Regulators Propose New Rules For Mortgage Market
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Billions are also at stake in the housing market and the rules for home mortgages could be changing soon. The proposed regulations could require many home loans to have a 20 percent down payment. That is far more than homebuyers have had to put down for years. NPR's Chris Arnold reports.
CHRIS ARNOLD: Here's the big question with this 20 percent down payment rule. How many people is it really going to affect?
Federal regulators don't want this to become a new blanket standard for all homebuyers. But some in the industry predict that, over time, it could become a new standard anyway.
Ms. THAY-DEEN BROWN: I love this room because of the colors and the lighting...
ARNOLD: Thay-Deen Brown is showing me around her house in Boston. She bought it three years ago through a nonprofit homebuyer program that allowed her to use just a three percent down payment.
Ms. BROWN: This is my favorite part of the house, is the deck.
ARNOLD: Brown has a good job as an executive assistant. And she's a responsible homeowner. She's made every mortgage payment. Also, Brown is a single mom. Her husband passed away a few years ago.
Ms. BROWN: My daughter is nine and she loves her home. I mean buying this home was a great opportunity for us, not just for me but for her. It's just - it's great.
ARNOLD: Brown bought the house for around $200,000. So if she was required to put down 20 percent like regulators are talking about with this new rule that would have been $40,000 dollars. Brown says she just couldn't have done it.
Ms. BROWN: Definitely not. I would not have had that type of money to put down for the house.
ARNOLD: Nonprofit housing counselors worry that the new regulations could mean that many people like Brown will be priced out of home ownership. And actually some people on Wall Street have similar concerns. Tom Deutsch is the Executive Director of the American Securitization Forum. He represents banks and investors who buy and sell loans.
Mr. TOM DEUTSCH (Executive Director, American Securitization Forum): I think a there's a lot of borrowers seeking to get a mortgage that would be unfairly excluded.
ARNOLD: Here's why. Regulators are trying to create a definition for a new class of low-risk mortgages. The idea is that for any loans outside of that new standard, banks would be under tougher regulations. But Deutsch says most banks would want to avoid those tougher regulation. So they would only make loans that conformed to the new super-safe standard: loans with a 20 percent down payment.
Mr. DEUTSCH: That will make it much more difficult for you to obtain a mortgage loan. And if you are able to obtain that mortgage loan, it will be at appreciably higher rates.
ARNOLD: But other experts aren't so worried. Ed Pinto is a fellow with the American Enterprise Institute. He says there will still be room for government programs to offer lower income people access to home loans. And he thinks, in general, the broader market should be moving towards larger down payments, though he favors a 10 percent requirement, not 20 percent.
Mr. ED PINTO (Fellow, American Enterprise Institute): Requiring a homebuyer to put 10 percent down is not asking too much. It's a filter that indicates that they've been able to save and they will have the ability to rebound in case the furnace breaks or something else happens.
ARNOLD: In any case, at least in the short term, the rule's not going to have a big impact. That's because the government-backed companies Fannie Mae and Freddie Mac are exempt from the proposed regulations. And for now, most new home loans are being issued through Fannie and Freddie.
Chris Arnold, NPR News, Boston.
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