The Office of the Comptroller of the Currency (OCC), a unit of the Department of Treasury, claim a 20% down payment requirement will protect borrowers and promote homeownership. Lenders and consumer advocates argue that rules for large down payments could limit lending. Will these down payment requirements shut borrowers out of the California real estate market?
What may seem like a simple fix, requiring homebuyers to put more money down, is in fact much more complicated. Advocates for lenders and consumers alike are arguing against down payment requirements. They argue that such restrictions would limit lending, and prevent lower-income borrowers from buying homes. They also argue that mortgage laws, which have just recently been put into place, will do enough to avoid down payment regulations.
The macro issue for Washington is the mortgage-backed bonds market. The proposed rules require banks to hold a slice of the mortgage-backed bonds they sell to investors. Banks do not like those types of restrictions.
The OCC effectively proposed that mortgages with a required down payment of 20% would be categorized under qualified residential mortgages, and used by the banks to sell to in the mortgage-backed bonds market.
The proposal prompted widespread objections from consumer advocates, bankers and homebuilders, who said the plan could shut many borrowers out of the market completely. Banks would likely focus on the lower risk ‘qualified homebuyers’ and shy away from making loans with less money down. This could directly affect the number of potential buyers in your market.
Supporters of a down payment requirement make the broad argument that the financial sector overhaul was not just meant to protect borrowers, but that is was also intended to make banks and financial markets more resilient to shocks like housing busts. Put another way, the legislation balances the trade-off between homeownership and financial system stability.
Should mortgages have a required down payment of 20 percent? How do you think these proposed regulations would affect the market in your area?