Asset-Backed Securities Regulation - White Paper - Qualified Residential Mortgage: Background Data Analysis on Credit Risk Retention - August 2013

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Dodd-Frank Timeline, Disclosure for Asset-Backed Securities, SEC
Final Rule Issue Effective Date Compliance Date
January 26, 2011 March 28, 2011 February 14, 2012
Dodd-Frank Timeline, Issuer Review of Assets in Asset-Backed Securities, SEC
Final Rule Issue Effective Date Compliance Date
January 25, 2011 March 28, 2011 December 31, 2011
Dodd-Frank Timeline, Suspension of the Duty to File Reports for Classes of Asset-Backed Securities, SEC
Comment Deadline Final Rule Issue Effective Date
February 7, 2011 August 23, 2011 September 22, 2011
Dodd-Frank Timeline, Shelf Eligibility Requirements for Asset-Backed Securities
Proposal Date Comment File Reopened New Comment Deadline
August 5, 2011 February 25, 2014 March 28, 2014

August 2013

This document, which was prepared by Joshua White and Scott Bauguess of the SEC Division of Economic and Risk Analysis (DERA), provides an analysis of serious delinquencies among non-GSE securitized mortgages (“private label mortgages”) to address these comments, and to further understand the potential economic effects related to the definition of the term QRM. This analysis also considers the impact of the qualified mortgage (QM) definition on serious delinquency, including the effect of setting QRM guidelines narrower than those for QM.

Key Findings:

  • Private label loans have a much higher serious delinquency (SDQ) rate than GSE purchased loans.
  • Among historical loans that meet the 2011 proposed QRM definition, the SDQ rate for securitized private label loans is 6 times higher than GSE purchased loans.
  • Historical loans meeting the 2011 proposed QRM definition have significantly lower SDQ rates than historical loans meeting the QM definition, but applying this definition results in significantly lower loan volume than QM.
  • FICO and combined loan-to-value (CLTV) are strong determinants of historical loan performance, while the effect of debt-to-income (DTI) is much lower.
  • Adding FICO or CLTV restrictions to the QM definition reduces SDQ rates faster than the loss of loan volume: max ratios achieved at 760 FICO and 55% CLTV.
  • PMI is not associated with a significantly lower SDQ rate in a multivariate analysis that controls for other loan terms and borrower characteristics.

From the summary:

"We find, consistent with the threshold analysis in the 2011 proposing release, that higher FICO scores and lower CLTV ratios are associated with significantly lower levels of serious delinquency, both statistically and economically. Even modest restrictions on FICO scores or CLTV ratios for QM-eligible loans are associated with significant reductions in SDQ rates. As we describe in Appendix A, all of these results are subject to potential biases due to restricted data on loan features, and there is indication that this bias leads us to overestimate the effect of CLTV while underestimating the true impact of FICO, and most other loan factors."

Related Document: QRM Analysis White Paper, August 2013[edit]



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