Editor's Note: The following letter is a comment on the revised risk retention rule (part of the Dodd-Frank Act) proposed by six government agencies in August 2013. The proposal defines "qualified residential mortgage" (QRM), mortgages which would be exempt from risk retention requirements (i.e. the rule requiring sponsors of securitization transactions to retain risk in those transactions).
Dear Sirs and Madam:
The Dodd-Frank Act was intended to restore sound underwriting practices. Enacted over three years ago, it introduced three new factors into housing finance: (1) a high quality mortgage—called the Qualified Residential Mortgage (QRM)—that would have a minimal incidence of default; (2) a set of minimum mortgage standards called the Qualified Mortgage (QM); and (3) a requirement that the securitizer of any mortgage not a QRM retain at least 5 percent of the risk of any mortgage pool it sponsors. The terms of the QM were specified by the Consumer Financial Protection Bureau in January 2013, and the proposed terms of the QRM were specified in an August 28 release by the six agencies1 charged with responsibility to design the QRM.