A new rule unveiled last week by the Federal Deposit Insurance Commission (FDIC) “would ratchet up mortgage lending restrictions to such an extent that they would disrupt the housing market and undermine an already-fragile recovery,” according to the National Association of Home Builders (NAHB). The plan would require a minimum 20 percent down payment for qualified residential mortgages.

“By mandating a 20 percent down payment on qualified residential mortgages, the Administration and federal regulators are excluding those without huge cash reserves–which constitutes most first-time home buyers and many middle-class households–from a chance to buy a home,” says NAHB chairman Bob Nielsen. “Just do the math. First-time home buyers historically average 40 percent of home-buying activity. It would take an average family 12 years to scrape together a 20 percent down payment. This plan is nothing short of an assault on homeownership that could have a long-lasting negative impact on housing for generations to come.”

Under the Dodd-Frank financial reform law passed last year, lenders are required to have “skin in the game” by retaining five percent of the credit risk of each loan that they sell into the secondary market. The law also called for federal banking regulators to establish rules for a qualified residential mortgage (QRM) that would exempt lenders from these risk retention rules. The Dodd-Frank law exempts FHA and VA loans from the risk retention requirement and the proposed risk retention rules will not apply to Fannie Mae and Freddie Mac while they remain in conservatorship.

Borrowers who can’t afford to put 20 percent down on a home and who are unable to obtain FHA financing will be expected to pay a premium of two percentage points for a loan in the private market to offset the increased risk to lenders, according to NAHB economists.

However, FDIC Chairman Sheila C. Bair delivered a statement at the FDIC’s Board Meeting last week and pointed out that this does not mean all homebuyers would have to meet these high standards to qualify for a mortgage.

“On the contrary, I anticipate that QRMs will be a small slice of the market, with greater flexibility provided for loans securitized with risk retention or held in portfolio,” she said.

“Many have expressed concern that imposing a specific LTV standard, such as 80 percent, or a specific down payment standard, such as 20 percent, will impair the access of low- and moderate-income borrowers to mortgage credit. As a consequence, we are seeking comment on the impact of the QRM standards on low- and moderate income borrowers as we consider the comments on the NPR and work towards a final rule,” she added.


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