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Financial Services Law Insights and Observations

Agencies will not amend qualified residential mortgage definition

Agency Rule-Making & Guidance Federal Issues Federal Reserve OCC FDIC SEC FHFA HUD Bank Regulatory Credit Risk Credit Risk Retention Regulation Dodd-Frank Ability To Repay Qualified Mortgage Qualified Residential Mortgage

Agency Rule-Making & Guidance

Recently, the OCC, Federal Reserve Board, FDIC, FHFA, SEC, and HUD issued an interagency notice stating that no changes will be made to the definition of “qualified residential mortgage” (QRM) under the Credit Risk Retention Regulations. The agencies also left unchanged a community-focused residential mortgage exemption from TILA’s ability-to-pay requirement, after determining that the exemption serves the public interest by making “safe, sustainable loans” available to low-to-moderate-income communities. An exemption for qualifying three-to-four-unit residential mortgage loans was also left unchanged after the agencies determined that the underlying properties “are a source of affordable housing” and, given the number of mortgages collateralized by three-to-four-unit properties, the exemption “does not appear to be spurring any significant speculative activity in the securitization market.”

As part of the Credit Risk Retention Regulations, which were established under Dodd-Frank, federal banking agencies are required to periodically review the QRM definition “to assess developments in the residential mortgage market, including the results of the statutorily required five-year review by the [CFPB] of the ability-to-repay rules and the QM definition.” During their review of the QRM definition, the agencies confirmed that the current QRM definition was “predictive of a lower risk of default” and “did not appear to be a material factor in credit conditions during the review period.”