The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), signed into law by President Barack Obama on July 21, 2010, impacted both the financial and housing sectors. For real estate, buyers were newly required to make a 20 percent downpayment in order to qualify for a home mortgage. Some creditworthy households found that they could not obtain financing as a result. Recently, regulators have proposed two new alternatives to the current law, reports Mortgage News Daily.
The first approach proposes that a new definition of Qualified Residential Mortgage (QRM) drop the 20 percent downpayment requirement for those mortgages deemed qualified by the Consumer Financial Protection Bureau (CFPB). Six agencies were involved in outlining this reform — the Federal Deposit Insurance Corp., Federal Reserve and Office of the Comptroller of the Currency, Federal Housing Finance Agency, Department of Housing and Urban Development, and the Securities and Exchange Commission. A second plan, antithetical to the first, would still require lenders to hold some of the credit risk if a loan is sold with less than a 30 percent downpayment.
HousingWire reports that Mortgage Bankers Association CEO and president David Stevens as well as National Association of Realtors president Gary Thomas hope for a removal of the downpayment rule; they view it as excessively constraining. “The new standards, which align with those applied to Qualified Mortgages, are stringent enough to protect consumers from unscrupulous lending practices while also creating new opportunities for private capital to reestablish itself as part of a robust and competitive mortgage market,” Thomas stated. Both proposals will be open for public comment until October 30, 2013.