Stop QRM from Killing Innocent Lenders

By Stern, Scott | American Banker, July 22, 2011 | Go to article overview
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Stop QRM from Killing Innocent Lenders


Stern, Scott, American Banker


Byline: Scott Stern

Consider this analogy for a moment.

There are two brothers. One brother commits murder and is tried, sentenced and put to death. His brother, who had nothing to do with the crime, is sitting on death row solely because of his relationship to the murderer. The brother who is still alive is waiting for a permanent stay of execution or sentence reversal.

The brothers represent two segments of the mortgage industry: the guilty brother is the subprime industry, which is now virtually nonexistent. The innocent brother represents the prime loan industry, including independent mortgage lenders.

Subprime lenders have been, in effect,put to death by virtue of the fact that subprime loans are nonexistent in today's mortgage market. Those companies that depended on subprime lending for their livelihood are, for the most part, dead. Meanwhile, their prime lending brethren are still alive although suffering under the weight of enormous governmental and regulatory intervention.

The implementation of certain new regulations (SAFE Act, new good-faith estimate and truth-in-lending rules, and new lending officer compensation laws) have been merely painful.

Implementing flawed qualified residential mortgage policies could be the equivalent of a lethal injection.

The country's remaining mortgage lenders would not be the only ones to suffer. Most homeowners could not satisfy the lending standards to have their loans exempted from risk-retention rules.

A couple of recent activities could improve the plight of the brother on death row. In June, a letter from 160 bipartisan congressmen requested that regulators rework the risk-retention aspect of the Dodd-Frank Act that would require financial services companies packaging loans into securities to maintain at least 5% of the credit risk.

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