Archive for December, 2011
After examining the average down payment a borrower puts on a home to qualify for a mortgage, online lending exchange LendingTree is reporting no state averages at least 20% down. This means that under the qualified residential mortgage initiative, many of the most-recent originated home loans would not qualify for exemption from risk retention.
The rule, mandated under the Dodd-Frank Act, requires lenders to retain 5% of the credit risk on mortgages pooled into securities. This is meant to act as a skin-in-the-game hedge, reducing the chance an issuer will originate risky mortgages. However, a loan classified as a QRM would not require lenders to maintain the risk on a mortgage after securitization if the borrower puts 20% down and other requirements are met.
In theory, QRMs make it less likely that the borrower will walk away from the loan because of the greater risks associated with the large down payment. This makes it unnecessary for banks to hold the 5% credit risk, something many trade groups claim is too strict.
Federal regulators are still working on the risk-retention rule after issuing the proposal in April.
Mortgage Insurance Companies of America, a trade group that advocates for private mortgage insurers, says the 20% down payment rule erases the potential for borrowers to enter the market with lower down payments and the backing of mortgage insurance. With appropriate insurance, private mortgage insurers claim as little as 3% down should be enough for a QRM.
In August, MICA released its recommendations on how the proposed QRM rule should be drafted to include private mortgage insurance as an exception to a rigid 20% down payment.
"If federal regulators were to adopt the proposed 20% down payment requirement, a majority of borrowers wouldn’t be able to meet the standard given the findings in this report," said Doug Lebda, founder and CEO of LendingTree.
"The proposed rule is part of a larger set of requirements that would exempt qualified borrowers from risk-retention requirements and would have access to the lowest rates available," Lebda said. "While this rule has yet to be put into effect, borrowers should be aware of the possibility and plan for future home loan needs."
New Jersey leads the country with the highest average down payment of 13.76%. The state with the lowest average down payment is North Dakota, where buyers put down an average of 11.37%. Click on chart to see all the average for each state.
Write to Justin T. Hilley.
Follow him on Twitter @JustinHilley.
