How many of your homebuyers have enough funds saved for a 30% down payment?
- 1 in 4 or fewer. (92%, 133 Votes)
- Around 1 in 3. (6%, 9 Votes)
- More than half. (2%, 3 Votes)
Total Voters: 145
After months of inactivity, we’re now drowning in qualified residential mortgage (QRM) definitions.
The initial QRM definition required a 20% down payment from homebuyers. That definition was successfully slain by the powerful lending lobby. The last proposed QRM definition, released in September 2013, removed the minimum down payment requirement altogether.
Now it’s back, with a vengeance.
This new QRM definition, dubbed QRM-Plus, calls for:
- 30% down payments;
- tougher credit standards; and
- no second loan or carryback at closing.
If homebuyers do not meet these minimum standards, they can expect to pay higher mortgage rates.
Public comments on this proposal are due by October 30, 2013.
Related article:
Federal Register: Proposed Rule: Credit Risk Retention
first tuesday insight
first tuesday has long supported a 20% down payment requirement. But is 30% simply too much? (Why not 50%?)
20% is the historical norm. However, research is mixed on whether a minimum 20% down payment actually correlates to a lower rate of default and foreclosure.
Despite the conflicting studies, here’s all you need to know: a substantial down payment forces the homebuyer to have skin in the game. Money invested to establish equity deters mortgage default. The threat of the loss of equity is a strong impetus for making monthly payments.
On the other hand, zero down payment means the homeowner has nothing to lose if they stop making mortgage payments (aside from the scorn of the neighbors and a dinged credit history).
So, it makes sense that the higher the down payment, the less likely a mortgage default will occur. However, there is a balance to be struck between:
- allowing access to mortgage funds only to the wealthiest among us (a quickly shrinking class); and
- opening wide the gates to homeownership, regardless of any financial incentive to repay (a repeat of the Millennium Boom).
Not many are impressed by the proposed legislation. Only 18% of homebuyers who purchased in 2012 met the requirements of the proposed QRM-Plus, according to the ultra-conservative Mortgage Bankers Association of America. Further, this plan bars most minority and low- to moderate-income homebuyers from receiving the best rates.
Sure, they can always take out a Federal Housing Administration (FHA)-insured loan, but they will still be stuck paying not only higher interest rates, but expensive mortgage insurance premiums (MIP). The first-time homebuyer population is sure to feel a dramatic blow.
first tuesday favors a graduated introduction of a 20% down payment requirement. This is implemented over several years, beginning with a minimum 5% down payment the first year, rising to 20% over seven to ten years. This plan limits the impact to the housing market by phasing in the requirement (giving time for homebuyers’ savings expectations to catch up), while eventually improving the average homebuyer’s skin in the game to deter future defaults.
Related article:
CFPB issues mortgage underwriting standards: down payment requirement to come
Re: Down payments may rise to 30 percent from The Washington Post
AND . . .
Our government should not be bailing out homeowners who are under water!
Who ever heard of anyone being compensated for investment losses. Will the government get the money back when the property values go back to where they where? I don’t think so . . . So get real !!!
Are you kidding me … Protect the banks … Let’s protect the prospective homeowners from Bad Loans made by money hungry lenders. If the banks had underwritten the loans properly in the first place, by fully qualifying applicants we would not have had to bail them out… Period!
If one where to look at all the bad loans that where made they would find that most where not underwritten based on “verified” income but rather on “stated” income, which was THE issue.
So now they want buyers to put down 30% … but for what reason? So their loans would be protected. Again, what about the buyers. 30% is common in the commercial market as it should be … it’s speculative and risk is greater.
So, when even reading this, one should think long and hard about what’s really going on.And then consider what’s right.
I have worked as a Mortgage Loan Officer for28 years, and as a Real Estate Agent for 7 years. When I first got in to the business we only did FHA and Va Loans, because of the stricter requirements from the banks, and the Negative Amortization loans offered by the savings and loans, Mortgage Bankers and Brokers over the years captured about 65% or more of the housing markets. 30% down payment and even 20% down
payment is out of reach for many people. Stability of Income, Decent Credit and
payment history is a real good indication of whether are not you have a responsible
borrower, and not a “flaky one”. Because income is not keeping up with inflation, that policy would be detrimental to most first time homebuyers, which would stagnate the Real Estate Market. Homeownership stabilizes communities, and
families.
