Thursday, March 10, 2011

Regulators pushing for 20% down payments

It looks like regulators want to put a stronger emphasis on 20% down payments. This is a good thing for the financial system.
Banking regulators are pushing for mortgage-lending rules that require homeowners to make minimum 20% down payments on loans classified as lower-risk, according to people familiar with the matter.

The proposal is being floated as a way to rewrite the rules for mortgage lending to prevent a rerun of the housing bubble and financial crisis that resulted from years of easy credit. The Dodd-Frank financial overhaul law enacted last year enabled regulators to define a so-called gold-standard residential mortgage that would be exempt from costly new rules.

At least three agencies—the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency—back a proposal to require home buyers to put down at least 20% of the sales price in order to obtain one of these "qualified residential mortgages." One proposal would also require borrowers to maintain a 75% loan-to-value ratio for refinances, and a 70% loan-to-value for cash-out refinances in which the borrower refinances into a larger loan, according to people familiar with the matter.

Mortgage-finance giants Fannie Mae and Freddie Mac would also be exempt from the rules while they remain in conservatorship, according to these people. The U.S. took over the firms in 2008, and the Obama administration has proposed eventually winding them down.

The behind-the-scenes debate over the proposal could have far-reaching implications for how Americans finance loans, because it addresses how much equity new borrowers should have in their homes.
Having different rules for Fannie and Freddie creates a massive loophole in this proposal. It means banks would be protected during a housing downturn, but taxpayers wouldn't.

16 comments:

  1. I think 20% down is a good rule. That way you can separate who can really afford a house from the people who just want a house.

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  2. I love this proposal, but I don't like making the GSEs exempt. It should apply to the entire market. But whoa! The market would dry up overnight! This is like...um...back to the 90s!

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  3. Oh the dubble dip in housing is happening before our eyes. With higher gas prices now hitting those wallets, the spring home selling season looks like it may be uneventful.

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  4. And yet, here in N. Virginia, prices are up 4.4% YOY. And this is on top of a +12% increase last year.

    http://www.rbintel.com/statistics/northern-virginia-association-realtors-nvar

    Sorry bears - the bottom was over 2 years (and 15%) ago. Sorry you missed it...

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  5. Yeah, that will last about as long as the tax credit that precipitated it (oops) and as historically low interest rates. Current prices are 100% dependent on interest rates staying put or falling, a very shaky foundation.

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  6. The tax credit has been over for a year now. Why do prices keep rising then?

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  7. Also, DC (and perhaps SF) are the only cities of the 20 measured by CS that are rising right now. If it was just the tax credit or interest rates (both national phenomena), we would be falling along with the rest of the country, so clearly that isnt it.

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  8. Debt is Wealth!

    I just took out a jumbo mortgage loan! I owe a bank $700,000!! I'm RICH!!!

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  9. Jonathan A ClarkMarch 11, 2011 12:49 PM

    I dunno, in reference to NOVA claims, I think there is selection bias going on, sellers are holding their places off the market...that's my explanation for the uptick in the pricing. But what's up with 77 days average on the market?

    Here's the latest from Redfin http://blog.redfin.com/washingtondc/2011/03/calling_all_sellers_buyers_are_lonely_out_here_feb_insider_report.html

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  10. The Case-Shiller Index may be up for the Washington Metro Area (Which includes a portion of West Virginia); but according to the stats for Arlington, Median sales price is down -4.1% Y-o-Y.

    http://blog.redfin.com/washingtondc/2011/03/calling_all_sellers_buyers_are_lonely_out_here_feb_insider_report.html

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  11. It's the higher end homes that are the cause of the price increases in DC.

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  12. Fabulous,

    This will push out a good number of both buyers and speculators who maintain the artificially high property values here.

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  13. MRIS & NVAR both show Arlington up, YOY, but nevertheless, its true, Arlington does not go up every month only the vast majority of reports since early 2009

    http://www.rbintel.com/statistics/arlington-county-va

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  14. You know, its funny, during the downturn, some of the bulls tried to argue "no pirces arent going down, its just the lower end homes selling that are causing the price decreases"

    They were (correctly IMO) ridiculed for cooking up such arguments - so its funny to see that argument used to explain the increases.

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  15. The cost of living in Arlington is at least 55% more expensive than the average US locality.

    In other words, there is a steep Douchebag Tax in effect in Arlington; as the comments here will substantiate.

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  16. DC has the most lawyers per capita than any other jurisdiction in the U.S.; 277 lawyers per 10K residents. The second-rated jurisdiction, New York, pales in comparison; 20 lawyers per 10K residents.

    DC is indeed the douchebag capital of the world.

    http://www.averyindex.com/lawyers_per_capita.php

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