The ABCs of QRM
Why a regulation you haven't heard of matters as much as Fannie and Freddie.
Then, there are the mortgage insurers, companies such as MGIC and Radian, for whom the QRM represents nothing less than an existential threat. Mortgage insurance exists because Congress requires it on loans with a down payment of less than 20 percent that are bought by Fannie and Freddie. But if a QRM by definition requires a 20-percent down payment, what place will there be for mortgage insurance? So mortgage insurers are arguing that insurance makes mortgages safer for both borrowers and lenders, and are applying their considerable lobbying clout to stay in the game.
As for the regulators, sources say the Federal Reserve and the Federal Deposit Insurance Corporation, which traditionally care more about the safety and soundness of the financial system than they do about homeownership, are pushing for a conservative down-payment requirement—at least 20 percent. But they are meeting some resistance, too. A fixed down-payment requirement "would likely result in a furor on Capitol Hill," notes Height Analytics, because it would block such a large percentage of buyers from qualifying for a less costly loan. Although the housing-focused agencies like HUD and the FHFA haven't made public statements, the general sense in Washington is that they want a less strict standard in order to promote affordability and accessibility.
Sources in Washington say that the regulators will propose a rule requiring a hard down payment of 20 percent. But that would be controversial, and with all these conflicting agendas, the research firm MF Global predicts "very little chance" that we'll see a final QRM rule by the April 21 deadline. A "more realistic deadline," it says, "is mid-summer." A lot will ride on the regulators getting this right.
Correction, Feb. 13, 2011: The article originally misstated the name of the FHFA as the Federal Housing Finance Authority. (Return to the corrected sentence.)
Bethany McLean is a contributing editor at Vanity Fair and the co-author of All the Devils Are Here: The Hidden History of the Financial Crisis.
Bethany McLean writes a weekly business column for Slate and is a contributing editor to Vanity Fair. She is the author (with Joe Nocera) of All the Devils Are Here: The Hidden History of the Financial Crisis and (with Peter Elkind) "The Smartest Guys In The Room."
Photo by Brendan Smialowski/Getty Images.