May 30, 2012
Proposed loan standards may be loosened
30 May 2012
Posted by Andrew Kantor
Federal regulators look like they won’t require a 20 percent down payment for loans to qualify for federal protection. That was a proposal that’s been floating around Washington and getting lots of press.
But now the rumblings — and they’re just that, rumblings — are that the rules are going to be a bit more conducive to buyers.
First, the 15-second review:
The Dodd-Frank act requires federal regulators to come up with two sets of mortgage guidelines. The one we’re talking about is for Qualified Residential Mortgages (QRMs). This would be a reasonably tight set of standards for loans to meet if the lender wants them to be backed by the government. (Lenders are free to offer non-QRM loans, but they can’t expect Uncle Sam to help if things go south.)
Regulators have been working to set those standards. One idea that’s getting a lot of press would require lenders to hold onto five percent of the loan (“skin in the game”) and to require a 20 percent down payment.
Naturally, lots of folks saw that down payment requirement as excessive. Sure, it would help guarantee that borrowers could afford houses, but not a lot of borrowers could come up with that kind of cash. (Maybe you have 60 grand laying around, but not all of us do.)
So we (i.e., VAR and NAR, not to mention other organizations such as the Mortgage Bankers Association) have been putting pressure on regulators and policymakers to rethink that 20 percent proposal. And Congress, for the most part, is on our side.
Now all that lobbying, pressing, nudging, cajoling, and general shoe-leather work is paying off. (Yes, these are your RPAC dollars at work.)
According to a HousingWire story,
A group of federal regulators will likely lower the proposed 20% down payment requirement for home-loan lenders who wish to avoid holding added credit risk on the securitization of mortgages.
Rep. Barney Frank, D-Mass., was pretty straightforward: “They’re not talking about 20% anymore,” he said. And David Stevens, CEO of the Mortgage Bankers Association, also said that he expects those QRM standard to be lowered.
(For the record, the Obama Administration, through HUD, suggested a 10 percent down payment requirement.)
Now remember, this requirement is only for loans that lenders want to be backed by the government. There’s certainly an argument — as made by former FDIC chair Sheila Bair — that QRM standards should be high because the federal government shouldn’t be in the business of insuring private-sector loans.
But our position is that, right now, any impediment to home purchases is a bad idea, because we don’t want to risk derailing what’s becoming a solid recovery.
We’ll keep you posted. Meanwhile, click here to read more over at HousingWire.