Bucks Blog: New Mortgage Rules Left Out Down Payments

Associated PressA home for sale in Denver.

New rules announced Thursday by the federal Consumer Financial Protection Bureau aim to shield borrowers from the risky sorts of mortgages that helped cause the recent financial crisis.

Under the rules, which take effect in January of next year, lenders cannot make so-called  “no documentation” loans or offer deceptively low “teaser” interest rates, and they must take substantial steps to make sure that the borrower can afford to repay the loan.

The new rules, however, don’t address the contentious matter of whether borrowers should be required to make a minimum down payment when taking out a mortgage. The consumer agency focused instead on making sure that lenders conduct thorough vetting, or “underwriting,” to make sure consumers have the financial capacity to handle the mortgage payments.

But new down payment requirements are still possible, as part of yet more mortgage rules that are expected to be issued by a broader team of  federal regulators. This group, including the Federal Reserve, the Federal Deposit Insurance Commission, the Department of Housing and Urban Development and the Federal Housing Finance Agency, is developing rules to help manage lender risk, by making sure lenders and borrowers, respectively, have the right incentives to make and repay sound home loans.

One way to give borrowers “skin in the game,” as the saying goes, is to demand a significant down payment. Proposals have been floated for requirements of 10 percent or as much as 20 percent. The idea is that if borrowers have a fair amount of their own money invested, they’ll be less likely to walk away from a loan.

But an array of groups, including the Center for Responsible Lending as well as lenders and real estate industry groups, oppose rigid down payment requirements, on the ground that they may bar otherwise credit-worthy borrowers from getting mortgages. The center prefers a focus on underwriting, like the approach taken by the consumer agency with its new rules.

Kathleen Day, a spokeswoman for the center, says ideally the rules issued by the Federal Reserve and the other regulators will be the same as the consumer agency’s rules. (In a confusing bit of terminology, the consumer bureau’s rules refer to loans that meet its new standards as “qualified mortgages,” or Q.M., while the agencies addressing lender risk use the term “qualified residential mortgages,” or Q.R.M.)

A spokesman for the Federal Reserve was unable to give a date for when its rules will be finalized.

Do you think a minimum mortgage down payment is a good idea?

Article source: http://bucks.blogs.nytimes.com/2013/01/10/new-mortgage-rules-left-out-down-payments/?partner=rss&emc=rss