"A nation of homeowners is unconquerable."
-- Franklin Delano Roosevelt
Our economic problems have led to new reform guidelines for qualified residential mortgages (QRM). Looking closely at one such new law, theDodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), it is clear that the intentions of the act may have been good, but the results would severely restrict the access to homeownership.
Congress initiated the Dodd-Frank Act to ensure that banks were only issuing safe loans. However, what they believed were safe loans did not look at the reality of what loans had defaulted or were in the process of default. Lender standards and borrower qualifications should be monitored and are the reasons for so many problems in the housing crisis. But, large down payments do not ensure that borrowers will not face foreclosure.
The act requires a minimum of 20 percent down and initiates a limit on mortgage payments to 28 percent of gross income. According to the National Association of Realtors, over 60 percent of recent home buyers made less than a 20 percent down payment. In just the month of April, according to a survey of Realtors in District 12 (Alaska, Idaho, Montana, Oregon and Washington), whose clients applied for a loan, 82 percent of all loans fell below the 20 percent mark. To eliminate this, many borrowers would devastate the real estate market.
NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. stated in a presentation to the Realtor Midyear Legislative meetings in Washington D.C.: “Saving the necessary down payment has always been the principal obstacle to buyers seeking to purchase their first home. Proposals that require 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.” With the future of FHA under discussion, it is unclear what affect pushing more borrowers to FHA will have on the housing industry in the future.
These requirements would not only affect buyers. Sellers would also be affected because fewer buyers would be able to qualify for a loan.
Phipps went on to say: “Borrowers with less than 20 percent down will have to choose between higher fees and rates today, up to 3 percentage points more, or a 9-14 year delay while they save up the necessary down payment. Realtors are working hard to make sure that this doesn’t happen and that those creditworthy buyers who are able and willing to assume the responsibilities of owning a home can continue to achieve their home ownership dreams.”
NAR has targeted the elimination of a 20 percent down payment requirement as one of their top priorities. They support a reasonable and affordable cash investment requirement coupled with quality credit standards, strong documentation and sound underwriting.
These rules impact everyone because an improvement in the housing market precedes the improvement of the economy. Limiting the number of qualified buyers will add to the overall problems that the public is experiencing.
Please contact your legislator today and ask that person to make it clear to the regulators that this could not have been their legislative intent and to instead implement a more reasonable Qualified Residential Mortgage (QRM) process that will keep credit-worthy buyers in the market and able to acquire a loan.
"We will preserve the part of the American dream which the mortgage-interest deduction symbolizes."
-- Ronald Reagan
Joan Probala is the managing broker for Issaquah Windermere (Windermere Real Estate/East Inc.). She has 30 years of experience in real estate, construction and sales.
Editor's note: It appears that enough federal lawmakers have signed a letter, asking regulators to take action on this issue, according to a note on the National Association of Realtors' website.