A good piece in the Times today worth checking out — it clears up something a lot of people believe about government-backed-mortgage proposals.

In “A Flaw in New Rules for Mortgages” Floyd Norris points out a big misconception about the whole ’20% down’ thing.

People believe that a 20%-down-payment requirement would kill the mortgage market, because few people have the $30,000 or $40,000 available. As Bob Nielsen, chairman of the National Association of Home Builders, put it:

“By mandating a 20 percent down payment on qualified residential mortgages, the administration and federal regulators are excluding those without huge cash reserves – which constitutes most first-time home buyers and many middle-class households – from a chance to buy a home.”

But Norris points out that the 20% requirement would only be to qualify a loan to be a QRM (qualified residential mortgage — aka, the absolute safest kind of loan). These, and only these, would be government guaranteed. And they would be in the minority.

Most loans would not be QRMs. Banks would have to take some risk, rather than expect taxpayers to bail them out if they start writing risky loans.

In other words, the government is saying, “We’ll back you up, but only on the absolute safest loans. If you want to take a little more risk for a little more reward (or a lot more risk for a lot more reward), you’re gonna need your skin in the game.”

Read the full story. If you’ve been picturing the entire market being made of QRMs and 20% down payments, you’ll need to adjust your view.