Posted on 06/30/2011 7:25:03 AM PDT by Notary Sojac
A bipartisan group of U.S. senators and representatives last week joined with NAHB and other business and consumer groups in calling on federal regulators to revise a pending proposal that would require a minimum 20% downpayment for “qualified residential mortgages."
They argued that such a plan goes against the intent of Congress, would keep homeownership out of reach of most first-time home buyers and many middle-class households, and would deal a devastating body blow to the already fragile housing market.
“This rule is an overreach. If left as is, it would make recovery in the housing market almost impossible,” said Sen. Johnny Isakson (R-Ga.).
Isakson — along with Sen. Kay Hagan (D-N.C.) and Reps. John Campbell (R-Calif.) and Brad Sherman (D-Calif.) — on June 22 hosted a Capitol Hill press briefing in conjunction with the Coalition for Sensible Housing Policy, which is comprised of more than 40 industry and consumer groups, including NAHB, that are united in opposing the proposed 20% downpayment rule and share the goal of giving families access to affordable mortgages.
Sen. Mary Landrieu (D-La.), who has worked closely on this issue with Sens. Isakson and Hagan, was unable to attend the event.
Under the Dodd-Frank financial reform law passed last year, securitizers are required to have "skin in the game" by retaining 5% of the credit risk of each loan backing a security.
The law also called for federal banking regulators to establish rules for a qualified residential mortgage, or QRM, that would exempt lenders from the risk retention requirement.
Borrowers who can't afford to put 20% down on a home and who are unable to obtain FHA financing would be expected to pay an estimated premium of two percentage points for a loan in the private market to offset the increased risk to lenders, according to NAHB economists.
"This would annually disqualify about five million potential home buyers, resulting in 250,000 fewer home sales and 50,000 fewer new homes being built per year," said NAHB CEO Jerry Howard, who represented the association at the press event.
“Such a drastic cutback would have a disproportionate impact on minorities and low-income families struggling to achieve the dream of homeownership,” he said.
Lawmakers Omitted Downpayment Rule
Lawmakers have noted that nothing in the Dodd-Frank Act stipulated a downpayment rule for the QRM provision and they have expressed concern that the regulators did not follow the clear legislative intent behind the provision.
“This misinterpretation of our intent could unnecessarily slow the housing market’s recovery and prevent well-qualified, middle-class families from securing an affordable mortgage,” said Hagan. “We are urging regulators to go back to the drafting table.”
Giving the issue a local perspective, Hagan said that in Raleigh, N.C., where the median house price is $217,000, home buyers would need more than $43,000 for a downpayment under the proposed rule.
“That’s almost equal to the median annual income in my state,” she said. “Many families in North Carolina and across the country cannot afford such an onerous downpayment. In fact, according to the 2009 data from the Center for Responsible Lending, it would take the average American 14 years to come up with that 20% downpayment.”
In a written press statement, Sen. Landrieu said that the “proposed rule is inconsistent with the drafters’ legislative intent. As I have mentioned to the regulators on several occasions, we intentionally and explicitly omitted a downpayment requirement.”
Lawmakers Write to the Regulators
Last month, Isakson, Landrieu and Hagan led a bipartisan group of 39 senators in writing a letter to federal regulators urging them to modify the proposed risk retention rule because it imposes unnecessarily tight downpayment constraints that would restrict credit to middle-class families working to own a home.
“These restrictions unduly narrow the QRM definition and would unnecessarily increase consumer costs and reduce access to affordable credit,” the letter said.
“Well underwritten loans, regardless of downpayment, were not the cause of the mortgage crisis. The proposed regulation also establishes overly narrow debt-to-income guidelines that will preclude capable, creditworthy home buyers from access to affordable housing finance,” it said.
Reps. Campbell and Sherman spearheaded a similar effort in the House, garnering a strong majority of lawmakers to join together to write a subsequent letter opposing the rule.
“The qualified residential mortgage definition regulators have proposed is so restrictive it threatens to cut off millions of otherwise eligible consumers from the dream of owning a home and will drive the bulk of real estate lending in this country to the largest institutions that enjoy the lowest cost of capital,” said Sherman.
“That’s why Congressman Campbell and I persuaded over 280 of our House colleagues to sign a letter to regulators opposing the rule as it has been drafted,” he said.
“This economy cannot recover if housing does not recover. It’s one-sixth of the economy,” added Campbell.
“If this regulation as proposed goes into effect, we not only won’t have a strong housing market, we’ll have a weaker one. We cannot set up a system that is so onerous and so difficult that the average American won’t be able to get financing to buy a house, which will further drop the price of housing and will further sink this economy,” he said.
Coinciding with the news conference, joint letters from 44 senators and 282 members of the House of Representatives have been sent to the federal regulators.
Weighing in on the Issue
NAHB has strongly weighed in on this matter as a member of the Coalition for Sensible Housing Policy and in testimony before Congress, urging regulators to come up with a fairer QRM definition that does not unduly impact credit-qualified home buyers.
On June 22, the coalition also submitted a white paper to regulators as a joint comment letter.
The 44 organizations that signed on to the white paper are calling on regulators to “redesign a QRM that comports with congressional intent: encourage sound lending behaviors that support a housing recovery, attract private capital and reduce future defaults without punishing responsible borrowers and lenders.”
Federal regulators recently extended the comment period for the 20% downpayment rule until Aug. 1. In their announcement, the agencies cited "the complexity of the rulemaking" and the need "to allow interested persons additional time to analyze the proposed rules."
