WASHINGTON-One day after six federal agencies issued a notice revising a proposed rule requiring sponsors of securitization transactions to retain risk in those transactions, insiders questioned if the changes do much to help credit unions.
The U.S. Department of Housing and Urban Development, Federal Housing Finance Agency, OCC and SEC joined the Fed and FDIC in releasing the proposed rule. The new proposal revises a proposed rule the agencies issued in 2011 to implement the risk retention requirement in the Dodd-Frank Act.
As required by the Dodd-Frank Act, the proposal would define "qualified residential mortgage" (QRM) and exempt securitizations of QRMs from risk retention. The new proposal would define QRMs to have the same meaning as the term "qualified mortgages" as defined by the Consumer Financial Protection Bureau. The new proposal also requests comment on an alternative definition of QRM that would include certain underwriting standards in addition to the qualified mortgage criteria.
Janice Sheppard, SVP-compliance and home loans for $295-million Southwest Airlines FCU, Dallas, said while some of the revisions of QRM appear to be improved to align with the qualified mortgage initiatives, the information regarding securitization "appears complex and potentially difficult" to administer. "There does not appear to be an upside for credit unions," she declared. "The continued risk retention requirements for those that sell on the secondary market will impose another layer of compliance costs and more regulatory burden. It is important for credit unions to watch these revisions and understand how these changes could potentially impact their home loan programs."
Bob Dorsa, president of the Las Vegas-based American Credit Union Mortgage Association, told Credit Union Journal, "While the revised rulemaking is a step in the right direction, there still are many issues to discuss. The details in the proposed regulations still leave some gaps or reasons for worry for credit unions' continuing ability to satisfy the mortgage lending needs of their members."
Barry Stricklin, VP of real estate lending for $2.6-billion Tower FCU, Laurel, Md., believes the new proposed definition of a "Qualified Residential Mortgage" is "definitely a move in the right direction."
That optimism, however, is being "tempered" by the Federal Reserve's release of an alternative definition moving in the opposite direction, requiring a 70% loan-to-value ratio, added Striclin.
"It is still too early to claim a victory, but this is an indication that the regulators are listening and are trying to do what is best for consumers," he said.
Fannie Mae and Freddie Mac recently announced the alignment of their eligibility guidelines with the Qualified Mortgage definition, Stricklin noted. He said if the proposed definition of a Qualified Residential Mortgage is adopted, it could mean all three are aligned.
"For credit unions selling loans to the GSEs, this would help simplify GSE eligibility, risk retention and liability under ability-to-repay," he said. "My experience so far is that the 'devil is in the details,' so we will have to see how it plays out. In the meantime, credit unions should continue to push through organizations such as NAFCU."
As reported on Credit Union Journal online, CUNA and NAFCU have has joined with others in requesting additional modifications be made to the definition of QRM, along with other changes to a 505-page proposal currently out for comment.
Although not directly affected by the rules mandated by the Dodd-Frank Act, many expect CUs to be indirectly affected as the secondary market conforms to new rules. The comment period on the proposed rule is open through Oct. 30.