20 percent down requirement will stall an already too-slow housing recovery

Did you respond to the National Association of REALTORS® Call for Action that started May 18? It urges REALTORS® to write their representatives in Congress to make sure the Dodd-Frank legislation signed last July doesn’t result in too-stringent requirements for the Qualified Residential Mortgage (QRM) that will keep credit-worthy buyers out of the housing market, unable to get a loan.

Could your clients afford a 20 percent down payment? Could you?

Agents in our office work with a lot of first-time buyers in the Peoria area where prices are modest but still that’s $20,000 saved up for a $100,000 home. That’s tough to do in a down economy when jobs have been lost and day-to-day costs such as gas are rising.

This would be very detrimental to the ongoing housing and lending crisis in America. Please answer the call today!

Here’s some background from NAR. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) became law on July 21, 2010. According to NAR analysis: “Section 941 of the Dodd-Frank Act requires financial institutions that securitize mortgages loans to retain at least 5 percent of the credit risk.” And it exempts from this requirement securities backed solely by QRMs. Thus, there will be an incentive for lenders to only offer these QRMs.

We understand risk management but in the wake of the easy money days when exotic and no-money down loans were doled out readily, there has to be middle ground so the average person with average savings and credit scores can own a home. Getting a home loan has already become a very time-consuming and sometimes impossible process for qualified borrowers.

Here are NAR highlights of the Proposed QRM Standards:

  • 80% LTV, which requires a 20% down payment**
  • Limit the mortgage payment to 28% of gross income and limit all debt to 36%
  • No credit score requirement is included, but a mortgage loan would qualify as a QRM only if the borrower is not currently 30 or more days past due on any debt obligation.
  • Borrowers could not have been 60 or more days past due on any debt obligation within the preceding 24 months.
  • Borrowers could not have, within the preceding 36 months, been through bankruptcy, been foreclosed on, engaged in a short sale or deed-in-lieu of foreclosure, or been subject to a federal or state judgment for collection of any unpaid debt.

** Getting the down payment requirement out of this proposed rule is a top priority for the REALTOR® organization. The comment period ends June 10.

3 thoughts on “20 percent down requirement will stall an already too-slow housing recovery

  1. Its amazing to me how many people don’t understand the catastrophic results such a requirement would have. I completed my Call to Action immediately!

  2. Many americans are already being squeezed out of the Middle class status, 20% down to purchase a home will all but stop these people from buying homes.

  3. Up to the end of the 70″s, the norm was 20% downpayment. Foreclosures were few, and the market was strong and stable. The 20% requirement forced buyers to “save” money, budget their buy, and step up to the plate every seven years for a better home. It also kept the “unqualified” , those that could not, and should not buy, out of the market.
    Maybe 20% is a bit high, maybe 10% is a better number, maybe longer terms (40 year) are in order because people are living longer, but we must create an enviorment where people “save” for their dream home!!!!! I say lets fly with the 20% number, see where it goes for a year or so, and change it if need be then!!!

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