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20% Down Mortgage Requirement Would End Middle Class Home-Ownership As We Know It

| June 20, 2011

Qualified Residential Mortgage Rule (QRM)

Dream row. (Bel Fegore)

Home ownership as we know it could be a thing of the past if a proposed Qualified Residential Mortgage Rule (QRM) takes effect. The proposed rule would be especially damaging to the homeowner aspirations of minority and working class citizens, as I recently explained in a letter to the heads of the six federal agencies charged with developing risk retention regulations under the Dodd-Frank Wall Street Reform Act. Here’s why.

Marc Morial

The rule would require prospective borrowers to present a 20 percent down payment, spend less than 28 percent of their monthly gross income on housing, and have total monthly household debt capped at less than 36 percent of their income. Most people can’t afford to put 20 percent down. And, when coupled with an additional requirement of near pristine personal credit standards, these proposed requirements could end the standard 30-year fixed mortgage and replace it with a new class of “high-risk” borrower, formerly known as the responsible middle-class borrower.

Housing industry experts agree. In April, a coalition of trade groups including the National Association of Realtors, the National Association of Homebuyers, and the Mortgage Bankers Association issued a joint report, saying in part that it would take 14 years for the typical American family to save enough money for a 20-percent down payment. “A 20-percent down payment requirement for the QRM means that even the most creditworthy and diligent first-time homebuyer cannot qualify for the lowest rates and safest products in the market,” they added.

John Taylor, CEO of the National Community Reinvestment Coalition, calls this a civil rights issue. “What has been proposed essentially creates a separate and unequal system of finance for people of color and for blue-collar, working-class people where regardless of your creditworthiness, of whether you’re someone who has a great credit score and pays your bills on time and plays by all the rules, if you’re not well-heeled enough to come up with 20 percent or if your household debt to income ratios are high… you’re going to go into a separate and unequal category of financing where you’re going to have to pay more,” he said. We agree.

Adding high minimum down-payment requirements will only exclude hundreds of thousands of consumers — including legions of minority renters — from home ownership. And any rule or action that further stifles an already severely depressed housing market for first-time buyers, including many people of color, will also negatively suppress the entire housing industry — realtors, builders, retailers, suppliers, and many others. Clearly, what’s being proposed is anti-jobs, anti-growth, and in absolute contravention of the American Dream.

The American home, by definition, reflects much more than mere property. It represents the ability to build wealth for all those with a stable income and a demonstrated history of financial responsibility. It is the foundation of family and community and represents the collective promise of the chance to build prosperity that lasts through generations.

This promise must be reaffirmed and protected in whatever form the new housing finance model ultimately takes.

Marc H. Morial is the president and CEO of the National Urban League.

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30 Responses for “20% Down Mortgage Requirement Would End Middle Class Home-Ownership As We Know It”

  1. Attila says:

    This sounds way to familiar. Like the thoughts that lead to counting welfare benefits as income toward qualifying income. Granted it may be pushing the rules to far back but let’s not go back to Zero down loans, 100% of appraised value loans either. Their are rent to own plans, and don’t forget the idea that a starter home is just that, we should not expect that first time buyers get the Mc mansion as their first home. It may be a hard pill to swallow but looking back on my first home I was well served by having to wait/work/save to have up front cash. I drove a rusted clunker to afford that house, my reply was always “I have a nice garage to park it in”.

  2. SAW says:

    Responsible people, will still always be responsible, and get the required 20% together as they once did.

    Of course, for those who are not responsible, and decide instead to continue spending a good portion of their income on lotto tickets, booze, cigarettes, getting a tattoo on their ass, paying for full cable, running up phone and credit card bills, buying vehicles you can’t afford etc,etc, they will have to rent.

    Our present housing problems if anyone forgot, came from the dollar down moves you in mind set, and we all know how that ended.

    A key word in this article is responsible, other important words not mentioned might be, the using of common sense, something which is currently all but dead now, and let’s not forget, the individuals responsibility of setting proper priorities for themselves.

  3. tulip says:

    Today’s younger generation has been given whatever they want when they want it. The adults indulge themselves in all sorts of things they don’t need without any regard to saving money—-just put it on a credit card and worry about it later.

    Decades ago, people saved money for a home—-they didn’t squander money on ‘upgrading” what they already have—they used it until it broke. We worked and saved with a goal in mind and the satisfaction of achieving it was immeasurable.

    Until people change their attitude of “I want it now”, things will not improve much.

