New Down Payment Rule Could Make Getting a Mortgage Loan More Expensive

Remember the days when buyers could qualify for a mortgage loan by putting down 3 percent? How about the days when mortgage lenders passed out no-downpayment loans? Mortgage loan financing has changed dramatically since then.
Today, the majority of traditional mortgage lenders are requiring that future homeowners come up with a down payment of 20 percent of their home’s purchase price. That’s a lot of money, especially for the all-important first-time home buyer market. Consider that 20 percent down on a home valued at $200,000 would be a whopping $40,000.
A new proposal, though, could make the 20 percent down payment the new official standard for what are being termed “qualified residential mortgage” loans.
According to a recent report from CNBC, the federal Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. have both agreed on a new rule stating that a 20 percent down payment is the minimum required to have a “qualified” residential mortgage loan.
Banks and lenders that give out loans without requiring a down payment of 20 percent would have to retain 5 percent ownership in the loan if they sell it investors. The goal is to make banks more accountable for the mortgage loans that they pass out.
Of course, the new rule, if it ever becomes federal law, could also make life more difficult for those homeowners who can’t come up with a down payment of 20 percent.
Some lenders might simply reject these homeowners, refusing to do business with anyone who can’t come up with the magical 20 percent down payment. Others might charge higher interest rates and fees to homeowners who lack enough funds for a 20 percent down payment.
One thing is clear; the days of easy mortgage financing are long gone. Today, lenders are more skittish than ever. They want to make sure that potential homeowners can afford to make their mortgage payments on time. Part of that is making sure that these possible buyers have enough financial stability to come up with a solid mortgage down payment.
This could price many potential homeowners out of the market. Is that good for the country? It depends on how you look at it. The U.S. economy got into plenty of trouble thanks to mortgage lenders that passed out home loans to buyers who weren’t financially ready to make their mortgage payments on time. Many of these loans, once the economy soured, went bad, leading to soaring foreclosure rates. According to online foreclosure company RealtyTrac.com, the United States saw a record number of foreclosures in 2010. By requiring a larger down payment for a “qualified” mortgage loan, proponents say, the government can help ensure that the number of bad loans falls.
Critics of the new proposal, though, say that the down payment rules will merely keep many from making the transformation from renter to homeowner, and this will only hurt a housing industry that’s still reeling from the impact of the Great Recession.


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