Several regulatory agencies, each of which has been working in a limited capacity, have supported a controversial proposal that may prevent a lot of prospective homeowners from participating in the market. Six prominent regulatory agencies have supported the idea of a mandatory 30% down payment for borrowers who seek the best rates and terms. The proposal, which currently has an October 30th deadline for public comments, intends to create new rules for bond financing for homes, autos and other similar assets.
Controversy surrounding the proposal stems from the “QRM-Plus” addendum. Should it pass, the proposal would require 30% down or more for purchasers, tough credit standards and a ban against second liens on properties at closing.
While the proposal has drawn strict opposition from the majority of regulatory agencies; housing, mortgage, civil rights and consumer groups have taken it into consideration. Conversely, six agencies are also partial to the proposed bill. They include:
- The Federal Reserve
- The Federal Deposit Insurance Corp.
- The Federal Housing Finance Agency
- The Department of Housing and Urban Development
- The Office of the Comptroller of the Currency
- The Securities and Exchange Commission
The recent proposal may not surprise those familiar with the situation, as the same regulators supported a similar attempt in the past. Approximately two years ago, these regulatory agencies proposed a 20% minimum down payment plan for “qualified residential mortgages.” However, it was met with more opposition than they are currently facing. The initial 20% proposal triggered a negative response from the public and Capitol Hill lobbies that forced the regulators to back off. Their persistence, however, saw them propose a revised version in the closing weeks of summer.
While the recent proposal suggests a propensity for a qualified mortgage standard, the mere inclusion of the 30% alternative raises the likelihood of it actually happening. In addition to the 30% down payment minimum, the proposal calls for borrowers to have a pristine credit history.
As predicted, the recent proposal has been met with harsh criticism. Those in opposition to the idea believe that anything resembling a 30% down payment requirement would remove a significant amount of prospective buyers from the market. Not only would a large majority of applicants be turned down, but those who do qualify may be subjected to higher rates and fees. According to the Mortgage Bankers Association of America, 18% of people who purchased homes during 2012 would have been qualified for their mortgages under the alternative proposed by the regulators. Its passage would make it increasingly difficult for the average American to buy a home.
Obvious economical impacts aside; the proposed idea would drastically limit participation by first-time purchasers. A 30% down payment plan would make purchasing a house all but impossible for many prospective homeowners. Wealthy individuals would have a significant advantage over the lower and middle class.
Sen. Johnny Isakson, who is strongly opposed to the proposal, called on regulators to reject the 30% alternative “because [it] would be even worse” than their original 20% plan. “It would prevent even more Americans from being homeowners.”
Bringing the proposal into perspective, are the appreciation rates certain parts of the country are currently experiencing. Markets in which housing prices continue to rise, like California, would be placed at a severe disadvantage. To finance a $500,000 house under the alternative plan, prospective buyers would need to bring $150,000 cash to the table, a task that is equally hard for affluent individuals.