  4. elaygee says:

    We bought our first home in 1985 with 20% down. It was a small older Cape Cod and we did most of the renovating and upgrading ourselves. There was no such thing as a 0% down or 105% with cash back at closing mortgage then.

    Homebuilders and real esate brokers will hate it but it kept the disaster of foreclosure down to a minimum and also kept the rental market stable.

    Many people who buy are ill equipt and unable to financial support a home purchase

  5. Jim J says:

    20% down payment shoudl always have been in effect.

  6. lawabidingcitizen says:

    I second Attila.

    Instant gratification has contributed mightily to the mess we’re in financially. We geezers all saved every cent we could to qualify for a mortgage (and in those days the woman’s income didn’t count — yes amazing, but true). Yet, we’re the ones who’ve paid the bills for the past 50 years!

    Nobody is being denied a mortgage for the color of their skin, their ethnicity or their sex, so “man” up, start working and saving (that means no fancy electronics, no fast food, no new toys of any kind, no vacations, no new cars, etc.) and then when you’ve saved enough, start looking for a house to buy.

    And it wouldn’t be a bad idea for lefties to stop crying unfair when their pet protected populations are asked to do what everybody else is doing and have done all their lives.

  7. JL says:

    This sounds like a plan concocted by Mr. Potter. Thank heavens the Baileys stepped in to help out the honest, hard working person, who can pay their bills, to buy a home. I agree that when people buy their first home, it doesn’t need to be their “dream home”. People don’t know the term “starter home” anymore. If the bank qualifies you for a loan of $200,000, you can actually spend less than that. But to make people save up 20% before they can buy their first home is ludicrous. You can still have 3% down payment mortgages. But what hurt too many people were the “no doc” loans, and giving loans to people with horrible credit. Let’s not go to the extreme and hurt hard working, bill paying, people.

  8. Merrill says:

    While this is a creative variation of the classic “Red-Lining” game, there are several assumptions that have changed lately. Who said that homeownership is such a good idea? I wish I had been renting for the past five years. With so many condos and some homes selling for $60,000 in Flagler County, if you can’t save $12,000, then maybe renting is your best bet. European Village has units, albeit small, selling for $19,000 and would require a $3800 down payment. Yes, we all have to learn to save for what we want rather than borrow for what we want!

  9. mara says:

    Ahh, just another way for The Wealthy to be separate from The Rest of Us. As usual, they want to dictate to the rest of us–we are “Those People” to them, and “those people” who can’t afford 20% down can go live in shantytowns, live on the street, or rent from skeezy rental barons who will gouge everything that cannot be nailed down.

    I used to do mortgages–3% down worked just fine for every damned responsible homeowner I ever met, as did strict paperwork regulations. The day I first heard the words “no-doc loan”, I got out of that business, and never looked back.

  10. BW says:

    I would agree that 20% down requirement is out-of-touch today. Likewise, 0% down is unrealistic also. Based upon actual housing prices and costs of living today I see 5% being a more reasonable figure. To put it in real dollar figures if one looks to purchase a home at $150,000; they are looking at a down payment of $30,000. Is that realistic for a family to have? Whereas at 5%, the down payment is $7500 and is still significant enough to show commitment and ability to pay. Likewise, debt to income ratios that are realistic and stable job history are important to show ability to pay and reducing future foreclosure impacts.

    The idea that “young people” have been handed every thing without having to save for it is ridiculous. One could then make the argument that the older generation is still living in a time when $10,000/year was a great salary and bread cost a nickel. Things changed and costs of living are far greater today with salary levels far from in line with that cost growth. One could also argue that the wealthy are irresponsible since many many of them have walked away from mortgages on investment and second-home properties because the market tanked and they weren’t shy about saying so either.

    Likewise, blocking home ownership with out-of-date and out-of-touch rules will further damage the economy. Just take a few moments to think how many industries and jobs are tied to the housing industry? A lot! And both big and small companies.

  11. emile says:

    The idea of saving up a 20% down payment sounds good, and very thrifty and full of personal virtue and satisfaction in a job well done. But what happens if the house loses its value? In the 1960s we saved and invested every penny in our first home and sold it 9 years later for twice what we paid.

    What will today’s houses be worth in 9 years? What is the incentive to buy a house these days unless it can be obtained at fire sale prices with a low down payment?

  12. Nancy N. says:

    All you “pro-responsibility” old folks won’t be so in favor of that 20% down payment when your own house that you say you scrimped and save to pay for as your life’s investment becomes worth about two cents because there are practically no eligible buyers in the market anymore. All of us who are currently homeowners will be trapped in our homes, unable to sell them and move, and even more upside down on our investment than we already are.

