On May 31st, one hundred and sixty-eight members of the House signed on a letter urging financial regulators to exempt home loans with lower down payments from new risk retention requirements if the loans are backed by private mortgage insurance. The letter was addressed to the SEC, the Fed, FDIC, FHFA, the OCC and HUD.
The letter marks the most recent effort by Congress to persuade regulators to reassess a March proposed rule that requires sponsors of mortgage backed securities to retain credit risk on their balance sheets while exempting qualified rate mortgages (“QRM”) from the risk retention requirements. Lawmakers, facing substantial lobbying efforts by those impacted by this rule, which includes such strange bedfellows as civil rights groups and banking interests, used this letter to urge regulators to broaden the definition of a QRM to include loans with lower down payments that are privately insured. Members argue that the current proposal, while it provides for FHA insurance, crowds out private insurers.
Previous efforts by Congress also included strong suggestions that the intent of the risk retention provision of Dodd-Frank does not require a QRM to maintain a 20 percent down payment by the borrower, a point which was also addressed in this most recent letter.