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Panel Debates on Qualified Mortgage Regulations

By clarifying the qualified residential mortgage (QRM) and QM (qualified mortgage) rules, regulators could attract private investors back into the mortgage market, Michael Held, president of ""Wells Fargo Home Mortgage"":https://www.wellsfargo.com/mortgage/, told the audience at the ""Mortgage Bankers Association's"":http://www.mbaa.org/default.htm (MBA) Annual Conference and Expo in Chicago Monday.

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Held, part of a panel discussing housing finance, said that some 90 percent of loans today are owned by government entities such as ""Fannie Mae"":http://www.fanniemae.com/portal/index.html, ""Freddie Mac"":http://www.freddiemac.com/ and the ""Federal Housing Administration"":http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory (FHA). Private investors, which were a significant part of the market prior to the 2006-2009 financial crisis, have yet to come back into the market due to concerns over regulations, including undefined regulations like QM and QRM. As long as those rules are undefined, the size of the mortgage market is difficult to define, leading to private investors' reluctance to participate in it.

""There should be a sense of urgency to get private investors back into the market,"" Held added.

""Do you need QRM on top of QM?"" Held asked, recommending that they be defined together rather than separately. ""Multiple rule patterns have to be balanced, otherwise it is harder to extend credit.""

Held and other panelists agreed that mortgage lenders have returned to the core of the business-""helping customers achieve homeownership,"" and that many of the lenders who had made risky loans based on ""short-term decisions"" have ""wrung themselves out of the industry due to those decisions.""

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Held, along with Bill Cosgrove, 2013 MBA vice chairman, did see validity in the safe harbor portion of the QM rules, saying it would help prevent frivolous lawsuits. However, John Taylor, president and CEO of the ""National Community Reinvestment Coalition"":http://www.ncrc.org/, said that the lawsuits come primarily ""when bad things are being done.""

Taylor said that the level of lawsuits was very low before the housing crisis and expects litigation to drop off as the industry improves.

""You don't have to worry about litigation if you are doing the right thing,"" Taylor said.

Taylor added that there was very little litigation or other industry problems before 1999 because lenders were focused on lending. But with the advent of investment banks, lenders started focusing more on immediate profits. He called the crisis itself ""an example of brokers gone wild. Everyone from investors to borrowers to everyone in between made a lot of bad decisions. No one was paying attention until the market collapsed.""

However, Taylor agreed with Held and Cosgrove that too much regulation will do more harm than good, saying ""there needs to be a balance.""

The concerns over lending rules, primarily those concerning risk, has lenders denying loans at a higher rate than any other time in the last 25 years, according to Cosgrove.

""A lot of good borrowers are being denied. Underwriting is not so much a science as an art. I don't think that Washington gets that,"" Cosgrove said.

Taylor concurred, reflecting that lenders at one time didn't make a loan if they questioned the borrower's ability to handle it. During the crisis, however, the focus was too much on financial literacy and not enough on the borrower's ability to repay a loan.

About Author: Phil_Britt

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