  13. Liana G says:

    20% Down Mortgage Requirement Would End Middle Class Home-Ownership As We Know It

    The problem with American society is the overwhelming majority refers to themselves as middle class because they can buy now and pay later either with credit cards or structered payments. Take those away, and we’re no better off than folks in third world countries who don’t have those options. Of course bankers, realtors, etc, etc are not going to go for it. That’s their bread and butter with bacon, eggs and cheese for some.

    Home ownership as the American Dream today is hogwash. America is too transient a country. Employers relocate employees consistently. And there is the expectation that they must be ‘willing to relocate’ if they want to climb the corporate ladder. How many native Floridians live in Palm Coast and are from Palm Coast?

  14. Rob says:

    In 1965 the median wage in the US was approximately $6500 and the median cost of a home was $19,000. On average homes cost 3 times wages, give or take.

    In 2009 the median wage in the US was approximately $40,000 and the median cost of a home was $258,000. On average homes cost 6 times wages, give or take.

    The cost of a homeownership exceeds the ability to purchase by a wide margin.

  15. tulip says:

    If more and more people don’t, or can’t, buy a home, then they have to rent. As the demand for rentals grows, so does the amount of the monthly rent. If a person owns a home, when they want to retire they can sell it and have a nest egg and then rent a place that’s maintenance free, etc. to spend their “golden years” and do whatever they want. If I didn’t have a house to sell back home, I could not have moved here and build a house because I doubt I would’ve saved up that large amount of money, and if I had, it would all be gone into another house and I would then have no savings left. Buy a house, live in it for a long long time, put money away into something and retirement years can be pretty good.

    People can cut down on a lot of unneccesary expenses and still have a good life without being “deprived”–they just choose not to.

  16. PCer says:

    Make it 20%. Had it not gone down to 1 or 2%, the demand for houses would not have increased at exponential rates and the prices would not have skyrocketed. Reducing the down payment and the creation of special mortgages is what got us in the mess we are in now. Go back to the 20% down traditional mortgage. Housing sales will continue to be slow, but prices will not skyrocket. In the long run, the economy will be stronger and we will all be better off.

    On another note, I am offended by the writer’s presumption that minorities are not able to raise the 20% minimum down payment. Anyone can raise the money, it is a matter of understanding what one can afford. A blue collar worker making $50k should not be living in a 1/2 million dollar home. Unfortunately, we forgot this over the past few years. It is about time we got back to basics

  17. Drew says:

    As a whole the real estate industry is 20% of America’s GDP. If the verbiage in Dodd-Frank Bill stays the same and is signed into law it will cripple our job markets all over the US. Think of the housing market. If families are not able to buy home it will have an effect on every small business. The neighborhood hardware store, local trades, builders etc. By supporting this part of the Dodd-Frank Bill you will see unemployment stay in the 9 to 10% range long term.

  18. Memo Juez says:

    I bought the house that I used to rent. @110% of Purchase Price financed, my payments, including taxes, insurance, etc, is still 3/4 the amount of what I paid in Rent.

    This 20% down payment requirement punishes the would be home owner, not the the banks that set buyers up to fail with outrageous ballooning in their “variable rates.”

  19. Tom Brown says:

    A 20 percent down payment is not a horrendous requirement now that home prices have sunk by 30 to 50 percent. A two-income couple should be able to save that amount in a few years with frugal living, modest cars, etc. Hopefully, a 20 year mortgage will return as the standard model. Young couples should try to lock in this year’s low mortgage rates as quickly as they can. Next year’s interest rate situation may be grim

  20. Liana G says:

    @ Tom Brown
    “Young couples should try to lock in this year’s low mortgage rates as quickly as they can. Next year’s interest rate situation may be grim”

    No they should not. Housing will still be in the tank for the next 5/7 years according to the realists out there. And home ownership is not a good investment period. Young couples would be better off investing their money in stocks which actually produce returns. Home ownership is a noose around the neck when we realistically add up all the expenses it take to maintain a home, coupled with the freedom of mobility and job prospects.

    We purchased our house in 2005. Today it is $100,000+ underwater with property taxes increasing steadily to off set depreciation. Had we not bought our house, we would have been out of here in 2006 with no regrets and enjoying life in a new place, new faces, and exposure to a different way of life. I would never buy another house unless I am filthy rich, and that is not likely to happen! You see I don’t play the lottery. But I do have the ability to live in various parts of this beautiful country, thanks to my husband’s job, and I will take advantage of that. Buying our house here in PC was all my husband’s doing, as a matter of fact, I never saw the house until moving day because I wanted no part of it. Now I actually get to say “I told you so”, rare in my household.

