According to an article on the Washington Post website federal regulators both from the FDIC and the Federal Reserve have put a new proposal on the table. If the regulations were to go through home buyers looking to get the best interest rates on a conventional mortgage would have to come up with a 20% down payment. What does this mean in dollars? If you plan to purchase a $200,000 home, in order to secure a great interest rate you would have to bring to the closing table a minimum down payment of $40,000.00. Additionally, you would need to show the lender that you have had no trouble making any recent mortgage payments.
The proposal could come to formation as early as this summer. These new regulations are being proposed as a way to hopefully prevent another future housing market crisis like the one seen over the last few years. Prior to the housing market crash, lenders were making risky loans and then selling them off for a profit. This has led to a nightmare amount of foreclosures not to mention numerous lawsuits across the country. These new regulations would now make banks accept 5% of any loss when they sell a mortgage to a third party and the loan goes bad. They would be exempt if the loan carried a 20% down payment.
So what do the critics think? Some think that the 20% may be going a bit too far. The main concern is that this is a burden that many middle class working families just won’t be able to bear.
“If we require 20 percent down payments to get a loan, we will ensure broad swaths of working- and middle-class people will not be able to get a loan,” said John Taylor, chief executive of the National Community Reinvestment Coalition, a group advocating an extension of credit to low- and moderate-income borrowers.
The effect of the 20% down payment requirements may not be felt immediately as most loans today are FHA loans or federally insured loans backed by your tax dollars. These loans which have less stringent lending requirements will be exempt from the 20% down payment.
This all comes at a time when the Obama administration is looking to have government backed lending start to ease out of the mortgage market. Critics were also quick to say that if the 20% proposal does go into effect that just the opposite could happen.
Tom Deutsch, executive director of the Wall Street trade group American Securitization Forum said, “The extremely rigid proposals . . . will further prolong the U.S. government’s 95 percent market share of the credit risk of newly originated mortgages.”