Mortgages

CFA Comments on Proposed Risk Retention and Qualified Residential Mortgage (QRM) Regulation

The proposed rulemaking on credit risk retention and the definition of a proposed “Qualified Residential Mortgage (QRM)” as required by Title IX of the Dodd-Frank Act is an important step in the reconstruction of the nation’s mortgage system. CFA was an early and frequent critic of the loose and ultimately calamitous underwriting and securitization system that emerged in the late 1990’s. The lack of alignment among originators, borrowers, creditors and investors led to high inflation in house prices, the growth of an “originate to sell” model of loan-making that fostered poor credit decisions, and the failure of many loans with dire economic consequences for borrowers, investors and communities. In theory, requiring a level of risk retention by securitizers can act to increase their diligence and care when choosing mortgages for securities.