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Down with Higher Down Payments

By Gary Thomas, 2012 President-Elect, National Association of REALTORS®

In 2011, all of you heard quite a bit about a devastating provision in the Dodd-Frank financial reform law called the Qualified Residential Mortgage or QRM.

There was quite a bit of activity before the August 1st deadline for a letter to be submitted to federal regulators.

After that, things have been kind of quiet.  But don’t mistake that for inactivity.  The regulators have been reading excellent comments about how this rule would devastate the housing market.

To keep the pressure up, we gathered the Coalition for Sensible Housing to plan strategy for the year ahead.  The broad-based Coalition, forged by NAR along with 47 other organizations, focuses on the proposed Qualified Residential Mortgage (QRM) rule.  Published on April 29, 2011, the proposed QRM regulation is a complicated issue that could hurt our businesses

It was a great meeting of minds.  A lot of smart ideas were bounced around about how to keep the issue in front of elected officials, the media and the regulators.

Last week, there was a meeting of the Coalition for Sensible Housing to plan strategy for the year ahead.

The Coalition has made an impact. We have gathered support from 53 U.S. senators, who wrote and submitted a letter by the August 1st deadline. The letter expressed their intent on QRM and opposition to the larger down payment. In addition, 310 House members signed a similar letter.  Regulators have received many comments and are currently digesting that feedback.

The issues surrounding QRM arose from the financial reform legislation. Congress sought to improve the quality of mortgage lending and restore private capital to the housing market. To discourage excessive risk taking, they passed the Dodd-Frank Act requiring that lenders securitize mortgage loans to retain 5 percent of the credit risk, unless the mortgage is a Qualified Residential Mortgage (QRM) or is otherwise exempt.

Unfortunately, the rule defining how the law should be enacted has been too narrowly written. Particularly troublesome are provisions mandating higher down payments—as high as 20 percent—with even higher levels of minimum equity required for refinancing.

Even if we succeed in eliminating the down payment rule, we still need to focus on the debt-to-income ratios and credit standards.

As proposed, the rule would disproportionally impact first-time and minority borrowers. In addition, the higher rates will slow home sales, lower home prices and likely slow the housing industry during what is a fragile stage of its recovery.

We’ve been working on the issue for some time now, and I wanted to let you know that it is still very much a priority for NAR.  We don’t know when the final rule will come out, but we are continuing to push back—now and in 2012.

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