Are 30% Down Payments on Mortgages In Our Future?
The top mortgage lender in the country has called for borrowers to come up with 30% down if they want to avoid higher mortgage rates and more restrictive lending tied to the “risk retention” requirements related to the Dodd‐Frank Wall Street Reform and Consumer Protection Act of 2010.
Essentially, the government wants to ensure that banks and lenders who write higher-risk mortgages actually retain some of that risk (5% to be exact), instead of selling it off to investors and wiping their hands clean of it.
However, since the legislation was introduced, banks and industry players have come up with a number of ways to be exempt from this new rule, including:
Critics (including most other banks and lenders) believe this will lead to a large pool of loans subject to the five percent risk retention rule, greatly increasing mortgage rates.
In fact, the MBA believes rates could be as much as three percentage points higher on loans subject to the rule.
FHA loan lending would also increase because it’s not subject to the risk retention rule, putting more strain on taxpayers.”
Wells Fargo argued that half of mortgages already carry a 30% down payment, but critics believe the move could shut out smaller lenders and increase market share for the top banks, who already have plenty.
If down payment requirements/mortgage rates do rise, it could throw a wrench in the housing recovery everyone’s hoping will get underway this year and next.