Housing Industry Awaits Down-Payment Rule for Mortgages

By Clea Benson

As bankers, real estate agents and others in the housing industry absorb thousands of pages of mortgage rules issued in the past week, they’re still waiting to see if U.S. regulators will set a minimum down payment for home loans. Regulators including the Federal Deposit Insurance Corp. and the Federal Reserve drew protests in 2011 when they proposed a rule requiring lenders to keep a stake in mortgages with down payments of less than 20 percent. Bankers and consumer groups said such a requirement would shut creditworthy borrowers out of the market. The so-called Qualified Mortgage rule issued by the CFPB requires lenders to verify borrowers’ ability to repay their loans and offers legal safe harbor for lenders who follow guidelines for safe mortgages. Now, regulators say they expect to release a final version of that so-called Qualified Residential Mortgage rule in the next few months. Together, the QRM rule and additional measures governing underwriting and servicing released by the Consumer Financial Protection Bureau in the past week will fundamentally reshape who can lend and who can borrow because banks will probably make only those loans that conform to the new standards. Down payment size “is the major credit-risk driver in mortgages that was untouched by the QM rule,” Karen Shaw Petrou, managing partner of Federal Financial Analytics in Washington, said in an interview. Defining safe loans as those with a 10 percent down payment, instead of 20 percent, “is the politically expedient course to take,” Petrou said.