Magazine article Mortgage Banking

In a QRM Quandary, Industry Holds Its Collective Breath

Magazine article Mortgage Banking

In a QRM Quandary, Industry Holds Its Collective Breath

Article excerpt

Consensus comments at the Mortgage Bankers Association's (MBA's) National Secondary Market Conference & Expo in New York City in May reflected considerable trepidation about Qualified Residential Mortgage (QRM) rules emanating from the Dodd-Frank Wall Street Reform and Consumer Protection Act. Tom Deutsch, executive director of the American Securitization Forum (ASF), New York, said: "QRM is still too tight. Some great loans would not meet those standards as currently written," using as an example a retiree with a lot of cash but no current job income.

"There is a whole lot of gray area with mortgage origination; all kinds of issues," Deutsch noted, adding on another topic that when it comes to efforts of "keeping people in their homes at nearly any cost, we really need to rip the Band-Aid[R] off. There are borrowers out there who will not be able to stay in their homes." Deutsch went on: "I'm scared to death of the shadow inventory ... that lends itself further to problems. Letting people live in their homes for free really doesn't generate a lot of interest [among investors] to buy more mortgage-backed securities."

Listening in the audience to Deutsch speak at the last general session of the MBA National Secondary Market Conference, Bill Godfrey, executive vice president, capital markets, for Mason-McDuffie Mortgage Corporation, San Ramon, California, challenged the panel of industry leaders over the scope of proposed regulations. "It seems like overkill and in disproportion ... with a $ 10 trillion mortgage market and [only] a 5 percent foreclosure problem, that equates to $250 billion at worse," Godfrey miscalculated, but his larger point was that "with QRM rules, we are losing perspective." Godfrey insisted that "the bigger problem is the danger of exacerbating the problem" with too many regulations, "making us the sacrificial lamb."

In reply, Jeff Foster, senior policy adviser, capital markets, U.S. Department of the Treasury, said: "We're trying not to over-react. The 5 percent risk retention doesn't mean higher costs [but rather] how and where risk is borne. If you make a loan, there should be a sense that a person can repay it," Foster remarked, conceding moments later that he was "struck by how much there is to do to get the Dodd-Frank rules right."

Roused by an audience of like thinkers at MBA's National Mortgage Servicing Conference in Dallas back in February, Jay Brinkmann, MBA's chief economist and senior vice president of research and economics, asked rhetorically: "When did we switch from being loan servicers to social service agencies?" The remark brought applause from the roomful of listeners, so Brinkmann seemed encouraged: "There is a limit to how far you can go in solving all life's problems with a mortgage payment," he said. "At some point; we may just have to tell people to sell the damn house. When did modifications become a [civil] right?"

Sticking close to that contrarian theme, Scott Gillen, senior vice president, strategic initiatives for Stewart Lender Services, Houston, told an audience at Dallas-based DSNews' Distressed Asset Roundtable & Exchange (DARE) in New York City in April, 'The perception that the servicing industry is not reaching out properly [to modify loans] is a misnomer. We go overboard and probably give borrowers way too many chances."

Gillen added, "There is an implicit responsibility for the borrowers to contact us, [but] everybody got caught up in, 'I have to collect a full package to make a [mod] decision.'No, you don't. …

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