The loan must not have risky features  such as negative amortization, interest-only payments, or balloon  payments (except in certain circumstances). Thus, securities collateralized solely by QM loans (and  therefore QRM loans) are not subject to risk-retention requirements. In  addition, OMB encourages agencies to preplan efforts to retrospectively  review their regulations and give careful consideration about how best to  promote empirical testing of the effects of rules both in advance and  retrospectively. Initial Effects of Mortgage Regulations Likely Limited for Most Borrowers

Overall, agencies, market participants, and observers estimated that the  QM and QRM regulations would not have a significant effect initially  because many loans made in recent years already met QM and QRM  criteria before these regulations were promulgated. Securitization of Mortgages

Market participants with whom we spoke stated that the QM standards  were unlikely to have a significant effect on the securitization of  residential mortgages, largely because the majority of loans originated  were expected to be QM loans. Qualified Residential Mortgage Regulations Likely to Have Limited Effects in Current Secondary Market

			Availability of Mortgages

According to agency officials and observers, the QRM regulations, which  were finalized in December 2014, were unlikely to have a significant  effect on the availability of residential mortgages under current market  conditions. For example, the risk-retention rule states that  “the agencies recognize that aligning the QRM and QM definitions has  the potential to intensify any existing bifurcation in the mortgage market  that may occur between QM and non-QM loans, as securitizations  collateralized by non-QMs could have higher funding costs due to risk- retention requirements in addition to potential risk of legal liability under  the ability-to-repay rule.” The agencies acknowledged this risk but  decided that not aligning QRM and QM definitions likely would result in  even greater segmentation in the securitization market and higher costs  for consumers. Planning for Reviews of Regulations Lacked Key Elements

CFPB and HUD have begun planning for their reviews of the QM  regulations. The agencies responsible for the QRM  regulations identified outcomes and potential data sources and analytical  methods, but had not yet identified specific metrics and baselines for  examining the QRM regulations. CFPB Had Not Completed Plan That Specified Outcomes and Methodologies

In response to the Dodd-Frank requirement to review significant  rulemakings, CFPB has made efforts to identify data, but as of May 2015  had not finalized a plan that specified what outcomes and  methodologies—such as metrics, baselines, and analytical methods—it  will use to examine the effects of the QM regulations. As of May 2015, the agency also had not identified  how it would measure the effects of these regulations, including metrics,  baselines, and analytical methods. Agency officials said their efforts have included identifying potential data  sources for the review of the QRM regulations. However, agency officials acknowledged that  the data available from these sources are missing key information, such  as points and fees and borrower’s debt-to-income ratios, needed to  determine if a loan is QM or non-QM, and consequently QRM eligible. However, it is not clear if the expanded data will be available  for the initial reviews. Finalizing plans to retrospectively review the mortgage regulations and  incorporating these key elements will better position the agencies to  measure the effects of the regulations and identify any unintended  consequences. The agencies also could better understand data  limitations and methodological challenges and have sufficient time to  develop methods to deal with these limitations and challenges. To enhance the effectiveness of their preparations for conducting a  retrospective review of the QRM regulations, the agencies responsible for  the QRM regulations—FDIC, FHFA, Federal Reserve, HUD, OCC, and  SEC—should develop a plan that identifies the metrics, baselines, and  analytical methods to be used and specify the roles and responsibilities of  each agency in the review process. The other four agencies (the  Federal Reserve, FHFA, OCC, and SEC) did not explicitly agree with our  recommendations but outlined activities or efforts related to planning for  the retrospective review of the QRM definition. Appendix I: Objectives, Scope, and Methodology

This report (1) describes selected trends in the origination and  securitization of residential mortgages in 2000–2014; (2) discusses the  expected effects of the qualified mortgage (QM) and qualified residential  mortgage (QRM) regulations on the residential mortgage market; and (3)  examines the extent to which federal agencies have plans in place to  monitor and assess the effects of the QM and QRM regulations on the  residential mortgage market. Agencies’ Plans to Monitor and Assess the Effects of the QM and QRM Provisions

