Hoenig Concedes: QRM=QM
After more than four years of debate, a final risk-retention rule was approved this morning at the open FDIC meeting analyzed in this report. Several other agencies also took it up, with the FRB set to do so tomorrow. The most significant dispute holding up action was the definition of a qualified residential mortgage (QRM) eligible for exemption from risk retention. Consistent with the 2013 proposal (see FSM Report ABS32), the final rule equilibrates the QRM and QM. FDIC Vice Chairman Hoenig had strongly objected to this in the revised NPR, but he conceded due to the need to advance secondary-market certainty and tough provisions related to collateralized loan obligations. Director Norton nonetheless stood firm and strongly opposed the QRM=QM standards, arguing not only that it will allow mortgages with loan-to-value ratios as high as 97 percent due to the GSE exemption, but also exposes the rule to legal challenge because so much authority is delegated to the CFPB. A four-year review process is included in the rule (up from the two years CFPB Director Cordray apparently believed it contained based on an earlier SEC draft). This did not satisfy Mr. Norton, but FDIC legal counsel assured the board that the rule is not subject to successful challenge.
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