The Center for Responsible Lending late this week weighed in on the 'qualified residential mortgage' debate, saying that a 20% down payment threshold will materially shrink the overall borrower market.
The nonprofit consumer group said the desire to "get back to basics" is a response to the housing bubble and the proliferation of subprime loans that did not document a borrower's income or ability to repay. By contrast, loans with low down payments tend to have fixed rates, not teaser rates that dramatically reset after as little as two years, the center said.
Loan performance will improve because of new origination standards in the Dodd-Frank Act, the group said, without having to add higher down payment requirements.
The nonprofit group cited research from the insurer Genworth Financial Inc. that showed a mandatory down payment of 10% could shrink mortgage originations by 7% to 15%.
Mortgage lenders also claim that a 20% down payment could reduce the pool of borrowers who qualify for a loan by as much as 35% and ultimately affect home prices.
While the consumer group claims that limiting low down payment loans would close the door to homeownership for some low-income and middle-class families, such borrowers would still have the option of obtaining financing through the Federal Housing Administration.
An estimated 7.5 million homes were purchased or refinanced with low down payment loans from 2005 to 2009, excluding loans insured by the FHA, the center said.