  21. Layla says:

    What this article is missing is the word “responsibility”. And until everyone understands the true meaning of this word, I don’t care what color you are or what your income level is, you must work JUST LIKE THE REST OF US to save that 20% down. It is there for a reason, to guarantee the home will be sold to a responsible buyer.

    If you cannot save the down payment, you likely cannot afford the other necessities such as insurance and home repair bills. And on the contrary, this will NOT supress the housing market. It will IMPROVE IT. There will just be more rental properties available until that time when borrowers can prove they can afford and take care of what they are buying. Civil rights issue, my a$$.

    Have we learned NOTHING from the recent market collapse? Perhaps too many still believe that was all George W. Bush’s fault.

    The American Dream must be EARNED. I can’t think of a system more fair to all.

  22. Kathleen says:

    Working with this day in and day out, I don’t see 20% down in our area as all that unreasonable and usually is the common understanding with most buyers with conventional loans. For example, we have 685 residential houses closed as of 6/21/2011 in Flagler County. Of this 685, 53% (369) have been cash with an average selling price of $161,582 and a median price of $120,000. Compared to the same period last year, 691 residential houses closed with 46% (319) being cash with an average price of $160,982 ad a median price of $130,000.

    Now what is very positive in our area especially compared to last year is that during this period last year the sales trend and quantities of closings were “pushed up” compared to typical trends due to the tax credit deadline. So we are working against sales last year during this time which were about 15% above 2009 in terms of the number of home sales and 2010 basically finished flat for the year against 2009. What this shows is that we are seeing very good traffic and (as normal here) a lot of cash that comes into the area. We are also seeing very manageable levels of inventory for sale in the area as well which is about 50% below the number of homes for sale in years like 2007.

    The difficult part in seeing the positives when we are innundated with negatives is you are often the one seemingly by yourself “out on an island”. But the market is what the market is and one can only focus on getting the job done. All I can say is watch comparing national averages to local markets. Real Estate is local (as the saying goes) in many many ways. Local markets can be drastically different than national overall trends. I personally try to avoid speculation and stick with the facts of the area.

  23. Liana G says:

    @ Layla

    Responsibility starts with every individual whose profession demands that they be ethical in their field. Should a lawyer be responsible for diagnosing his own medical condition or does he seek the professional services of a doctor? What happens if that lawyer goes to see the doctor for chest pains fearing something terrible, is told by his doctor that he has a heart condition and is charged several thousands of dollars for tests and diagnosis, when in actuality it was just a case of simple heartburn that a $2.00 bottle of Tums would have cured. Whose fault is that? Where is the ethical responsibility by those who are educated in their field to provide such services? Should we all hold degrees in law, medical, accounting, economics, statistics, auto/ac/computer repair, etc., to ensure that we are not cheated or taken advantage of?

    Many of the bankers, mortgage lenders, real estate agents, home builders, and loan officers were in cahoots with each to manipulate and deceive the many unsuspecting homebuyers, limited in their knowledge of fancy accounting and backdoor schemes, into purchasing homes they could not afford. Many of those homeowners who lost their homes/their American dream are back to renting while responsible folks like us have to also suffer the consequences, stuck with underwater mortgages, increasing property taxes, and an eyesore of abandoned/foreclosed properties blighting our neighborhoods. Is that fair to us too?

    And what has happened to the ones who are REALLY responsible for this mess? The folks with the fancy education who exploited and robbed the unsuspecting and gullible, and also burdened the innocent bystanders? They got bailed out! Got back all the money they lost; and is back to sitting pretty with help from those they screwed over! And the ones that got screwed over; they/we are still being screwed!

    Responsibility = strategic default

  24. mara says:

    Those of you who loftily declare that homeowners are at fault in this crisis because they’re “irresponsible” are buying into the divide-and-conquer class-war rhetoric spouted by political lackeys on both sides of the ideological spectrum.

    Sure, pit us against one another so we’re so busy arguing that the thing that actually got us into this mess–DEREGULATION by The Government–skates. Again. Those of you who continue are giving these creatures exactly what they want–a way out, free from repercussion from those they screwed.

    Stop repeating what you’re told ad nauseam. Just because it’s on tv or radio–once or 5000 times–doesn’t make it true any more.

