 percent down on a home and who are unable to obtain FHA financing will be expected to pay a premium of two percentage points for a loan in the private market to offset the increased risk to lenders, according to NAHB economists. This would disqualify about 5 million potential home buyers, resulting in 250,000 fewer home sales and 50,000 fewer new homes being built per year.

“Basically, the government is telling Mr. and Mrs. America, ‘thanks for paying your mortgage during these tough times, and thanks for building your wealth around housing, as we have encouraged you to do, but we are now changing the rules. We are going to reduce the value of your retirement nest egg even more than the recession already has. And as an extra thank you, your kids are going to find homeownership that much more difficult to obtain.’”

Lew Ranieri, the “father of securitization,” and former vice chairman of Salomon Brothers: “The proposed very narrow QRM definition will allow very few potential homeowners to qualify. As a result, it will complicate the withdrawal of the Government’s guarantee of the mortgage market. I fear it will also delay the establishment of broad investor confidence necessary for the re-establishment of the RMBS market.”

Barry Zigas, Director of Housing Policy, Consumer Federation of America: “The proposed rule establishes a standard for ‘safe and sound’ mortgages that would take the industry back to the 1980s, when low wealth and moderate income borrowers, and particularly communities of color, were routinely barred from conventional, affordable credit. The proposed standard seems to ignore all the positive lessons lenders learned over many years of experimentation in how to offer sustainable mortgage credit. We are very concerned that when combined with other recommendations from the Administration’s White Paper on housing finance, including 10 percent down payment minimums for Fannie Mae and Freddie Mac mortgages, and possibly higher down payments for FHA borrowers, this proposal will move the lending industry’s goalposts unacceptably far from the reach of low, moderate and middle income homebuyers.

“We are pleased that the proposals include at least a minimal set of servicing guidelines that would apply to all mortgage securitizations. We look forward to working with the regulators to improve and strengthen them. But there can be no doubt after the foreclosure debacle consumers have endured that clear standards are necessary.”

Mike Calhoun, President, Center for Responsible Lending: “Securitization provides financing for most of our credit- mortgages, car loans, credit cards, even financing for the buildings we work in. The collapse of this market led to the broad economic recession, and CRL supports reform of the securitization markets. The goal is to make the system safer, while still making credit available and affordable. The recent risk retention rules are an important part of this reform process. However, the proposed Qualified Residential Mortgage standards would unnecessarily over restrict credit and shut off homeownership to most working families. In particular, the down payment requirements of 20 percent would create an insurmountable barrier for most families, even though low down payment loans that are fully underwritten have performed well, even through the recent crisis.”