REALTORS Argue Against New High Down Payment Requirements

WASHINGTON – March 30, 2011 – High downpayment requirements being proposed by federal regulatory agencies will unnecessarily burden homebuyers and significantly impede the economic and housing recovery, according to the National Association of Realtors®. Rule changes are mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Six agencies – the Department of Housing and Urban Development, Federal Deposit Insurance Corp., Federal Housing Finance Agency, Federal Reserve, Office of the Comptroller of the Currency, and the U.S. Securities and Exchange Commission – are developing risk retention regulations that requires lenders to retain 5 percent of a mortgage’s credit risk unless the mortgage is a qualified residential mortgage (QRM) –(FHA and VA mortgages would also be exempted.) Currently, the definition of a QRM is being debated.

“As the leading advocate for homeownership, NAR supports a reasonable and affordable (downpayment) coupled with quality credit standards, strong documentation and sound underwriting,” said NAR President Ron Phipps. “A narrow definition of QRM, with an unnecessarily high downpayment requirement, will increase the cost and reduce the availability of mortgage credit, significantly delaying a housing recovery.”

NAR believes that Congress intended to create a broad QRM exemption that includes a wide variety of traditionally safe, well-underwritten products. Evidence shows that responsible lending standards and ensuring a borrower’s ability to repay a mortgage loan has the greatest impact on reducing lender risk.

“We need to strike a balance between reducing investor risk and providing affordable mortgage credit,” Phipps says. “Better underwriting and credit quality standards have greatly reduced risk. Adding unnecessarily high minimum downpayment requirements will only exclude hundreds of thousands of buyers from homeownership, despite their creditworthiness and proven ability to afford the monthly payment.”

The definition of QRM is important because it will determine the types of mortgages available in the future. Borrowers with less than 20 percent down could be forced to pay higher fees and interest rates – up to 3 percentage points more – for loans that do not meet narrow QRM criteria.

NAR says that a narrowly defined QRM could also lead to tighter FHA eligibility requirements and higher FHA premiums.

“Saving the necessary downpayment has always been the principal obstacle to buyers seeking to purchase their first home,” says Phipps. “Proposals requiring high downpayments will only drive more borrowers to FHA, increase costs for borrowers by raising interest rates and fees, and effectively price many eligible borrowers out of the housing market.”

© 2011 Florida Realtors®
Reprinted with permission. Florida Realtors®. All rights reserved.

Comments

[Rich Cederberg]

I guess a housing recovery would be good to have sooner rather than later but if we keep putting people in houses they can't afford aren't we doomed to be right back here in another ten years? Thanks for posting.