Our Congressional leaders have been busy. In response to the national real estate mortgage debacle, Congress is attempting to enact legislation that would increase down payment requirements on most home loans. The proposed Qualified Residential Mortgage (QRM) rules would require among other things a minimum 20 percent down payment on home purchases. Further proposals would increase FHA down payment requirements from 3.5 to 5 percent.
The problem with these proposals is that they do not address the root causes of the mortgage debacle that they are intended to counteract. These proposals, if enacted, would only serve to limit home ownership and retard an otherwise promising (albeit slow) recovery.
We have seen little if any correlation between down payment requirements and mortgage defaults. Many of today’s defaulting mortgagors had placed large down payments when they purchased. Many who purchased with little or no down payment whatsoever have made their payments on time, every single month.
As we said, these new proposals do nothing to address the real problem, which was the lack of reasonable qualification guidelines. The liar (no-income-verification) loans, stated income and option ARMs allowed anyone that could pass the mirror test to obtain a home loan. Congress, always seeking to further their façade of stalwartness, now acts to close the proverbial gate “after all the cows are out”. While we never advocate debt, it is a necessary evil in the national real estate equation. We are hopeful that sanity will ultimately prevail.