The National Association of REALTORS® has issued a Call for Action asking REALTORS® to contact their members of Congress and let them know the detrimental effect that a 20% down payment requirement would have on home buyers and the real estate industry.


The Dodd-Frank and Consumer Protection Act of 2010 became law on July 21, 2010. Under the Act, financial institutions that securitize mortgage loans are required to retain at least 5 percent of the credit risk. This requirement, however, exempts qualified residential mortgages (QRMs) from the requirement, thus reducing the cost of securitizing these mortgages and providing a market incentive for the wide origination of responsible loans.

Now, as required by the Dodd-Frank Act, federal banking regulators have released a proposal to create qualified residential mortgages or QRMs.

Highlights of the Proposed QRM Standards

·    The proposed QRM rule would require an 80% loan-to-value, which requires a 20% down payment.

·    The proposed rule would also limit the mortgage payment to 28% of gross income and limit all debt to 36%.

·    No credit score requirement is included, but a mortgage loan would qualify as a QRM only if the borrower is not currently 30 or more days past due on any debt obligation.

·    Borrowers could not have been 60 or more days past due on any debt obligation within the preceding 24 months.

·    Borrowers could not have, within the preceding 36 months, been through bankruptcy, been foreclosed on, engaged in a short sale or deed-in-lieu of foreclosure, or been subject to a Federal or State judgment for collection of any unpaid debt.

The QRM definition is of extraordinary importance for three reasons

1. It will determine the types of mortgages that will be generally available for borrowers for the foreseeable future.

2. It will serve as a precursor for what the successor(s) to the current GSEs (Fannie Mae and Freddie Mac) are likely to be allowed to securitize.

3. Finally, the QRM proposal will telegraph the administration’s intentions for FHA. A narrow QRM will require severe tightening of FHA to prevent huge increases in FHA’s already robust market share.

The proposed 20% down payment would create an enormous down-payment requirement and reduce the availability of affordable mortgages for qualified consumers. Few borrowers would be able to meet these requirements and those that do would be forced to pay much higher rates and fees for safe loans did not meet the exceedingly narrow QRM criteria.  At the time of this publication, three United States Senators and eight United States Representatives had signed on to a letter expressing their concern with these narrow regulatory provisions. None of the elected officials are from Texas.

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