To examine the extent to which agencies have plans in place to monitor  and assess the effects of the QM and QRM provisions on the residential  mortgage market, we identified and reviewed requirements and guidance  relating to agencies’ efforts to monitor and assess regulations (criteria). Report to the Congress on Risk Retention. Bureau of Consumer Finance Protection. Department of Housing and Urban Development. Standard and Poor’s.
Why GAO Did This Study

Amid concerns that risky mortgage products and poor underwriting standards contributed to the recent housing crisis, Congress included mortgage reform provisions (QM and QRM) in the Dodd-Frank Wall Street Reform and Consumer Protection Act. CFPB's regulations establishing standards for QM loans became effective in January 2014. More recently, six agencies jointly issued the final QRM rule that will become effective in December 2015. GAO was asked to review possible effects of these regulations. This report (1) discusses views on the expected effects of the QM and QRM regulations, and (2) examines the extent of agency planning for reviewing the regulations' effects, among its objectives. GAO's methodologies included identifying and reviewing academic, industry, and federal agency analyses on the expected effects of the regulations. GAO also reviewed federal guidance on retrospective reviews and interviewed agency officials to assess agency efforts to examine the effects of the QM and QRM regulations.

What GAO Found

Federal agency officials, market participants, and observers estimated that the qualified mortgage (QM) and qualified residential mortgage (QRM) regulations would have limited initial effects because most loans originated in recent years largely conformed with QM criteria.
The QM regulations, which address lenders' responsibilities to determine a borrower's ability to repay a loan, set forth standards that include prohibitions on risky loan features (such as interest-only or balloon payments) and limits on points and fees. Lenders that originate QM loans receive certain liability protections.
Securities collateralized exclusively by residential mortgages that are “qualified residential mortgages” are exempt from risk-retention requirements. The QRM regulations align the QRM definition with QM; thus, securities collateralized solely by QM loans are not subject to risk-retention requirements.
The analyses GAO reviewed estimated limited effects on the availability of mortgages for most borrowers and that any cost increases (for borrowers, lenders, and investors) would mostly stem from litigation and compliance issues. According to agency officials and observers, the QRM regulations were unlikely to have a significant initial effect on the availability or securitization of mortgages in the current market, largely because the majority of loans originated were expected to be QM loans. However, questions remain about the size and viability of the secondary market for non-QRM-backed securities.
Agencies have begun planning their reviews of the QM and QRM regulations (due January and commencing December 2019, respectively); however, these efforts have not included elements important for conducting effective retrospective reviews. Federal guidance encourages agencies to preplan their retrospective reviews and carefully consider how best to promote empirical testing of the effects of rules. To varying degrees, the relevant agencies have identified outcomes to examine, potential data sources, and analytical methods. But existing data lack important information relevant to the regulations (such as loan performance or borrower debt to income) and planned data enhancements may not be available before agencies start the reviews. The Bureau of Consumer Financial Protection (CFPB) has proposed expanding Home Mortgage Disclosure Act data reporting requirements, but the earliest that the enhanced data will be available is 2017. Similarly, the Department of Housing and Urban Development (HUD) identified how it intends to examine its QM regulations and some potential data sources but has yet to determine how it would measure the effects of these regulations, including metrics, baselines, and analytical methods. Agencies also have not specified how they will conduct their reviews, including determining which data and analytical methods to use. Finalizing plans to retrospectively review the mortgage regulations will position the agencies to better measure the effects of the QM and QRM regulations and identify any unintended consequences. Additionally, the agencies could better understand data limitations and methodological challenges and have sufficient time to develop methods to deal with these limitations and challenges.

What GAO Recommends

CFPB, HUD, and the six agencies responsible for the QRM regulations should complete plans to review the QM and QRM regulations, including identifying specific metrics, baselines, and analytical methods. CFPB, HUD, and one QRM agency—the Federal Deposit Insurance Corporation—concurred or agreed with the recommendations. The other QRM agencies did not explicitly agree with the recommendations, but outlined ongoing efforts to plan their reviews.