|Copyright:||(c) 2010 SourceMedia Inc , Source: The Financial Times Limited|
|Source:||Financial Times Limited|
As regulators try to collaborate on new securitization rules, a fissure has emerged in bankers’ own thinking on the subject.
A united industry had lobbied
“All other things being equal, a narrow definition will result in further consolidation in the mortgage marketplace to the benefit of large players and to the detriment of smaller lenders and consumers,” said
Regulators have until spring to write rules enforcing a Dodd-Frank provision requiring lenders to retain at least 5% of loans they sell. The agencies also must establish the criteria for a “qualified residential mortgage,” which could avoid the retention requirement and which Dodd-Frank left undefined.
Sources say the agencies are already divided over how restrictive the rule should be; a proposal initially expected in December is now targeted for a January release. But controversy over the Wells proposal poses an additional complication, observers said. In a
“A definition of QRM that encompasses a large portion of the mortgage market … will produce a tendency to avoid lending to creditworthy borrowers falling outside that definition,” wrote
The proposal dominates industry buzz over the rulemaking, and Wells has remained a somewhat lone wolf. The biggest banks, which are more capable of making jumbo loans with whopping down payments, are presumed to stand to benefit from Wells’ idea. But they have stayed mum on the topic. Meanwhile, some large banks and nonbank lenders, as well as trade groups like the
“We believe there should be broad latitude to establish qualified mortgage exemptions and that it should be fairly liberal, and we are not in favor of excessive down payment requirements or any other term or condition,” said
Since Gibbons’ proposal, others have released letters that, though not naming Wells, appeared to be rebuttals. (A Wells spokeswoman declined to comment.)
A joint letter
“To the extent that the criteria are ratcheted up too tightly in the QRM, it will cause borrowers to fail to meet the QRM criteria, and they will be forced to move in large numbers to seek FHA loans,” wrote
“If you have traditional products that are well documented and well underwritten, they should be exempt from risk retention because those are the very products you are trying to encourage for the marketplace,” he said. “We think you can allow for a smaller down payment if there is some kind of credit enhancement, the most obvious being mortgage insurance. We don’t think requiring a large down payment is appropriate.”
“The tighter the box around a QRM, the less loans available to those outside of that box, and the price of that credit will definitely be much higher,” he said.
Wells’ proposal has complicated an already uncertain regulatory environment for securitizers. Institutions have already been dealing with a recent regulation from the
But observers said the Wells proposal could make the retention requirements more restrictive than first expected for most of the industry.
“If you have a high down payment requirement, … then a couple of the large banks could portfolio those mortgages until the risk retention expires,” said
“One hopes the rulemaking is not made based on industry lobbying, but realistically speaking, the regulators do take into account what the large banks say,” she said.
Gordon said the exemption for qualified mortgages should not defeat the purpose of risk retention.
“What matters is [that] the concept of ‘skin in the game’ does not get watered down,” she said.
Other observers said that, regardless of the outcome of the QRM test, the FHA is sure to be a winner since the loans it insures are already exempt in the law.
“As a result of that, this FHA will be the principal place for people with low credit scores where they can get credit,” said