20 Percent Mortgage Down Payment Under Fire

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To call it an uneasy alliance is too simple, but that's exactly what the characters were going for when they called their morning press conference in downtown DC.

The new president of the Mortgage Bankers Association, Dave Stevens, arrived carrying a message from Wall Street and Main Street money makers in the breast pocket of his navy blue suit; he was seated in a row just down from Ethan Handelman of the National Housing Conference, who sported a pony tail and an agenda favoring low-income borrowers.

In between them was Ken Edwards, of the Center for Responsible Lending, who referred to the group as, "an eclectic mix."

Adversity makes strange bedfellows, and today's mortgage market is nothing short of adverse. The group came together to argue against what Edwards called "draconian requirements" for a the proposed "Qualified Residential Mortgage" (QRM) standard. The QRM is part of new risk retention rules, mandated by the Dodd-Frank Financial Reform legislation of last year. The proposal, which is under comment period until the end of next week, includes a 20 percent down payment for a home loan to qualify as a QRM. If the loan does not meet the QRM standards, the lender must hold on to 5 percent of the risk.

They call that "skin in the game," but banks big and small say it will make mortgages more expensive and difficult to obtain, while consumer advocates say it is nothing short of discrimination.

"We believe that the regulators, while being very thoughtful through this process, have overreached by adding loan to value and DTI (Debt to Income), which will create societal boundaries, which we believe were unintended by those who drafted the law in the first place," said Stevens, who as recently as a few months ago headed up the Federal Housing Administration (FHA), currently the only low down payment option available for low-income borrowers.

John Taylor of the National Community Reinvestment Coalition was a tad more blunt: "It’s coming from the very agencies who had the job and the responsibility to prevent the predatory lending, the kind of abusive lending products, that got us into this mess. We now get a solution that’s going to constrict access to housing in a way that we haven’t seen since the Jim Crow era."

These gentleman join nearly 40 Senators who have signed onto a letter calling for the QRM proposal to be re-written more broadly. They characterize the 20 percent down payment as "unnecessarily tight."

I personally don't know what the right down payment number is, 10, 20, 5 percent? I don't claim to have any better answers than anyone else. I just report what everybody else claims is right. But here's a thought:

All these organizations, companies, entities, etc. want to see the free flow of credit again. That's really the only way housing can regain its footing and the economic recovery can start cooking with gas. The nation's banking system was infected with greed and that infection spread to everyday homeowners and individual investors all over the nation. In the end, it was deadly. Now the government, federal regulators, whoever, are trying to re-invent the market, to make sure it is infection-proof in the future. But now it seems as if many of the players who themselves were hurt by this crisis would rather see the ills of the mortgage market treated with Novocain than with medicine.

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