Mortgage Finance, Mortgage Default & Foreclosure, Regulation & Reform
Testimony | July 2011

Credit Risk Retention Standards and Qualified Residential Mortgage (QRM) Rule

U.S. Department of the Treasury, Securities and Exchange Commission, Board of Governors of the Federal Reserve System, Federal Housing Finance Agency, Federal Deposit Insurance Corp., U.S. Department of Housing and Urban Development
Janneke Ratcliffe, Kevin A. Park

A too-narrow QRM would lead to seriously constrained credit, further weakening housing values.

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High and sustainable levels of homeownership can be achieved without abandoned credit quality; indeed, it requires attention to good underwriting and servicing. Risk retention is one mechanism for encouraging sound practices by agents, but it is imperfect. In the past, risk retention has sometimes failed or led to unintended consequences. Moreover, factors yet to be decided will determine the ultimate impact of the Qualified Residential Mortgage (QRM) definition. In certain scenarios, a too narrow QRM would lead to seriously constrained credit, further weakening housing values.

Given the fragility of the current market, a broad QRM has the potential to restore access to credit more equitably, support broader homeownership and help the market recover, without compromising systemic safety and soundness.




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