20 Percent Down For Home Purchase The New Standard, Again?

The Real Estate Bloggers

The housing market may be getting a little tighter in a couple of months. The bureaucrats working on enacting some of the provisions of the Dodd-Frank reforms have interpreted the loosely written laws to require homes that qualify for the best interest rates to have a minimum of a 20 percent down payment.

That sound you just heard is agents across the country gulping in panic.

The homes that have a 20 percent down payment will get the best interest rates, those buyers that do not have 20 percent to put down will be held to a much higher standard for approval and face higher interest rates.

The fact that the real estate industry is still muddling along with historically low interest rates, high inventories, and significantly lower prices is bad enough news for the millions of agents out there. Now adding the prospective of tougher loan approvals and the reduction of potential buyers the real estate industry has another hurdle to cross.

Some Dodd-Frank reforms are already in place, but Congress left details of others to regulators. The down payment rule is currently in a “public comment” period that’s been extended to Aug. 1.

The proposal would split home loans into two categories. One would be loans to buyers who put 20 percent down, and lenders would face few regulatory hurdles bundling those loans to sell as investment securities. It was the volume of subprime loans in such securities that helped precipitate the financial crisis.

The other loan category would allow smaller down payments but would require lenders to maintain at least 5 percent of the total value of their loans so they shoulder part of the risk. The intent is to ensure lenders thoroughly vet borrowers.

Isakson and others believe the second category would be subject to higher interest rates and could shut lower-income buyers out of the market.

“Loan rates would go up 3 percent because of the scarcity of the loans,” said Isakson, who ran a real estate company in metro Atlanta before his days in Washington. “With the housing market in the shape it is, it’s just ridiculous.”

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