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2013 issue 8
Government relaxes mortgage down payment rules By Ilyce Glink MoneyWatch Federal regulators proposed on Wednesday (August 29) a new rule that would make mortgage lending standards less restrictive. The proposed new Qualified Residential Mortgage rule, released jointly by six government agencies, was cheered by both consumer advocates and mortgage industry members--who typically don't see eye-to-eye on much--largely because it eliminates much stricter down payment rules that the previous version of QRM would have created. The new proposal aligns QRM with the Consumer Financial Protection Bureau's Qualified Mortgage (QM) rule, which was finalized earlier this year but won't be effective until Jan. 10, 2014, according to the CFPB. The CFPB's QM rule requires lenders to underwrite home loans based on the borrower's ability to repay the loan, a step the agency took to combat some of the bad lending practices that led to the housing crisis. Under the CFPB's QM rule, borrowers must provide income documentation that they can repay the loan, and that their debt-toincome ratio does not exceed 43 percent, among other requirements. It does not, however, have any rules requiring lenders to ask for a set down payment amount. QRM would have required lenders to demand a 20 percent down payment from borrowers. The rule was intended to prevent unqualified borrowers from taking out a mortgage they can't handle, but housing advocates and mortgage industry members argued that it instead prevented too many qualified and responsible low- to middle-income borrowers from taking out a mortgage. Since the QRM rule was initially proposed in 2011, it has received over 10,000 comments from banks, securitizers, consumer groups, members of Congress and other stakeholders, according to Martin J.
Gruenberg, chairman of the Federal Deposit Insurance Corporation, which was one of the six regulators that released the new proposal. Many of those comments attacked the original QRM rules. The proposed changes, on the other hand, are causing nearly universal joy to ripple through housing and mortgage groups. "This new proposal shows that regulators listened to the comments from the wide range of stakeholders involved," said Chris Estes, president and CEO of the National Housing Conference, an affordable housing advocacy group. "Aligning the QRM rule with the QM rules will allow more American families to become homeowners and ensures that housing markets can remain strong in the future. This is especially important for communities that are still rebuilding from the foreclosure crisis." That sentiment was echoed by a number of groups. The National Association of Realtors President Gary Thomas called it a "a victory for homebuyers and the future of homeownership in this country." Mortgage Bankers Association President and CEO David H. Stevens was pleased to see the QRM rule line up with the QM rule. "The [CFPB's] QM standard already clearly stipulates what is considered to be a safe and sound loan," he said. "Adding additional layers of regulation would have contracted credit for firsttime home buyers and borrowers without large down payments, and prevented private capital from entering the market." However, the proposal also includes an additional approach that would utilize the CFPB's QM
standards, but add a 30 percent down payment requirement. That idea is likely to be far less popular with commenters. Thomas called it a restrictive measure that dramatically favors the wealthy. "Research shows that it would take the average American more than 25 years to save enough money to buy a modest home with a 30 percent down payment," he said. Other groups agreed, calling the steep down payment unnecessary and a reversal in the progress the rest of the proposal makes. The six agencies--the Federal Reserve Board, the FDIC, the Federal Housing Finance Agency, the Department of Housing and Urban Development, the Office of the Comptroller and Currency and the Securities and Exchange Commission--are taking comments on the proposed changes through the end of October. The following is a statement by National Association of Realtors速 President Gary Thomas: "The re-proposed Qualified Residential Mortgage rule announced this morning is a victory for homebuyers and the future of homeownership in this country. This version of the QRM rule will give creditworthy buyers access to safe and affordable loan products without overly burdensome downpayment requirements. "The new standards, which align with those applied to Qualified Mortgages, are stringent enough to protect consumers from unscrupulous lending practices while also creating new opportunities for private capital to reestablish itself as part of a robust
and competitive mortgage market. "Realtors速 were among the most vocal opponents of the first QRM rule proposed in April 2011 because it would have denied millions of creditworthy Americans access to the lowest cost and safest mortgages. We applaud the regulators for removing the 20 percent downpayment requirement and for adopting reasonable credit and debtto-income standards. "In addition to the main proposal that we support today, regulators introduced an unfavorable alternative that would require buyers to put 30 percent down to qualify for a QRM loan, a restrictive measure that dramatically favors the wealthy. Research shows that it would take the average American more than 25 years to save enough money to buy a modest home with a 30 percent downpayment. "Realtors速 will continue to oppose any regulation that requires unreasonably high downpayments from consumers. We are committed to working on behalf of America's hardworking families to ensure that anyone who is able and willing to assume the responsibilities of owning a home has the opportunity to pursue that dream, now and into the future." For more information and analysis of the QRM rule, visit the Qualified Residential Mortgage and Risk Retention topic page on Realtor.org. The National Association of Realtors速, "The Voice for Real Estate," is America's largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.