QM RULE TO BENEFIT JUMBO
PRIME MARKET
Now that the industry has its long-awaited
���Qualified Mortgage��� (QM) definition, Fitch
Ratings believes jumbo prime securities are poised
to see a jumpstart.
After leaving housing professionals in suspense
for months, the Consumer Financial Protection Bureau (CFPB) released its rules for what
constitutes a QM in early January. The guidelines
are designed to spur the creation of safe, affordable
mortgages by prohibiting certain practices (such as
riskier interest-only or negative amortization loans)
and setting up criteria for ascertaining a borrower���s
ability to repay. The rules also establish legal ���safe
harbors��� based on loan risk for creditors who
responsibly lend, protecting all parties involved in
the mortgage process.
While many analysts anticipate a kick-start
in lending and securitization now that the rules
are clear, Fitch asserts most of the underwriting
guidelines suggested have already been put into
practice since the financial crisis, even if the criteria
weren���t standardized across the industry. However,
the ratings agency sees the QM definition as a
boon for the jumbo prime market.
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���Fitch believes the qualified mortgage
definition is positive for the jumbo prime
residential mortgage market, as it removes the
uncertainty that has paralyzed mortgage lending
for the past few years and is an encouraging step
in easing credit for traditional prime borrowers,���
Fitch said in commentary released in late
January. ���Further, finalizing the rule on QM will
help advance the determination of a Qualified
Residential Mortgage (QRM), an additional
constructive step in re-starting the jumbo
securitization market.���
Additionally, because the QRM definition for
exemption is linked to that of the finalized QM
rules, Fitch believes the debt-to-income (DTI)
requirement���which is 43 percent for a QM���is
now clear, removing another concern for firms
securitizing residential mortgages.
���The 43 percent DTI threshold casts a wide
net for qualifying jumbo prime and possibly strong
alt-A credit quality borrowers. Roughly 83 percent
of the loans comprising recent securitizations
would likely comply with the QM standard.
The ruling is likely to have the biggest impact
on securitizations of interest-only and higher
DTI loans associated with the more affluent
borrowers,��� Fitch said.
However, there is one unknown variable: the
down payment requirement, which has not yet
been addressed by regulators. Fitch believes the
finalization of the QRM hinges on that definition, which is expected this year.
���Ultimately, the restart of private-label securitization market will depend on this definition and
clarity on risk retention rules, the application of
Basel III and other liquidity rules, and a decision
on agency guarantee fees,��� Fitch concluded.
STAT INSIGHT
4.4M
Borrowers slated to
receive cash compensation
from agreements between
regulators and 14
servicers.
Source: Reg-Room LLC
