Under the upcoming “QRM” rules, would we be considered a “securitizer or sponsor,” subject to the 5% risk retention requirement? Would that be the case even if we sell loans only to the GSEs, and what might happen if or when the GSEs are wound down?

First, we note that the credit risk retention rules and the “qualified residential mortgage” (QRM) definition are still in proposed form and have not yet been finalized. See 78 Fed. Reg. 57927 (September 20, 2013). With that said, we will analyze your questions under the current proposal, with the understanding that the final rules could differ from the proposed rules.

Under the proposed QRM rules, we do not believe that your institution would fall into the definitions of “securitizer” or “sponsor.” Those terms apply to the entities that organize and initiate securitization transactions, or act as intermediaries in securitization transactions. Instead, your institution would likely be considered an “originator,” defined as the entity that creates to be securitized or sells loans to a securitizer. Proposed QRM Rule, Definitions, 78 Fed. Reg. at 58025.

However, institutions that originate loans are concerned about the QRM rules, as securitizers that wish to avoid the QRM rules’ risk retention requirements may refuse to purchase non-QRM loans. See ABA Dodd-Frank Guide, page 11 (“Loans that do not meet the QRM will be subject to risk retention requirements and will be harder to sell into the secondary market”).

As you suggested, the proposed rule exempts Fannie and Freddie (the GSEs) from its risk retention requirements. This exemption would also apply to a successor agency to the GSEs, “provided that the entity is operating with capital support from the United States.” Proposed QRM Rule, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation ABS, 78 Fed. Reg. at 58033. Also, loans eligible for sales to the GSEs are exempt, since any exemption from the “qualified mortgage” (QM) definition will apply to the QRM definition (Proposed QRM Rule, Exemption for qualified residential mortgages, 78 Fed. Reg. at 58036). That exemption will expire when the GSEs exit conservatorship or on January 10, 2021, whichever is sooner, but it will continue to apply to transactions consummated before that date. Ability-to-Repay and QM Rule, 12 CFR 1026.43(e)(4)(iii)(B), 78 Fed. Reg. 6407, 6587 (January 30, 2013).