, all else being equal. the first reason is the possible increase in foreclosure losses and litigation costs. although these costs, in the aggregate, are expected to be small, their full extent will not be known until the courts settle any abilityto - repay suits that may be brought forward. 14 the second reason is that mortgages that do not meet the qm definition will also not qualify as qrms, so lenders will be required to hold some of the risk if these loans are securitized. 15 the third reason is that loan originators will have better information than investors on the quality of the underwriting decision. investors may demand a premium to compensate them for the concern that originators might sell them the loans most vulnerable to ability - to - repay lawsuits. the fourth reason is that the non - qm for more on ability - to - repay requirements and the definition of a qm, see cfpb ( 2013 ), “ ability to repay and qualified mortgage standards under the truth in lending act ( regulation z ), ” regulations : final rules issued by the cfpb 2013, webpage, january 10. for information on loan originator compensation, see cfpb ( 2013 ), “ loan originator compensation requirements under the truth in lending act ( regulation z ), ” regulations : final rules issued by the cfpb 2013, webpage, january 20. the cfpb estimates of these costs are available at section vii. e. 3. if a mortgage - backed security is collateralized by “ qualified residential mortgages, ” as defined by federal regulators consistent with section 941 of the dodd - frank act, the securitizer is not required to retain any risk in the securitization transaction. otherwise, the securitizer must retain an economic interest in the transaction consistent with section 941 and any regulations established thereunder, which may increase the securitizer ’ s costs. the dodd - frank act requires that federal regulators set the definition of a qrm to be no broader than the definition of a qm. bis central bankers ’ speeches market, at least initially, may be small and illiquid, which would increase the cost of these loans. the higher costs associated with non - qm loans should have very little effect on access to credit in the near term because almost all current mortgage originations meet the qm standard. the vast majority of current originations are eligible to be purchased, ins

developments in u. s. and foreign financial markets will stimulate considerable review and analysis in the months and years to come. around the world, legislatures, regulators, supervisors, accounting boards, central banks, and others with responsibility for oversight of the financial system are already hard at work trying to distill the lessons to be drawn from this experience and their implications for policy. many in the private sector, including banks, credit - rating agencies, and the investment community, are likewise actively reviewing and responding to these developments. some of the areas that will draw scrutiny are the appropriate use of credit ratings by investors, banks, and supervisors ; the need for enterprise - wide, better - integrated risk - management techniques in large financial institutions ; the appropriateness of accounting rules governing asset valuation and the use of offbalance - sheet vehicles ; and weaknesses in the originate - to - distribute model and in the design of structured credit products, among many others. in the longer term, the response of the public and private sectors to this experience should help create a stronger financial system. the federal reserve ’ s response fortunately, after a number of years of strong earnings, most financial institutions entered the current episode in good financial condition. thus, notwithstanding the effects of multi - billion dollar write - downs on the earnings and share prices of some large institutions, the banking system remains sound. nevertheless, the market strains have been serious, and they continue to pose risks to the broader economy. the federal reserve accordingly has taken a number of steps to help markets return to more orderly functioning and to foster its macroeconomic objectives of maximum sustainable employment and price stability. broadly, the federal reserve ’ s response has followed two tracks : efforts to support market liquidity and functioning and the pursuit of our macroeconomic objectives through monetary policy. to help address the significant strains in short - term money markets, the federal reserve has taken a range of steps. notably, on august 17, the federal reserve board cut the discount rate – the rate at which it lends directly to banks – by 50 basis points, or 1 / 2 percentage point, and it has since maintained the spread between the federal funds rate and the discount rate at 50 basis points, rather than the customary 100 basis points. 2 the fed also adjusted its usual practices to facilitate the provision of discount window financing for as long as thirty days, renewable at the request of the borrower. loans through the discount window differ from conventional open market operations in that the loans can be made directly to individual banks