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Federal Register / Vol. 86, No. 241 / Monday, December 20, 2021 / Rules and Regulations
origination and performance data including data on originations, defaults, and loan and borrower characteristics, held discussions with market participants, and reviewed academic research, policy research prepared by research and advocacy organizations, and the results of the CFPBs Ability-to-Repay and Qualified Mortgage Rule Assessment Report issued in 2019.5 The analysis also considered the effects on default risk of additional loan and borrower characteristics not included in the QRM
definition.
The analysis confirmed that the loan and borrower characteristics specified in the QM definition in effect during the review period were predictive of a lower risk of default. In addition, the agencies found that, while credit conditions have improved since 2014, they remain tight relative to longer-term norms.6
After analyzing those data, reviewing those analyses and considering the importance of maintaining broad access to credit, the agencies have decided, at this time, not to propose to amend the definition of QRM, the communityfocused residential mortgage exemption, or the exemption for qualifying three-tofour unit residential mortgage loans.7
Public Comments In response to the notification of commencement of the review, which included a request for comment, the agencies received one comment on behalf of 37 organizations prior to the end of the comment period. The comment requested that the agencies defer the review until after the CFPB
completed its then-proposed rulemaking to make changes to the QM definition, which would automatically modify the QRM definition to the extent no changes are made to the definition.8
In response, the agencies note that the review is intended to consider the definition of QRM in light of changes in mortgage and securitization market
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5 Available
at https files.consumerfinance.gov/f/
documents/cfpb_ability-to-repay-qualifiedmortgage_assessment-report.pdf.
6 Measures of mortgage credit availability, such as those produced by the Urban Institute www.urban.org, suggest that credit availability during the review period was tight relative to levels in the early 2000s. Tight credit conditions generally refer to periods of reduced availability of credit.
7 The Credit Risk Retention Regulations require the agencies to conduct a review of the subject residential mortgage provisions upon the request of any agency, specifying the reason for such request.
Accordingly, the agencies may conduct a further review of the subject residential mortgage provisions at any time.
8 The letter noted that an advance notice of proposed rulemaking had been issued by the CFPB
and that the CFPB was expected to follow with a notice of proposed rulemaking.

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conditions and practices and how the QRM definition has affected residential mortgage underwriting and securitization of residential mortgage loans under evolving market conditions during the review period. The CFPB did not issue the final QM changes until December 10, 2020, well after the review period.9
In June 2021, the agencies received a second comment letter on behalf of six organizations, expressing support for the continued alignment of the definitions of QRM and QM.10
Definition of QRM
The agencies decision in 2014 to equate the QRM and QM definitions in the Credit Risk Retention Regulations was based on two main factors. First, the Dodd-Frank Act mandated that the definition of QRM take into consideration underwriting and product features that historical loan performance data indicate result in a lower risk of default. 11 Second, the Dodd-Frank Act specified that the QRM definition could not be broader than the QM definition, and the agencies were concerned that a QRM definition that was narrower than the QM definition could exacerbate already-tight mortgage credit conditions existing at that time.
In the current review of the definition of QRM, the agencies considered whether the loan and borrower characteristics specified in the QM
definition are predictive of a lower risk of default and how mortgage credit conditions have changed since 2014.
The agencies confirmed that the QRM
definition that was in effect for the review periodwith the requirement that debt-to-income DTI ratios generally not exceed 43 percentwas predictive of lower default rates.
The agencies used loan-level mortgage origination and performance data on Enterprise and non-Enterprise loans in the review.12 The agencies followed the performance of loans originated 9 The agencies nonetheless reviewed what were, at the time of the review, the CFPBs changes to the general definition of a QM from a definition based, in part, on debt-to-income DTI to one based on loan pricing. Based upon the information provided by the CFPB to support the changes, the agencies concluded that these changes, if implemented, were not likely to significantly affect the overall impact of the QRM definition on the mortgage market.
10 While this comment letter also praised the agencies for delaying the issuance of the review determination until the CFPB changes were finalized, as noted above, the agencies did not delay the issuance of their determination to consider those changes as those changes occurred outside of the review period.
11 15 U.S.C. 78o11e4B.
12 Mortgage servicing data from the Enterprises was used for this analysis, and the Commission staff contributed its analysis using mortgage servicing data from CoreLogic.

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between 2012 and 2015 and found that, after four years, loans with a DTI ratio greater than 43 percent were more likely to have become 90-days delinquent than loans with lower DTI ratios. The review also confirmed that the measurement of DTI had improved from when the analysis was last conducted, with a greater proportion of full documentation mortgage loans in the dataset in 2019
than in 2014. In the review, the agencies also considered the effects of additional loan and borrower characteristics on default risk.13
The agencies also considered whether the QRM definition, as aligned with the QM definition, affected the availability of credit. While credit conditions had improved since 2014, they remained tight during the review period relative to longer-term norms.14 However, the agencies determined that the QRM
definition did not appear to be a material factor in credit conditions during the review period, in part because so much of the market was funded through Enterprise and Ginnie Mae securitizations.15 More generally, the agencies concluded from the review that risk retention remains an effective tool for aligning the interests of securitizers, originators, and investors, and reducing default risk on certain loans. In addition, the Credit Risk Retention Regulations do not appear to be weighing materially on mortgage credit availability.
Finally, the agencies considered whether the QRM definition, as aligned with the QM definition, affected the securitization market. As the agencies anticipated, the QRM definition contributed to the bifurcation of the 13 The agencies confirmed that loan-to-value LTV ratio and credit score, which the agencies considered in the 2014 rulemaking but did not incorporate into the QRM definition, also predict default.
14 Measures of mortgage credit availability, such as those produced by the Urban Institute, suggest that credit availability during the review period was tight relative to levels in the early 2000s.
15 The Enterprises are subject to risk retention, but benefit from a provision in the Credit Risk Retention Regulations that allows their full guarantee of principal and interest on mortgage backed securities to count as an eligible form of risk retention while they are under conservatorship or receivership and have capital support from the U.S.
Treasury. In contrast to the Enterprises, Ginnie Mae, a wholly owned U.S. Government corporation within HUD, is exempt from risk retention pursuant to statutory direction in the Dodd-Frank Act. See 15
U.S.C. 78o11c1Gii and e3B.
According to estimates by Inside Mortgage Finance and the Urban Institute, the annual share of the dollar volume of first-lien mortgage originations that were either acquired by the Enterprises or securitized through an FHA or VA
program has ranged from about 62 to 76 percent over the period 2015 to 2020https
www.urban.org/sites/default/files/publication/
104602/july-chartbook-2021_2.pdf.

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