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QRM could limit tailoring loans to member needs CUNA warns
WASHINGTON (8/3/11)--The proposed definition of a Qualified Residential Mortgage(QRM) could create unnecessary barriers for qualified borrowers, limit credit unions’ ability to tailor loans to their members’ needs, and could potentially make it difficult for small financial institutions like credit unions to make non-QRM loans, the Credit Union National Association (CUNA) said in a recent comment letter. The comment letter addressed the QRM defintion contained in a proposed joint agency credit risk retention rule. The proposed QRM definition would set a 20% minimum down payment threshold for mortgages that would be exempt from the credit risk retention requirements contained within the rule. CUNA in a comment letter said that the 20% down payment threshold is too high, adding that “there is credible evidence that high minimum down payments alone are not always a significant factor in reducing defaults compared to underwriting and other mortgage product features.” The CUNA comment letter on the proposed rule and the QRM definition was sent to the Securities and Exchange Commission, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Federal Housing Finance Agency, and the Department of Housing and Urban Development. While the proposed credit risk retention rule was not aimed directly at the practices of credit unions, CUNA said that many credit unions are “seriously concerned” about the proposal. CUNA noted that the QRM, as proposed, could “become a template that regulators will seek to impose on all home mortgage loans, whether they are securitized or not.” Such an action “would severely limit the ability of credit unions to tailor mortgage loans to meet their members’ needs” and could “effectively shut out an entire class of otherwise qualified borrowers from the market for low-cost financing” and dry up mortgage liquidity for small lenders. CUNA in the comment letter noted that credit unions frequently structure very low-risk loans to meet the needs of members that are reliable borrowers, but cannot provide a 20% down payment. “Indeed, with delinquency rates at a fraction of those of the major banks, credit unions have demonstrated an ability to safely originate high loan-to-value mortgages,” the letter said, adding that credit unions must retain the ability to tailor their mortgages to member needs. For the full comment letter, use the resource link.

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