The provision in the Dodd-Frank Act requiring financial institutions to retain 5% of the risk on loans they securitize exempts certain qualified-residential mortgages (QRMs) from the requirement.
NAR believes that Congress intended to create a broad QRM exemption. The purpose of the QRM exception from the risk retention requirement is to encourage safe, reasonably priced lending, not to raise costs for millions of creditworthy borrowers.
NAR and those who share its perspective argue that the definition of a QRM should be based on loan features and underwriting standards that have historically demonstrated a low risk of default, including loans with downpayments less than 20% (with mortgage insurance), sound underwriting, and documentation of income and assets. Loans with risky features such as teaser rates, negative amortization, and balloon payments should not qualify as QRM loans.