Report: QRM Heightens Need for Evidence of Compliance

Originators and servicers are going to have to step up their documentation procedures as regulatory guidelines dovetail, financial services firm ""PwC"":http://www.pwc.com/us/en/ says in a new white paper.

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The ""white paper"":http://www.pwc.com/en_US/us/consumer-finance/publications/assets/pwc-atr-qm-compliance-standards.pdf explores the relationship between the Consumer Financial Protection Bureau's Ability to Repay (ATR) and qualified mortgage (QM) guidelines and the newly re-proposed qualified residential mortgage (QRM) rules released by agencies in late August.

With the QRM rules now revised to align better with QM, PwC says the need to document evidence of compliance is even greater than before.

""The age-old question asks: if a tree falls in the forest and no one hears it, does it make a sound? A modern version to that question might be: if a lender in fact determines a borrower's ability to repay, or originates a Qualified Mortgage (QM), but cannot evidence it, has the lender complied with the Ability-to-Pay (ATR) or QM standards?"" PwC asks in the paper.

""As a practical matter,"" the company says, ""the answer is No.""

Not only is documentary evidence needed to protect originators and servicers from actions by regulators or borrowers, it is now crucial to demonstrate that securities containing QM loans are in fact exempt from risk-retention requirements set up in the QRM proposal.

""Therefore, the re-proposed QRM rule amplifies the need for lenders, servicers and securities issuers ... to make the process, governance and other changes necessary to ensure that mortgages are accompanied by documentation evidencing compliance with the ATR and QM standards,"" PwC said.

To better prepare for these changes, the company says firms need to ask questions about their own procedures and change them accordingly, starting with developing a list of documents they will need to capture and putting together a way to evidence the calculations and decision-making criteria used in the underwriting process.

From there, the key is making sure the data is private and secure but still easily accessible to those who need it--a challenge that involves all aspects of a business' operations.

""[T]he need for such evidence can raise from a wide range of contexts and, as the questions companies should ask themselves suggests, the job of making the changes necessary to meet those needs is complex. For example, that job will pose not only a business and compliance challenges, but will also require significant operational and IT considerations,"" the paper concludes.