Pleasanton Weekly

Real Estate - April 8, 2011

Realtors oppose high down payment requirements

Say proposal would impede economic, housing recovery

by Jeb Bing

High down payment requirements being proposed by federal regulatory agencies as part of the upcoming rulemaking under the Dodd-Frank Wall Street Reform and Consumer Protection Act will unnecessarily burden homebuyers and significantly impede the economic and housing recovery, according to the National Association of Realtors.

Six agencies, including the Department of Housing and Urban Development, Federal Deposit Insurance Corp., Federal Housing Finance Agency, Federal Reserve, Office of the Comptroller of the Currency, and the U.S. Securities and Exchange Commission, are developing a proposed risk retention regulation under the Dodd-Frank Act that requires lenders that securitize mortgage loans to retain 5% of the credit risk unless the mortgage is a qualified residential mortgage (QRM); FHA and VA mortgages would also be exempted. The purpose is to create strong incentives for responsible lending and borrowing.

"As the leading advocate for home ownership NAR supports a reasonable and affordable cash investment requirement coupled with quality credit standards, strong documentation and sound underwriting," said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I.

"A narrow definition of QRM, with an unnecessarily high down payment requirement, will increase the cost and reduce the availability of mortgage credit, significantly delaying a housing recovery," he added.

NAR believes that Congress intended to create a broad QRM exemption from the 5% risk retention requirement to include a wide variety of traditionally safe, well-underwritten products. Congress chose not to include a high down payment among the criteria it specified in the Dodd-Frank Act to guide the regulators in defining a QRM.

Strong evidence shows that responsible lending standards and ensuring a borrower's ability to repay have the greatest impact on reducing lender risk, the NAR stated.

Phipps added: "We need to strike a balance between reducing investor risk and providing affordable mortgage credit. Better underwriting and credit quality standards have greatly reduced risk.

"Adding unnecessarily high minimum down payment requirements will only exclude hundreds of thousands of buyers from home ownership, despite their creditworthiness and proven ability to afford the monthly payment, because of the dramatic increase in the wealth required to purchase a home," he continued.

"Saving the necessary down payment has always been the principal obstacle to buyers seeking to purchase their first home. Proposals requiring high down payments will only drive more borrowers to FHA, increase costs for borrowers by raising interest rates and fees, and effectively price many eligible borrowers out of the housing market."

Comments

Posted by Homeowner, a resident of Another Pleasanton neighborhood
on Apr 8, 2011 at 5:58 am

Irresponsible realtors - have you not learned any lessons from the past 4 years?


Posted by bloodsuckers, a resident of Downtown
on Apr 8, 2011 at 7:52 am

As always, with the realtors it's all about their commissions. If houses don't sell, they don't make outrageous commissions for selling them. They have encouraged unqualified buyers to get into homes that were not affordable when the rates adjusted. They got their commissions. They sold people homes with zero money down, the buyers had no skin in the game and at the first sign of a downturn they walked away. The realtors got their commissions.
It's all about greed.


Posted by Concerned, a resident of Another Pleasanton neighborhood
on Apr 8, 2011 at 6:40 pm

20% should be the minimum down payment as it is in most countries. If you cannot save that much rent. This is the reason for the bubble to start with. Live within your means and save.


Posted by Wait and save, a resident of Another Pleasanton neighborhood
on Apr 8, 2011 at 11:07 pm

Funny how my comment DISAPPEARED on this topic several hours ago ! ! ! Saving for a down payment use to be the normal way of
buying a house. If you don't have a sizeable down payment, a top fico credit score, and a reasonable job history...then you wait until you do ! That use to be the standard way to buy.
Newly weds buying a house is not an entitlement, and your first house will probably not be in the town of your choice.




Posted by Johnny, a resident of Country Fair
on Apr 9, 2011 at 7:35 am

20 to 20% down is not bad. With the value of homes in California dropping and continuing to drop a lot of folks will be able to buy homes in the next few years quite easily. The larger question is not the people who will try to buy but what about the people who are in a home but now it is upside down and going further upside down. This will really be a drain on the California economy for decades to come.


Posted by Anonymous, a resident of Another Pleasanton neighborhood
on Apr 9, 2011 at 6:34 pm

Just to play "Devil's Advocate" here...

It used to be feasible to work, rent and still save up a %20 down payment. The housing prices have become SO outrageous...who can do that now? Mortgages also used to be 20 years or less. That had to bump up to 30, even 40 years. Why? Because again, it is almost impossible for most people to pay off a Bay Area home in 20 years, much less save up the %20 down payment. My mom always says how she and my dad had "no money", he didn't earn a lot, etc. Their home cost about 14k in the 50's (SF area) and they afforded that $2800 down payment and 20 year loan, despite my mother's claims. Oh yeah, and they did that on ONE income. My father thought it was awful that women worked after having children. I told him we had no choice if we wanted to own a house.


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