A regulatory proposal to require a minimum downpayment of 20% on 'qualified residential mortgages' will make it more expensive for first-time homebuyers to obtain private mortgages, according to the Mortgage Bankers Association.
The current QRM proposal will restrict access to homeownership for qualified working class borrowers unless the downpayment requirement is eliminated before the rule is finalized, MBA chief executive David Stevens said during a recent speech.
The downpayment restriction is “a direct attack on first-time homebuyers, African-American borrowers and Latinos,” Stevens said.
He stressed that the Dodd-Frank legislation does not require minimum downpayment or debt-in-income ratio restrictions. However, banking regulators inserted them into their QRM proposal, which defines the characteristics of private mortgages that will be exempt from risk retention and priced more favorably in the MBS market.
Currently, close to 80% of first-time homebuyers have downpayments of less than 10%, according to MBA.
Inserting a 20%, or even a 10%, downpayment requirement into the QRM rule will make it harder to attract healthcare workers, firefighters, and teachers to “your communities if they can’t buy a home,” Stevens said.
MBA contends the development of a private mortgage securitization process is an important objective, given the uncertainty surrounding Fannie Mae and Freddie Mac.
Without the GSEs, more first-time homeowners would have to rely on the FHA single-family program for low-downpayment loans. (Stevens left FHA about a year ago.)
If the regulators drop the downpayment and DTI restrictions, the QRM rule would ensure that only owner-owner occupied, fully documented and fully amortizing mortgages would be exempt from the 5% risk retention requirement, the MBA CEO said. Subprime mortgages, option ARMs and interest-only loans that were so prevalent during the housing boom will be eliminated from the marketplace.
“It eliminates all the exploding neutron mortgages that destroyed many of your communities,” Stevens said.