U.S. Sen. Kay Hagan has joined a few of her colleagues in sending a letter to banking regulators urging changes to a new rule defining qualified residential mortgages, her office said today.
Specifically, the North Carolina Democrat is not in favor of requiring a 20 percent down payment -- a figure she believes could "price well-qualified Americans out of the market."
The Consumer Financial Protection Bureau announced a proposed rule in January that sought to keep banks from making risky loans that borrowers would not be able to repay. To do that, it defines a "qualified mortgage," or one that adheres to debt-to-income ratios, down payment requirements and other benchmarks. Banks that make qualified mortgage are protected from lawsuits.
Hagan's letter says that the rigid down payment rule was a misinterpretation of the Dodd-Frank financial reform law, which spurred the rule.
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0 down mortgages have to stop, but 5% down payment would make sure borrowers have a little skin in the game.
20% down payments are not necessary when debt ratios, proper income and employment verification and credit scores are used.
The Option-ARM, "liar's loans", that World Savings Bank aka Wachovia heavily promoted required 20% down payment. However, they didn't require income or asset verification above a certain credit score. The major problems started World Savings when Washington Mutual and Countrywide saw how much business they were doing and started offering competing products. Suddenly they couldn't maintain credit quality because of the competition. Keep minimum credit score at 720 for a no verification loan, Countrywide and Washington Mutual would drop to 680 and your loan volume dropped through the floor.
Marion and Herbert Sandler knew the impossibility of the situation when they sold to Wachovia. Smart people.
Moral to the story: 20% isn't necessary if you maintain credit quality.
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