Including a downpayment requirement in the ‘Qualified Residential Mortgage’ (QRM) rule will create an unnecessary barrier to homeownership for low- and moderate-income families, according to six consumer and fair housing groups.
In a letter to regulatory agencies drafting the QRM rule, the six organizations say there is strong opposition to including a 20% downpayment requirement in the rule which will determine what type of mortgages are exempt from risk retention.
However, a minimum 10% downpayment requirement also would have an adverse impact on minority homebuyers with little benefit in terms of lowering defaults.
They contend that the ‘Qualified Mortgage’ rule that the Consumer Financial Protection Bureau is working on will rid the marketplace of “irresponsible underwriting and toxic loan terms” that lead to the subprime meltdown and the foreclosure crisis.
“Research has shown that, once the proposed product restrictions of QM are in place, a 10% down payment requirement would have only a marginal impact on default rates—about one percentage point — while locking 30% of borrowers out of the mainstream market,” the joint letter said.
Loans that don’t comply with QM and QRM requirements will be subject to a 5% risk retention requirement when they are securitized and will carry greater legal liability. Regulators are expected to finalize the two rules in January.
The consumer and civil rights group attached a research paper by the Center for Responsible Lending (CRL) to their Aug. 30 letter. The CRL paper claims that low downpayment loans “when paired with responsible underwriting and safe loan terms have proven to be a successful strategy for expanding homeownership for decades.”
Meanwhile, the QM mortgage product restrictions will be included in the QRM rule. Other restrictions in the Dodd-Frank Act will protect borrowers from unsound underwriting.
“Imposing regulatory downpayment requirements on top of the QM restrictions, however, will deny millions of Americans access to affordable loans without a commensurate benefit in default rates,” the joint letter says.
The groups signing the letter include: The Center for Responsible Lending, William C. Velasquez Institute, National Coalition for Asian Pacific American Community Development, Leadership Council on Civil and Human Rights, National Urban League, National Association for the Advancement of Colored People and National Fair Housing Association.