Subject: File No. S7-14-11
From: Michael Hall

May 26, 2011

My primary concern with the proposed rule is that FHA loans are given a blanket exemption from the risk-retention requirement, while privately insured loans are not. If the government truly wishes to unwind itself from the mortage market, this part of the rule will be counter-productive to that goal, as it will steer more business toward the FHA. Further, it may have the additional effect of driving the worst loans toward the FHA, as banks will want to fully offload the riskiest loans. Thus, the worst loans may end up backed by taxpayer dollars.

I would therefore prefer that FHA and privately insured mortgages be given equal treatment. If business practices and capital adequacy of private mortgage insurers are the primary concerns (e.g. to avoid a future Triad Guaranty problem), it seems that a well-crafted QRM rule could place appropriate qualifications on the private mortgage insurers.