Failed federal housing policy was the primary driver of the financial crisis, driven in part by regulatory failures and private market excesses.
Gallagher said it's unfortunate that federal regulators agreed in the newly refined QRM definition to "adopt the deeply flawed definition of qualified mortgage (QM) set forth by the Consumer Financial Protection Bureau (CFPB) earlier this year."
"As a baseline matter, I do not believe that the federal government should be dictating prescriptive risk management standards, as the re-proposed rules would do for mortgage securitizers."
Gallagher argued that, considering the federal government's dominant role in the housing market, it is probably "too much to expect that the federal bureaucracy will refrain from extending itself into areas it is not well suited to regulate."
He said the rule could have taken two other very different directions.
The agencies could have proposed a very stringent definition of QRM, such as the one proposed in 2011, which he argues would have created a narrow class of loans, "allowing for a sizable, vibrant non-QRM mortgage market."
Or, the agencies could have proposed a very loose definition, "effectively making the 5 percent retention charge moot."
"In either scenario, one could expect an active private market," he said.