A proposal that federal regulators mandate a 20 percent down payment for buyers wishing to qualify for a conventional residential mortgage has prompted action among realtors nationwide.
Approximately 60 percent of recent homebuyers paid less than 20 percent down on their homes, according to research from the National Association of Realtors (NAR). Data indicate that it takes 14 years for the typical homebuyer to save a 20 percent down payment to buy a median-priced home.
Realtors say the proposed Qualified Residential Mortgage (QRM) rule would reduce the availability of affordable mortgages for qualified consumers.
The proposal would require loans to have at least 20 percent down for lenders to be exempt from a 5 percent risk-retention requirement, a provision in the Dodd-Frank Act signed into law last year.
NAR and other opponents claim that congressional intent was to define safe loans as those that are soundly underwritten. However, their concern is that a high down payment would make home ownership unaffordable to a large percentage of buyers. The alternative to QRM loans is loans for which lenders retain the mandated 5 percent holdback, a requirement analysts say could cost up to 300 basis points more than QRM loans.
“NAR firmly believes Congress intended to create a broad QRM exemption. Strong evidence shows that responsible lending standards and ensuring a borrower’s ability to repay have the greatest impact on reducing lender risk – not high down payments,” said Ron Phipps, NAR president. “Saving the necessary down payment has always been the principal obstacle to buyers seeking to purchase their first home.”
Phipps said the proposal would force borrowers to seek FHA loans, which have higher interest rates and fees, and would further drive homebuyers from qualifying for a mortgage loan.
It’s a sentiment shared by local realtors.
“The proposed rule would not only affect buyers, but itÂ would also affect the ability of homeowners to sell their homes, since there would be fewer buyers who could qualify for home ownership,” said Gene Lentz, president of the Silicon Valley Association of Realtors. “We are asking our representatives to make it clear to the regulators that this proposed regulation was not their legislative intent, and to instead implement a more reasonable QRM that will keep creditworthy buyers in the market and able to acquire a loan.”
According to NAR representatives, the association wants federal regulators to draft a QRM exemption that includes a variety of traditionally safe, well-underwritten products, such as 30-, 15- and 10-year fixed-rate loans; 7-1 and 5-1 adjustable-rate mortgages; loans with down payments from 5 to 20 percent with private mortgage insurance, where required; and other features found in low-risk loans, such as no prepayment penalties or balloon payments.