Federal regulators should allow three-year ARMs and certain interest-only loans to be classified as "qualified mortgages" that will be exempt from risk retention rules, according to the Mortgage Bankers Association. 

Congress created the qualified mortgage exemption in the Dodd-Frank Act to facilitate the securitization of safe and well-underwritten single-family loans while penalizing those involved in the securitization of high- risk subprime and payment option ARMs. 

In a letter to HUD and other agencies, MBA president and chief executive John Courson says the impact of the qualified mortgage exemption on credit availability cannot be "overstated."

MBA wants regulators to preserve lender discretion "within acceptable parameters" and allow lenders to "consider compensating factors in meeting the financing needs of qualified borrowers."  

MBA also wants regulatory flexibility on debt-to-income ratios.

"If specific numerical standards are prescribed under these rules, we believe DTI should not be lower than 50%, with specific compensating factors defined in the regulation…" MBA says.

The federal banking agencies, Securities and Exchange Commission, Federal Housing Finance Agency and the Department of Housing and Urban Development are expected to issue a qualified mortgage rule by April. The deadline for completing the joint ruling making on risk retention is mid-July.

MBA maintains the two rules should be "synchronized" and issued at the same time.

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