Dropping the 20% down requirement will aid in our housing recovery.

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Bankers and housing advocates were concerned that requiring a 20 percent down payment would keep many people from buying a home.

Lenders and affordable housing advocates won a victory when federal regulators walked away from a proposed rule that would encourage mortgage lenders to require a 20 percent down payment from home buyers.

Requiring such a large down payment would make it harder for first-time home buyers and others without substantial savings to get a mortgage.

Regulators today issued a revised risk-retention proposal for lenders who securitize mortgages. Under the new proposal, qualified residential mortgages would not require a 20 percent down payment. This change is important, because qualified residential mortgages are exempt from the Dodd-Frank Act’s requirement that lenders retain some credit risk when they securitize their loan.

Banking groups praised the revisions.

David Stevens, president and CEO of the Mortgage Bankers Association, said the changes show “how well the notice and comment process can work” on proposed regulations.

“Regulators proposed a rule and received a unanimous reaction from diverse groups within housing and real estate finance that the proposal would have unduly constrained the availability of mortgage credit for many borrowers,” he said. “As a result, the regulators recognized the implications for consumers and the broad mortgage markets, and decided to alter and then re-propose a much better rule.”

“The new direction regulators are taking is a very positive step, but the details will determine whether an average American family can purchase a home affordably,” said Ethan Handelman, vice president for policy and advocacy for the National Housing Conference.

Bankers and housing advocates remain nervous, however, because regulators also asked for comment on an alternative rule that effectively would require a 30 percent down payment in order for home loans to be qualified residential mortgages. It’s doubtful regulators would adopt that alternative, given the outcry over a 20 percent down payment, but nothing’s certain until a final rule is issued.

Source:  Kent Hoover Washington Bureau Chief