No one is looking to skirt regulations created to stave off another financial collapse like that of 2008; however, many business groups and individuals have made several strong arguments against new rules trickling out of the Dodd-Frank legislation.
A portion of the law requiring so-called Qualified Residential Mortgages forces lenders to retain 5 percent ownership of loans they originate unless the qualified mortgage has a minimum down payment of 20 percent. The proposal also contains stringent debt-to-income ratios and borrower credit history restrictions. Those are the key aspects to retain (see “Federal regulations might hamper housing recovery,” Page 1).
The size of down payments had very little to do with the high number of loan defaults during the housing market crash; the problem was making loans to individuals who couldn’t pay their mortgages. According to the Center for Responsible Lending, 27 million mortgages between 1990 and 2009 were made with low down payments and did not carry risky features found in subprime loans.
Large inventories, home prices continuing to fall, less money in the economy, bigger down payments: Where is the logic, especially when many experts continue to warn of a double-dip recession in the housing industry? Most of the midstate continues to see lower median sale prices, fewer houses being sold and the increasing average number of days houses remaining on the market.
The National Association of Realtors correctly maintains it would take more than 10 years for the median U.S. family to save enough for a 20 percent down payment on a modest home.
It’s one thing to protect the economy from a crash; it’s quite another to completely hamstring the industry in the hope of appearing responsible. The QRM mandate is purely rhetoric; worse, it is the exact counter to responsibility.
Six federal agencies that govern housing and lending are collecting comments from consumer and industry groups through Aug. 1, and regulators could alter the QRM conditions.
Significantly lowering or getting rid of mandatory down payments would be the only wise choice if the nation is to have a quick and healthy economic recovery.