  25. John Boy says:

    DEon’t worry about housing, the way things are going you will be able to buy any house you want for $25,000. at that cost you will not need insurance. Real Estate Brokers, Mortgage Brokers and Title Companies, Appraisers, Insurance Companies, et all will go out of business. Problem solved.

  26. Layla says:

    Liana G: When do YOU take personal responsiblitiy for any of this? Are you trying to tell me that unscrupulous lenders FORCED people to pay for homes they knew they could afford? The banker made me do it? That is PRECISELY why we are returning to the 20% down policy.

    I have never known an individual who did not improve his or her lifestyle by staying in school.

    It works much better than “letting the government do it” or blaming it on someone else.

  27. Liana G says:

    @ Layla

    “Are you trying to tell me that unscrupulous lenders FORCED people to pay for homes they knew they could afford? ”

    I am telling you that these UNSCRUPULUS FOLKS, not only lenders, convinced ill informed people that they could afford the homes they got them into. The same way the have you convinced unless of course you are one of their shills.

    I will take responsibility when I get rewarded the same way those UNSCRUPULUS FOLKS did. Yes, I will go out and purchase an expensive Brooks Brothers navy blue suit to wear with a crisp white silk shirt and maybe I might be able to buy a knockoff Harvard signature tie (it’s still a man’s world up there), and I will sit in front of congress and tell them I made a mistake, I did not fully understand what was happening, so please give me xxxxx amount of money for me, my family and friends to maintain our lifestyle because we don’t want to have to take responsibility for what we knowingly did wrong. Heck, I will even shed buckets of hypocritical tears just so I can best Lloyd Blankfein at something because the suit, quality of the silk shirt and the knockoff tie won’t do it!

    My house is 100,000+ underwater, property taxes will continue to increase to offset its steadily depreciating value, and I’m living on a street, in a neighborhood, a city, a state, a country whose economy is in the tank because of these abandon/foreclosed homes.

    Here’s a scenario, the same year (2005) we purchased our house for $240,000, another homeowner purchased a similar house for $260,000 – bigger yard and nice curb appeal – the house went into foreclosure 3 years later and was finally sold last August for $60,000, I repeat $60,000. The investor who purchased it spruced up the landscaping, slapped a fresh coat on paint on in the inside, cleaned the carpets and turned around and sold it for only $112,000. I repeat $112,000. That was the most he could get. Gee, I wonder how much my house is worth?

  28. brandon says:

    Another point to remember is that home prices in many areas are greatly overvalued. With a 20% requirement there will be less buyers. Driving down home prices and intern making the 20% more achievable. Watch any flip-that-house show and you will see that some one can put 40k into a house for new carpets and appliances and then goes and sell is to some sucker on a 30 mortgage he can barely afford for 6 times its worth. The American dream is to own a house. It is not to own a house that’s cost is inflated to 6 times its value. Anyone that think the houseing market will dry up is probably the one that has been raking everyone over the coals on the premise of offering “the American dream”

  29. lawabidingcitizen says:

    Housing, like everything else, has no intrinsic monetary value. Property is worth only what somebody is willing to pay for it. A buyer’s market is when there are more houses for sale than there are buyers and houses are cheaper. In a seller’s market, they’re are more buyers than available houses, so they’re more expensive.

    Fixing up and staging houses for sale makes sense because lots of people don’t have the time nor taste to do it themselves, so they pay someone else to do it for them. No different than paying a neighbor kid to take care of your yard when you’re unable to do it yourself.

    Our public schools and the leftoid media have really done a “good” job of indoctrinating people to be suspicious of normal business practices that turn a profit and lots of misguided people not only think there’s a free lunch, but they’re entitled to free goodies of every variety.

    We’re getting dangerously close to “the day the music died” for all of us, workers and shirkers.

  30. Ben Blakely says:

    The leftist liberals were 100% responsible for creating the real estate collapse that occurred in 2007. It was due to democrats forcing banks and lending institutions to give mortgage loans to people TOTALLY UNQUALIFIED to purchase and with rediculously little equity down. Buyers had little reason to remain in the house and easily abandoned them and the mortgage since they had almost no equity investment in the property. The ultimate failure of the buyers ability to make payments was virtually inevitable.

    Now the liberals are at it again. They whine and complain that 20% is too much. Nonsense. To make a purchase of any property, the buyer must make a at least 20% investment and show ability to pay. Otherwise, they are not entitled to any mortgage financing. Simple but the democrats cannot grasp this truth. Just more obama whiners and lame brains looking to abuse the system and make the public (you!) pay for their feel good socialist religion.

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