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.
What a coincidence, Johnny Isakson made a fortune as a realtor.
I'm fine with the free market determining the terms for loans if the lender eats any losses rather than selling the loans to Freddie/Fannie or coming to the taxpayer for a bailout.
It's because we have not yet thoroughly purged the idea of "too big to fail" from our culture that we have the government setting these requirements.
see my post 22 above
The market stopped working the day that Henry Paulson went on his knees in front of Nancy Pelosi, begging for $800 billion so his buds wouldn't have to face the consequences of their imprudent decisions.
It has not been restarted since.
“This economy cannot recover if housing does not recover. It’s one-sixth of the economy,”
Driving housing prices down even further than current would not be helpful.
Maybe, and I know this is a crazy idea, we should let lenders determine the acceptable level of risk when writing mortgages and other loans.
FICO is too sensitive to perfect timing of payment history and small nonpayments (many of which are disputable). You can have a good FICO and still get in way over your head with a loan.
Debt to income ratio (no more than 3:1 including the loan), employment history, and accurate valuation of the property ("recent comparable sales" are what gave us the bubble, I much prefer "no more than 120x monthly rents for comparable residences") are what say "good risk" to me.
Congress shouldn’t be making any regulations dictating down payments. Minimum or max. They need to stay ouit of it
Anyone should be free to make any loan they want to anyone else at any terms which are mutually agreeable, as long as the lender is at full risk (not one penny from the taxpayers!) if that loan is not repaid.
Personally I have no confidence, NO confidence, in the ability of our government (whether Democrat or Republican) to resist the calls for a bailout of the TBTF's when the next phony crisis comes along.
So the fewer loans that get made, the fewer bad loans I'll eventually get saddled with as a taxpayer.
I agree. But also, I do not think a first time home buyer should be expected to be able to afford a MEDIAN priced home.
I would expect most of us here in freeperland bought a cheap house for our first place, and worked up from there.
By quoting the 20% downpayment for the median priced home the congress critters are intentionally misrepresenting the effect on the first time buyers.
see posts 22 and 29
Period.
If you get something for nothing down, you lose nothing if you walk away.
And speaking of default rates, blacks have a much higher default rate than other categories of borrowers, meaning that they were not being held to a higher standard, they were being held to a lower standard.
They used to.
Then young lawyers, fresh out of college, like Barry Obama, took the banks to court on the basis that 20% down was racist.
Well, after all, it is a Constitutional right. You can find it in the Constitution right under the guaranteed right to kill any babies you don't want.
You base a loan on a persons ability to repay it not on some BS score from some credit bureau. Lets face it if you can’t afford to repay the loan you shouldn’t be given one to begin with and that’s been the problem.
Banks have been lending to very high risk individuals simply because the loans have been backed by bad government programs.
Common sense goes along ways. That’s why government programs don’t use it.
The average house back then was about 1200 square feet. Those same houses are going for 2-3 times average income in my area.
The problem is that the people who can afford a 1200 square foot house are trying to buy 2500 square foot houses.
Some folks just can’t afford 20%, 10% or even 5% down no matter how long they save but they can afford to make a house payment.
Banks should base a loan on ability to repay not by the size of the down payment. A large down payment DOES NOT guarantee the loan will be repaid and that’s been proven over and over.
Because now the banks are being OVERLY restrictive on lending, and the result is prices for rentals is skyrocketing. My counter question is: why are you in favor of the government setting the down payment requirement - should that not be a free market outcome?
As soon as I read the headline I knew Isakson would be wormed in there somehow. He's not a Senator, he's a real estate agent lobbying from the inside. Worst of the seven candidates for the seat in 2004 and not getting any better.
See posts 22 and 29. If I truly believed that the government would have the cojones to say no the next time Wall Street pulls a Chicken Little like they did in 2008, I would entirely agree with you.
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