To Congress: 20% Down Payment Is TOO HIGH!

A bipartisan group of lawmakers are urging federal regulators to overhaul a mortgage proposal that includes a call for a 20 percent down payment for the “safest mortgages,” saying that it could threaten a full economic recovery “from years to come.”

In a letter obtained by the media on Wednesday, more than 160 lawmakers in the House of Representatives called the federal regulator’s mortgage proposal “overly burdensome government dictate” and said that the proposal would reduce the availability of affordable mortgages.

In an effort to urge more responsible lending and borrowing, several federal agencies have been developing a proposed risk-retention regulation under the Dodd-Frank Wall Street reform law, which requires lenders that securitize mortgage loans to retain 5 percent of the credit risk unless the mortgage is considered a safe mortgage or a “qualified residential mortgage.” (FHA and VA mortgages would be exempt.)

QRMs would be exempt from the 5 percent credit requirement but would have to meet certain guidelines, such as the proposed 20 percent downpayment requirement. Borrowers with less than 20 percent down could then be forced to pay higher fees and interest rates.

In the letter, the lawmakers called the 20 percent downpayment guideline too high and asked federal regulators to consider lower downpayment loans that have mortgage insurance that would constitute a QRM.

The National Association of REALTORS® has been an outspoken critic to the higher downpayment requirement, arguing that the 20 percent down payment would greatly jeopardize a housing recovery.

“We need to strike a balance between reducing investor risk and providing affordable mortgage credit,” NAR President Ron Phipps said in a public statement last week. “Better underwriting and credit quality standards have greatly reduced risk. Adding unnecessarily high minimum down payment requirements will only exclude hundreds of thousands of buyers from home ownership, despite their creditworthiness and proven ability to afford the monthly payment, because of the dramatic increase in the wealth required to purchase a home.”

Source: “House Lawmakers to Regulators: Kill Mortgage Plan,” Reuters News (June 1, 2011)