QRM’s 30% Down Payment Proposal

What percentage of people you know put 30% or more down on the purchase of their home?  If the answer was less than 50% you and the folks in DC must not have the same friends.   Law makers believe that 30% down should be a minimum mortgage requirement.  If DC ever got their way, lenders would have a more difficult time originating loans with less than 30% down.

The 30% Down Payment Rule

First and foremost QRM is a risk retention related law.  QRM stands for “Qualified Residential Mortgage” (not to be confused with QM rules).  When an Arizona mortgage lender originates a new mortgage that meets QRM guidelines, they do not need any financial skin in the game relative to that loan.

However, the government wants to require lenders originating loans with less than 30% to have additional financial liability for that loan.  The proposal called for lenders to have a certain percentage of the total loan amount on deposit tied to that loan in the event of a default.

If QRM was to fully adopt the 30% down payment rule, every time a lender originated a home loan with less than 30% down they would be on the hook financially.  That would directly impact a consumers ability to obtain a home loan.

Lenders Putting Skin in the Game

While making lenders put skin in the game sounds logical, I can assure you it is a bad idea.  Why?

  • Many lenders do not have the capital to meet this rule
  • Vast majority of home loans involve much less than 30% down
  • VA loans require 0% down yet they have the lowest default rate out of every loan type available
  • Mortgage insurance protects lenders

When is QRM + effective?

QRM + was simply a proposal.  The irony of the 30% down payment proposal is down payment is not the primary factor in determining whether or not a borrower will default on their mortgage loan.  Capitol Hill should look at what their friends at the department of Veteran Affairs (the VA) have been doing for years.  0% down with the lowest default rate in the mortgage business.

By Jeremy house
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