Magazine article Mortgage Banking

Six Federal Agencies Approve Final QRM Rule

Magazine article Mortgage Banking

Six Federal Agencies Approve Final QRM Rule

Article excerpt

On Oct. 22, six federal agencies approved a final rule on risk-retention requirements for issuers of mortgage securities transactions as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule was anxiously awaited by the mortgage industry to see if the definition of a Qualified Residential Mortgage (QRM) would match up with the earlier-defined Qualified Mortgage (QM), which was part of a separate section of Dodd-Frank.

QRM loans are exempt from the law's risk-retention provision that requires sponsors of asset-backed securities to retain not less than 5 percent of the credit risk of the assets collateralizing the issuance.

The final rule was issued jointly by: the Federal Reserve Board, the Department of Housing and Urban Development (HUD), the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Finance Agency (FHFA), the Office of the Comptroller of the Currency (OCC) and the Securities and Exchange Commission (SEC).

The final rule aligns the QRM definition with that of a Qualified Mortgage as defined earlier by the Consumer Financial Protection Bureau (CFPB). The final rule also does not require any risk retention for securitizations of commercial mortgages, automobile loans or commercial loans if they meet specific standards for high quality.

The final rule requires the agencies to review the definition of QRM no later than four years after the effective date of the rule with respect to the securitization of residential mortgages and every five years thereafter, according to a joint press release from the agencies. It also allows each agency to request a review of the definition at any time.

The final rule will be effective one year after publication in the Federal Register for residential mortgage-backed securitizations (RMBS) and two years after publication for all other securitization types, the agencies said. …

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