Former Congressman Barney Frank is now well-retired from the U.S. House, but his aggressive legislative personality lives on, with fights still erupting over Dodd-Frank—the signature piece of mortgage finance legislation that Frank helped draft to reform the housing market and the entire U.S. economy.
One of the standards drafted — the qualified residential mortgage rule – received a facelift in August when new proposals hit the market, suggesting Dodd-Frank’s 20% downpayment requirement for lenders who want to obtain an exemption from risk-retention requirements is simply too high.
As a result, the August proposal, which is largely endorsed by the mortgage finance space, suggested that a loan already considered a qualified mortgage under theConsumer Financial Protection Agency’s definition can escape risk-retention scrutiny, which essentially tramples over the 20% downpayment requirement Dodd-Frank originally envisioned.
But the debate continues, with writers for The Washington Post unleashing a fury by publishing an editorial that accuses financial regulators of capitulating to the will of bankers. The writers attack the proposed QRM rule change, saying:
Two years ago, federal banking regulators proposed to require a 20 percent down payment as one of the criteria of qualified loans. This was consistent with the intent of Dodd-Frank, and with the economic literature, much of which identifies low equity as a reliable predictor of homeowner default. But the requirement was quite inconsistent with the interests of a wide range of lobbies — from real estate agents to low-income-housing advocates — which protested that the rule would unduly limit access to credit and kill the housing recovery. The groups swarmed the regulators; hundreds of members of Congress from both parties wrote in support of them. And so, in the dog days of August this year, the regulators backed down, offering a revised rule that requires no down payment at all.
The article views the proposed changes as retro and a step backwards. It also raises one of the oldest questions in the industry: does the 20% downpayment requirement really keep a borrower performing or is it something else? At a time when few can save 20% down, the industry fears a virtual freeze-out of many potential homebuyers with such onerous requirements.