A mortgage proposal that calls for a 20% down payment on even the safest of mortgages is the target of a group of lawmakers who are desperate to convince federal regulators to overhaul the move.
The move, say lawmakers, would threaten the chances of the US making a full recovery from recession “for years”.
A letter released to the press on Wednesday showed that over 160 House of Representatives lawmakers labeled the mortgage proposal from the federal regulator as “burdensome dictate from the government”, and said that if it were to go through, mortgage availability would be reduced even further than it already is.
The Dodd-Frank Wall Street Reform Law was meant by federal agencies to introduce risk-retention regulations to the industry, and calls for mortgage lenders to heavily scrutinize loans and make sure they retain 5% of the credit risk, except on those properties considered to be safe or qualified residential mortgages.
While QRM’s would be exempted from the requirement of 5%, they would still have to meet strict guidelines, like the 20% down payment requirement that has been proposed. This would leave borrowers unable to come up with the 20% facing higher interest rates and fees.
Lawmakers, in their open letter, said that the 20% down payment requirement was much too high, and urged federal regulators to consider lowering this amount.
Another critic of the high down payment requirements has been the National Association of Realtors, who argue that such a move would put any housing recovery in great jeopardy.
“A balance is needed between the reduction of risks for investors and the provision of mortgage credit that people can afford,” said the president of the NAR Ron Phipps.
“The use of better underwriting, combined with higher standards for credit has already lessened risks a great deal. The high down payment in totally unnecessary and will only serve to exclude thousands of people who want to buy homes, despite the fact they have good credit and can afford to pay their loans.”