Leo, you are talking about banking in the 70’s & 80’s. That is when Banks had to guarantee the loans they sold. They haven’t done that for a long time. Almost all real estate loans are sold. That was where the profit was. If they acted the way you described, Countrywide would have been out of business within 1 year and this mess would not have happened. The Banks made the no down/no documentation loans for wall street. They would not have made these loans if they had to guarantee or buyback the loans that were late or in default. The banks only serviced the loans for a fee and were not on their books. It had no impact to their financials.
Now the Banks are coming up with requirements because they may have to hold these loans in their portfolio because investors are not going to invest in these funds the way they did before. Are you going to buy these funds from wall street at this time? NO! There is no market because everyone got burned.
The secondary market is now looking for loans with substantial equity AND several years of payments made on time. They don’t want to take a chance of buying a loan that is under water.
The market for selling these loans falls to the insurance industry or the govt. That iss why it is so important the govt stay involved and buy these loans to keep money available..
Lack of wall street funds is going to drastically decrease the amount of funds available to lend in the real estate market. Lack of funds always changes the requirements.
It has been 25- 30% down for loans over $1 Million for a long time. Historically it has been 20% for loan under $500 thousand. Therefore, there is really no change for most properties in California unless you are in a low income area.
The Banks are looking at a change because they are not used to and did not expect people to walk away from their homes when they lost 50% of their value. Why would anyone stay in a house that has a loan of $1million and they can only sell the house for $600 Thousand. Of course they are going to walk away & buy the same house for $600 and have a payment one half of their previous payment. The idiot Bankers really think the public should honor those loans. They refuse to work with anyone who can pay the higher amount even though the govt has required they renegotiate those loans. They don’t understand that the public is just following their lead. They took action that only benefited them. Now, the public is following them and doing the same. That is where this conversation started.
It was not the lack of a large down payment that caused the banks lending crisis. 30% down will not matter if the buyers cannot afford the mortgage payments. It was the lack of documentation asked for by the banks. No doc loans were the norm. The banks caused this mess.
Leo is correct, Buffalo is not.
A 30% down payment requirement will just insure that young people can not buy a home on their own. Another blow to the middle class.
Why does First Tuesday “support” a 20% down payment or anything else for that matter. Are you an education service or a lobbying group?
30% down is necessary to prevent what happened during the last recession from recurring
30% down payment is necessary and not silly.
The last recession where home prices fell 50% proved that 20% down is NOT adequate to protect lenders. And then the taxpayers have to bail out all the big lenders who are “too big to fail” and THAT, my friends is what caused the last recession to turn into the “great” 10 year recession ( and all the foreclosures) that we still haven’t recovered from.
There are really 2 issues here. 1 is the skin in the game for the originating lender/investor- the 5%, and the other the skin in the game for the home buyer. Both deal with the retention of risk.
For the lender it means that at-risk mortgages are potentially a liability for them down the road, and also a limitation on how much they can lend down the load, since that portion can’t be sold. So instead of having virtually unlimited funds, those lending funds become finite. Back on the Olen days when bank lent their own money for the most part, you could tell who had money to lend and who didn’t. If they didn’t hey simply priced themselves out of the market, leaving their loan originator on commission virtually on death row. If they had lots, they would price aggressively and corner much of the market.
I can understand the reasoning. Requiring the retention will make the lenders choosy about which loans they make, and less likely to loan and leave someone else holding the bag. It will certainly reduce the appetite for less than perfect loans. How all this shakes out remains to be seen. It could just lead to more risk based pricing, or it could cripple the industry.
Requiring a 30% down payment of the borrower is just plain silly and unnecessary. The market has long been able to absorb buyers with far less down payment. The added risk should be provided for with some sort of risk based pricing, but outlawing it is a serious overreach that will, if implemented religiously, destroy the first time buyer market.
The bottom line is that lender, and by lenders I mean those who are lending the money, should be able to establish their own tolerance for risk. The government involvement should only extend to those that are funded or insured by government or quazi government agencies. They have no business telling a privately held lender what they can or cannot do. And, by the way, shouldn’t Fannie and Freddie know by now what risk should or shouldn’t be undertaken? In my not-so humble opinion this legislation is waste of paper. There are other, better ways to deal with the issues at hand.