Higher down payments will stifle mortgage market, CRL says
Policy proposals suggesting a 10% to 20% hike in mortgage down payments could derail the housing recovery, the Center for Responsible Lending said in a new report. CRL released the report just as rumors are swirling throughout the mortgage market, suggesting a 20% minimum down payment could be in the future. Under Dodd-Frank, federal regulators are charged with setting a qualified residential mortgage, or QRM, standard. Lenders would have to retain 5% of the risk on any loans written outside of these guidelines. Banks have been pushing for a less than 10% down payment. Cameron Findlay, a chief economist for LendingTree, quickly blogged about the prospect, concluding that it "would have a severe and noticeable impact for borrowers." For one, he said, total loan costs to borrowers will go up about 36% and about 15% to 35% of the market will no longer be qualified to apply for a loan. The Center for Responsible Lending, which advocates for affordable home ownership, also challenged the idea that a market focused on private lending with little-to-no flexibility in the size of down payments is a return to an old market model. "In fact, low down payment home loans have been a significant and safe part of the mortgage finance system for decades," CRL contended in its analysis. While the government's plan is leaning heavily toward solutions that would remove excessive risk-taking during the mortgage origination process by requiring higher down payments, CRL says pricier down payments are not linked to loan performance. CRL blames subprime and alternative loan products for the decline of the mortgage market and asserts that traditional low down payment loans are not the same type of product. Based on CRL studies, it would take 14 years for the average American family to save enough to cover a 20% down payment. Consumer and housing advocacy groups voiced their own concerns about Fannie Mae and Freddie Mac's declining influence after the Treasury Department released its market reform proposals in February. A recent study from mortgage-backed securities specialist firm, Smith Breeden Associates, also declared that all three of the Treasury's government-sponsored enterprise reform proposals will increase lending prices across the nation. Write to Kerri Panchuk.