What is the difference between the QM and QRM rules?

Question

I have read that the QRM rule for risk retention is going to be matched up with the QM rule announced earlier this year. Does that mean they are essentially the same rule now? What not just get rid of the "residential" part and have one rule? Or am I missing a key distinction between them? I guess what I'm asking is ... what is the difference between the QM and QRM mortgage rules coming in January?

Answer 1

That's a good question. You're asking something that is on the minds of many mortgage brokers and loan officers, based on conversations I've had. Here's my take on this.

How they are similar:

Both QM and QRM are mandated by the Dodd-Frank Act. They are both designed to reduce the level of risk within the lending industry and to create "safer" mortgages.

How they are different:

The QM rule was finalized by the Consumer Financial Protection Bureau. The QRM is still being finalized by six agencies including FDIC, SEC and HUD. While they share similar definition and parameters, they are applied in different ways. QM will be applied generally to mortgage loans, and will give lenders one of two forms of legal protection against lawsuits (either safe harbor or rebuttable presumption). QRM applies to risk retention specifically -- loans that meet this definition are not subject to the 5% risk-retention rule.

So it seems that the primary difference between the QM and QRM mortgage rules is the way they are applied. The definitions are currently being aligned. That's my read on it, anyway.

I welcome input from other members. This forum is brand-spanking new. So right now, we are the only two members. :-) I hope to recruit more members within the next few days. Stay tuned.