Know the perils of a 30 percent down payment mandate

If you think federal mandates are extreme that you must have a 20 percent down payment for a home, try 30 percent.

Several federal regulators have suggested that hefty 30 percent down payment should be part of the effort to keep another financial crisis from developing, even though experts state that down payments have a negligible impact on rates of default.  

Needless to say, the policy would be reckless and potentially kill off a housing recovery. To learn more about the proposal, and a counter-proposal that makes more sense, read a report by the Coalition for Sensible Housing Policy, an entity that represents 51 organizations including the National Association of REALTORS®. The report gives a history of the Qualified Residential Mortgage Rule and the various proposals that have been floated.

In the white paper, Laura Goodman of the Urban Institute states that ““The default rate for 95 to 97 percent LTV mortgages is only slightly higher than for 90 to 95 LTV mortgages, and the default rate for high FICO loans with 95 to 97 LTV ratios is lower than the default  rate for low FICO loans with 90 to 95 percent LTV ratios. . . . For mortgages with an LTV ratio above 80 percent, credit scores are a better predictor of default rates than LTV ratios.”

The Illinois Association of REALTORS® will be filing a letter in support of the recommendations outlined in the white paper.You can express your opinion, too, through the government website set up to provide public comment. To read the full text of the rules proposal go here. To comment, go here.

The deadline to comment is Oct. 30.

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