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 Push Home Buyers to Put Down More Cash
"A 2009 Federal Reserve Bank of St. Louis study concluded buyers who made smaller down payments were more likely to default during “unfavorable economic circumstances, such as a housing market slowdown or job loss.”"
Yes, but a decent underwriter would be able to take that into consideration.
A 10% downpayment is more reasonable.
But “forcing” a 20% downpayment is just silly.
Again, the government has no business directing a private business on how they should conduct themselves. The mortgage business worked just fine for a couple of hundred years.
And you're right. Banks are in the business of making loans at an interest rate commensurate with the risk. The higher the risk of a loan to an individual, the higher the interest rate for that loan.
But to the swells in Washington, that's "racist."
Eric Holder's people have historically had a much higher default rate than any other group, which means they were being held to a lower standard.
And even that wasn't enough. Nothing will be enough except handing them free stuff forever and always Amen.
I’m saying there hasn’t been a natural price correction because the Government has stepped in to artificially prop up the lenders and many mortgage holders to reduce the effects of what should have naturally occurred. The 35-50% reduction you cite seems pretty accurate, but that only means that the real correction should have been greater, especially in the markets where the greatest inflation of home prices occurred. In my area, for example, I reckon the home prices are still at least 50% higher that the actual value of the homes.
The risk of default is inversely proportional to the size of the down payment.Period.
If you get something for nothing down, you lose nothing if you walk away.
So what did you find offensive or incorrect?
If you get something for nothing down, you lose nothing if you walk away.
If I don't put anything down for a house, I still make mortgage payments on it up until the time I walk away from it. But unless the mortgage company reimburses me for all those mortgage payments I made up until I walked away, I did, in fact, lose something: those mortgage payments, which include money towards the principal and the interest.
And, of course, my credit is destroyed.
So I don't think you lose nothing if you walk away . . .
So would you have been living somewhere else for free?
"Hubby and I are going to try to build our dream home and to finance as little as possible...
Those things you listed are identical to our plans (except the finance part for we have enough loot saved to buy outright) - the only key component we changed is that the "dream home" won't be built in the former united States but in a friendlier country.
This one is likely to be on fire in the next few years.
Only if I were lucky or very wealthy.
So we agree: unless you were reimbursed the mortgage payments you made up until you walked away from your mortgage, you don't "lose nothing" when you walk away from your mortgage. You lose something.
If you could live somewhere for free, why would you buy a house in the first place?
If it would have cost you more to rent than you were making in house payments, you came out ahead.
I have always put down 20% or more, and my payments were always less than rent would have been.
Get gov’t out of the mortgage business, and let mortgagors decide what the multi-tiered system looks like.
Where are you going?
That horse has already gotten out of the barn.
The way to get government out would have been for GWB back in the fall of '08 to say, "Forget it, Henry. Your buds are just going to have to suck it up and take their losses like every other mismanaged business does."
True enough. It isn’t too late to dismantle the gov’t mortgage structures now, though.
“The industry should regulate itself and 20% down should be about the minimum.”
“Then young lawyers, fresh out of college, like Barry Obama, took the banks to court on the basis that 20% down was racist.”
That is part of it. The rest is the banks then sold those “less qualified” loans and made MBS’s out of them, Mortgage Backed Securities. These were then off loaded onto Fannie and Freddie, and now, the taxpayers. The banks no longer had to have these bad loans on their books, made gobs of money doing it, and want to go back to doing more of the same.
This is why the banks no longer care about the credit worthiness of who they lend to. In fact, they did structure these MBS’s to make MORE money when the loans failed, by making bets with Credit Derivative Swaps, CDS.
Win win for the banks, lose lose for the middle class savers.
“If you get something for nothing down, you lose nothing if you walk away.”
From the banks perspective, this is no longer true.
They make money when these loans fail, in fact they make MORE money when these loans fail. They made fancy bets called CDS that they structured to make money when the loans fail. They have made more money doing this than in their lending.
They must want another round of fools to keep the credit bubble going and make more money on the taxpayer dime.
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