A proposal before federal regulators to require a minimum of 20 percent down payment on all residential transactions has prompted action among REALTORS® on a national scale. REALTORS® say if allowed to take effect, the new requirement would be detrimental to the ongoing housing and lending crisis in America and it would put home ownership out of reach for middle-income Americans.

According to NAR Research, 60 percent of recent home buyers made less than a 20 percent down payment, and it would take 14 years for a typical person to save a 20 percent down payment to buy a median-priced home. NAR is deeply concerned over banking regulators’ proposed rule for “safe,” securitized mortgage loans, called Qualified Residential Mortgage (QRM) loans. The proposed rule would require loans to have at least 20 percent down for lenders to be exempted from a 5-percent risk-retention requirement. NAR and others say congressional intent was to define safe loans as those that are soundly underwritten and therefore discourage excessive risk taking and create strong incentives for responsible lending and borrowing. The concern is that a high down payment would make home ownership unaffordable to a large percentage of buyers. The alternative to the QRM are loans for which lenders retain the required 5-percent holdback, which analysts say could cost up to 300 basis points more than QRM loans.

Proposals that require high down payments will drive more borrowers to FHA, increase costs for borrowers by raising interest rates and fees, and effectively price many eligible borrowers out of the housing market. NAR feels this will not only affect buyers, but it would also affect the ability of homeowners to sell their homes, since there would be fewer buyers who could qualify for home ownership.

NAR wants federal regulators to honor congressional intent by crafting a QRM exemption that includes a wide variety of traditionally safe, well underwritten products, such as 30-, 15-, and 10-year fixed-rate loans; 7-1 and 5-1 ARMs; and loans with down payments in the 5 to 20 percent range with PMI, where required, and with other features found in low-risk loans, such as no prepayment penalties or balloon payments.

Ask your representatives in Congress to make it clear to the regulators that this proposed regulation was not their legislative intent, and to instead implement a more reasonable Qualified Residential Mortgage (QRM) that will keep creditworthy buyers in the market and able to acquire a loan.