NAHB is currently drafting comments for submission ahead of the new deadline.
Banks have been reckless...which is kind of funny. My credit rating is pure gold. When I bought my VERY modest home about 10 years ago, I had a 20%+ downpayment and the bank acted like they were going to do me a favor accepting my loan app. I had to jump through my own rectum to meet their qualifications (even with my perfect credit history) all the time they were handing out liar loans like popcorn to 'others'
I remember watching all the HGTV shows in 2005-2006 with the twenty somethings who were “approved for $600K” and the realtor asking “Well, can you stretch your budget a little more”?
Which is precisely why the Chrysler Bailout in the 70s was such a bad move, for it set up the precedent that government was responsible for stopping companies from failing...I don't care if Chrysler paid back the money with interest early, it set a horrible precedent.
IMHO 5% is too low but 20% is too high for many especially if theaverage market price is over $200K like it is in many markets.I think somewhere between would work best and not kill the market further.
IMHO 5% is too low but 20% is too high for many especially if the average market price is over $200K like it is in many markets.I think somewhere between would work best and not kill the market further.
Now that is a good idea but I think somehow they would manage to label it racist even though there is nothing about a credit score that has anything to do with that.It’s all about how well you pay your bills.
PRICES NEED TO COME DOWN OR THE INCOMES NEED TO COME UP...”
IMO, not everyone needs to or should be a homeowner. Bought a home 4 years ago and paid more than 20% down. But then I live in Texas where you can generally find a reasonably priced home where you can live within your means. Lot of people don’t think about the additional cost for maintenance, utilities, taxes, etc. Many are just not willing to begin with a starter home and WORK their way up.
True Dat!
No, allowing the market to set the terms of loans makes perfect sense.
However... you and I, as taxpayers, should not be funding the buying of speculative mortgages written with absurd LTV’s through Fannie/Freddie/FHA/etc.
The regulation(s) should be set to require that loans to be purchased in the secondary market by Fannie/Freddie/FHA/etc require a 20% down payment. If a bank wants to write a note with a higher LTV ratio, then they can. They just can’t sell the note to the taxpayer-backed secondary market.
Correct, but it DOES increase the homeowner's incentive to make those payments. As such, it discourages people from taking out loans they cannot afford, otherwise thinking that the government will bail them out.
. . . except for what you paid up each month until you walk away.
Mandating 20% down would pretty much mean little to no first-time buyers into the market. The mandate would hit young college graduates exceptionally hard, as a considerable portion of them are saddled with college loans that can, in some circumstances, equal or even surpass an average mortgage payment.
This means an inflated rental market and/or a weird societal thing where adults in their twenties, including married couples, are forced to live with parents or relatives for an extended period of time due to fiscal issues. Talk about extending an already over-extended period of adolescence.
Hmm.
A societal environment where people remain in a suspended state of adolescence until their late twenties, or dare I say it, their thirties, is "not good" for people of our political persuasion, which is based on an attitude of independence, self-reliance, and personal freedom.
Knee-jerk reaction is to say let's let the free market take care of it, but then again, the free market got us redlining, which is how we got into this mess in the first place.
Food for thought. Thanks for the thought-provoking post.
You'd have to pay rent wherever you were.
Unless you're a deadbeat renter too.
In my opinion the job market for decades to come is going to favor those who can pull up roots and move with a minimum of fuss. This will push young Americans into the rental market more than any tweaking with mortgage terms will.
The one constant in any economic or financial bubble is the over-exuberance of the masses.
The tech bubble was inflated by the aggregate excessive demand of each 401k holder that wanted to get in on the dot-com action. Wall Street just obliged (as they always do) by selling us more dodgy tech stocks and finding them wherever they could get an executive team with plausible CVs, even if the companies didn’t have a clue how they were ever going to be profitable. If we the consumer didn’t care, why should Wall Street care?
The housing bubble was inflated by the aggregate demand of each American home buyer who individually believed that houses can only go up in value, and that they DESERVED that 4000 square foot mini-mansion after their long hours at home. Wall Street just obliged (as they always do), and figured out ways to funnel more money to our demand for loans, by securitization which allowed Americans to, in essence, borrow from every source of capital in the world..
The fact is that no government, and especially not a democratic government, can help a populace that is individually and collectively lacking in prudence.
Sure Greenspan and Frank and Dodd and Paulson and Bernanke poured gasoline on the fires, but they would have been replaced if they didn’t. As long as the public thinks there is a free ride to wealth, anyone that promises it will be exalted, and anyone that hinders it will be shoved aside.
. . . but that's not what you wrote.
I still live in a modest house of less than 2000 sq feet which we built in 1976, and all of the houses in our subdivision are modest. I am sure there are plenty of American Citizens who were also prudent in their housing choices.
This, and add to it social engineering on the part of the federal government designed, at least in its most noble sense, to try and combat racism. The feds gave the private sector that lemon, and the private sector discovered how to make lemonade with it . . . because the feds were more than happy to buy back that lemonade at the end of the day.
Big government and big business created this mess, and yeah, the American public was only too happy to get swept up in it.
To Asia. :)
It wasnt the down payment that was the problem.
It was giving loans to people who had no income.
If we let the banks, and their underwriters do their jobs we will be fine. it is when the government steps in and says they will underwrite and guarantee mortgages for people who would otherwise not qualify that we get into trouble.
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