A proposed rule by federal regulators to impose a minimum 20 percent down payment, stringent debt-to-income ratio requirements and rigid credit standards will deny millions of Americans access to safe, low-cost mortgages, according to the National Association of Realtors®.
In a comment letter submitted today, NAR expressed dissatisfaction over the unduly narrow definition of qualified residential mortgages (QRM) that would be exempt from risk retention requirements. Non-QRM mortgages will have higher interest rates and fees, making home ownership more expensive or unattainable for many of today’s aspiring home owners. NAR urged regulators to withdraw the proposed risk retention rule and go back to the drawing board.
“As the leading advocate for home ownership, NAR firmly believes Congress intended to create a broad QRM exemption – strong evidence shows that responsible lending standards and ensuring a borrower’s ability to repay have the greatest impact on reducing lender risk,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. “The proposed rule should be withdrawn, revised and republished for public comment. If not, then millions of hard-working, creditworthy consumers will not be able to achieve their dreams of owning a home.”
The comment letter offered a number of suggestions to regulators. Considering the significantly higher mortgage rates and fees for non-QRM loans, regulators should define QRM to include safe and sound mortgages, coupled with sound underwriting and full documentation of income and assets, and require risk retention only for those mortgages with risky product features like teaser rates and balloon payments, or weak underwriting.
NAR criticized the proposed rule’s 20 percent minimum down payment requirement, saying it ignores strong evidence that responsible lending standards and ensuring a borrower’s ability to repay have the greatest impact on reducing lender risk. The low foreclosure rate among Federal Housing Administration and Veterans Administration loans, which have the lowest down payment requirements and relatively low default rates, is further evidence that the key to safe lending is sound underwriting and documentation rather than high down payments.
Based on NAR estimates, it would take more than a decade for a family with a median household income to save enough for a 20 percent down payment. A 10 percent down payment would take a family more than eight years to save. The impact on minority and first-time home buyers would be even worse, said Phipps.
NAR also recommends dropping the rule’s debt-to-income ratio requirement because the marginal reduction in defaults is not worth the negative impact on consumers.
“Focusing the QRM exemption on underwriting factors that do not significantly improve loan performance means millions of families will not qualify for a QRM mortgage and will instead have to pay higher rates and fees for non-QRM mortgages, assuming they are even able to obtain them,” said Phipps.
NAR supports the proposed rule’s treatment of the government-sponsored enterprises (GSEs) while in conservatorship. The guaranty provided by a GSE will satisfy the risk retention requirements. The GSEs continue to play a crucial role in providing affordable and available financing to consumers during the current economic downturn, and until the statutory and regulatory framework for the GSEs becomes clear, the agencies should not impose risk retention standards that would prevent qualified home buyers from finding fair and affordable mortgages and impede a housing recovery.
NAR is also concerned that certain underwriting elements of the risk retention proposal would further reduce access to credit for the commercial and multifamily real estate industry, which could curtail the nation’s economic recovery.
There is broad opposition to the regulators’ proposed QRM rule among banking, housing and consumer advocacy groups, who have joined forces and forged the Coalition for Sensible Housing Policy, which includes 46 organizations and is focused on drawing attention to the proposed regulation.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.