In a comment letter filed with the Federal Reserve, SIFMA offers its views on the definition of a qualified mortgage found in Title XIV of the Dodd-Frank Act. The comments reflect SIFMA’s goal of restoring capital flow to the residential mortgage securitization markets and increasing the availability of credit to American consumers.
“We expect that the definition of a qualified mortgage will broadly define the parameters of the vast majority of mortgage lending in the United States for the foreseeable future,” said Richard Dorfman, managing director and head of SIFMA’s Securitization Group. “Therefore our focus is on a number of issues that will be critical to ensuring that investment capital continues to flow from financial markets to mortgage borrowers.”
Title XIV of Dodd-Frank prohibits creditors from making mortgage loans without regard to the consumer’s repayment ability. Among the ways to comply with this provision is the origination of a "qualified mortgage". Doing so provides creditors and assignees with protection from liability from violations of the ability to repay standards, which can be significant. SIFMA believes that the origination of qualified mortgages will be the primary means by which lenders comply with these standards, and therefore an appropriate definition of this concept is essential. The definition must preserve the ability of secondary markets to provide funding for mortgage loans.
SIFMA notes that the definition of qualified mortgage will also need to work seamlessly with its related construct, that of a qualified residential mortgage. This will require a high degree of coordination among the various regulatory agencies to ensure that standards are interpreted and applied consistently. To ensure that is the case, SIFMA proposes that any mortgage satisfying the definition of qualified residential mortgage should also automatically satisfy the definition of qualified mortgage.
- Safe Harbor. The final rule should adopt a true legal safe harbor for mortgages that meet the definition of a Qualified Mortgage.
- Objective Standards. The final rule must include standards for compliance that are easily verifiable with certainty upon the closing of the mortgage loan and at the time of securitization.
- Points and Fees. The final rule should define points and fees clearly and narrowly such that the exact amount of points and fees charged to a borrower can be verified at or prior to the origination of the loan. In addition, the final rule for the QM safe harbor should provide a cure mechanism for lenders and secondary market purchasers who discover that the points and fees limit in the QM safe harbor was exceeded.
- Coordination of Rulemaking for QM and QRM. It is critically important for the Bureau in drafting the final rules for a QM to coordinate with the several agencies preparing the final rules for the risk retention exemption for a QRM to ensure that those two definitions are not at odds with one another and are not later interpreted inconsistently by any of the agencies. Moreover, we believe the most efficient way to encourage origination of QMs and to improve the efficiency of the secondary mortgage market is to provide that any mortgage satisfying the definition of QRM shall also automatically satisfy the definition of QM.
- Second Round of Public Comment. To the extent the Bureau contemplates significant deviations from the Proposing Release the revised rules should be published in draft form for a second round of public comment.