FDIC Chairperson Shiela Bair headed a rules committee to redefine the current mortgage security model that can be sold as an investment in the form of a security.
This comes on the heels of the Dodd/Frank legislation to tighten up the mortgage industry and their lending guidelines and the amount "skin in the game" the banks have when writing mortgage loans.
The securitized loan was a major factor that led to the mortgage melt down. Basically bad loans were bundled with good loans, then securitized and sold with AAA ratings. Shiela Bair said that "almost 90 percent of loans during 2005 and 2006 to borrowers with poor credit records, and loans with little documentation provided by the borrower, were privately securitized." It's easy to see why mortgage backed securities went bad when we look at them in this light.
Here are some of the changes from the FDIC
QRM: Qualified Residential Mortgage
QRM Update:The FDIC has voted to release its proposed definition of a Qualified Residential Mortgage (QRM). QRMs will be exempt from risk retention requirements. Under the proposed definition Fannie Mae, Freddie Mac, FHA, and VA loans will be QRMs. For non-agency loans to meet the definition and to avoid being subject to risk retention, among other requirements, they must have down payments of 20% or more and DTI of 28% / 36% or less.
The industry is changing and this is going to have an impact on everyone involved in the real estate process. The more we educate ourselves the better prepared we are for our client's questions.