Congress should not pass legislation to mandate a 20% down payment for homebuyers to qualify for a residential mortgage, according to 72% of first tuesday readers (129 voters). Only 28% of readers (49 voters) feel a mandatory 20% down payment — proposed by the Federal Deposit Insurance Corporation (FDIC), the Treasury’s Office of the Comptroller of Currency (OCC), the Department of Housing and Urban Development (HUD), the Federal Reserve (Fed), the Securities Exchange Commission (SEC) and the Federal Housing Finance Agency (FHFA) — is wise.
Most of today’s real estate professionals have never known a market where homebuyers had reason to save enough to put 20% down on their home purchase. In today’s economy, such legislation keeps a great many from buying a home until they have started a new regime of accumulating savings, a seemingly treasonous contradiction to the American Dream as groomed since 1982.
Public policy encouraging homeownership through subsidies (i.e., the mortgage interest tax deduction, principal residence profit exclusion and government loan guarantees) has historic precedence and has widespread popularity with those who are not able to buy until they are older and better paid. [For more information regarding housing subsidies, see the March 2011 first tuesday article, The home mortgage tax deduction: inducing debt and stifling mobility and the June 2011 first tuesday article, Subsidizing the American dream.]
However, the bleak reality of the Lesser Depression has taught us not everyone is cut out to be a homeowner. Those who want to own but did not expect to make a 20% down payment must rent and save. Here, the government acts in the best interest of society by encouraging its people to avoid living beyond their means or to reconsider their decision to buy when better job opportunities call for the mobility offered by renting. [For more information regarding homeownership ideals, see the July 2011 first tuesday article, Like myths, this old dream will never die and the August 2011 first tuesday article, Give me homeownership or give me death!]
While low down payments allow homeownership to occur earlier in life, and thus generate more fees for real estate agents and the construction industry in the short term, such policy opens a Pandora’s Box of financial risks which most consumers do not understand, as we have been recently reminded. Mandating a 20% down payment to qualify for homeownership secures a sustainable future housing market — and a higher concentration of qualified buyers – good things for the long-term stability of your real estate market and society.
To vote or read more about the proposed legislation, see the October 2011 first tuesday article, The 20% quagmire.