Should homebuyers be required to make a down payment of at least 20 percent of a home's purchase price to qualify for a mortgage?
That's a hot topic in a current debate about the federal government's soon-to-be-issued official definition of a "qualified residential mortgage" or "QRM."
Once the definition and the risk-retention rule that requires it take effect, lenders will be able to sell off 100 percent of a QRM loan, but only 95 percent of a non-QRM loan. The other 5 percent of the loan must be kept on the lender's books.
Loans insured by the Federal Housing Administration -- so-called FHA loans -- are exempt from the rule, so a higher down payment requirement on QRMs wouldn't apply to FHA loans.
At least one major lender reportedly wants the government to include a 30-percent down payment requirement in the QRM definition.
The Center for Responsible Lending, or CRL, has taken aim at that proposal in a new position paper, "Don't Mandate Large Down Payments on Home Loans," which argues that small down payment loans aren't inherently (or shall we say "by definition"?) more risky than large down payment loans.
"Recent proposals call for requiring prospective homeowners to make a 10-20 percent down payment when purchasing a home. This is seen -- mistakenly -- as 'getting back to the way mortgages used to be made,'" the paper states.
The paper goes on to say that low down payment loans "have been a significant and safe part of the mortgage finance system for decades" and are "a key to the recovery of our nation’s housing market and economy."
A CRL analysis concluded that the typical U.S. household would need 14 years to accumulate enough cash for a 20 percent down payment. That conclusion was based on these assumptions:
- A purchase price of $172,100, the national median for a detached house in 2009.
- A down payment of 20 percent or $34,420.
- Estimated closing costs of 5 percent or $8,605.
- A savings rate of $3,000 per annum, or $250 per month.
Does that seem reasonable or burdensome?
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