With the housing market still struggling, the stakes are high when it comes to housing-finance regulations. A motley crew of regulators and policymakers tasked with fixing the housing market recently extended the comment period for the proposed risk-retention and QRM rule to August 1, giving them more time to hash out the intricacies of the proposals. "There's a huge debate going on right now over exactly what is a 'qualified residential mortgage," says James Angel, associate professor at Georgetown University's McDonough School of Business. "If they make the definition so narrow that nothing qualifies, then nobody can get a mortgage. If they make it too broad and you get a lot of junky stuff pushed through, then we have the same problems that led to the meltdown."
Despite concern about the potential long-term impacts of QRM, some experts say the short-term effects will be limited. That's because loans originated by Fannie Mae and Freddie Mac—the government-sponsored mortgage giants that back more than 90 percent of home loans today—are exempt. Also, the Federal Housing Administration, which aids lower-income borrowers and first-time homebuyers, will likely remain in place.
Although some see the projected 80 percent of borrowers who won't qualify for QRM loans as a hindrance to the housing-market recovery, others argue that QRM standards could trigger the rebirth of the nearly non-existent private-label mortgage market. If a narrow QRM definition prevails, that leaves a sizable market share for private lenders to go after. "The Fed has said, 'Don't look at the QRM market—it's 20 percent of the market. You can make QRM loans, but we'd rather you focused on the 80 percent of the market that needs to be served privately," says Keith Gumbinger, vice president of mortgage information website HSH.com. "Find ways to go serve those guys profitably."
But in this odd economic recovery improvement will be gradual, meaning a revival of the mortgage market could still be many years away. "That's where the crux of the argument is," Gumbinger says. "Is it an enhancement of the marketplace? Does it foster a willingness of the part of lender to go after these non-QRM private mortgage originations? Or does it completely shut down the marketplace for non-QRMs [with] lenders only focus[ing] on making [loans] that qualify."
While experts don't expect to see a finale for the housing market drama for quite some time, most agree that efforts like QRM and risk-retention rules for lenders are a step in the right direction. Americans can only hope for a happy ending.