Here’s a beautiful example of why we’re fighting tooth and nail to ensure reasonable lending standards.
According to HousingWire, which used CoreLogic’s data, 39% of homebuyers in 2010 put down less than 20% on their purchase. Meanwhile, the current proposal defining a Qualified Residential Mortgage — one that banks could sell to Fannie or Freddie — would require, among other things, a 20% down payment. Without it, the bank would have to hold onto the loan, making QRM essentially the minimum standard for borrowers.
So CoreLogic crunched the numbers, and found that, were QRM in place in 2010, 39% of buyers wouldn’t qualify. So you can bet that a vast majority of them wouldn’t have gotten a loan.
Can you imagine if 2010’s sales were 39% lower than they were?
Down payment is not an indicator of loan performance. The difference in foreclosures between people who put down 20% and those who put down 5%? About half a percent. In other words, nil. Smart underwriting makes solid loans, not down payment requirements.
Making the folks on Capitol Hill understand that is just one of the battles we’re fighting these days. (You can read a lot more in the upcoming issue of Commonwealth.)