New mortgage lending rules announced two weeks ago by the Consumer Financial Protection Bureau (CFPB) have now gone before federal regulators for review. Regulators say that the final version of the so-called Qualified Mortgage Rule should be complete in a few months and the rule would then take effect January 2014. Mortgage lenders, bankers, real estate agents and others from the housing industry will be anxiously awaiting that final version to see if it includes a requirement for borrowers to have a 20% down payment when purchasing a home.
Interestingly, the rules submitted by the CFPB contained no provisions to require a minimum down payment but regulators are said to be considering how much down payment for home purchases should be required if any. In April 2011 the Federal Housing Finance Agency proposed that requiring a 20% down payment would dramatically reduce the risk of default to lenders. Currently the amount of down payment required is left up to the lender but loans with a loan-to-value ratio of greater than 80% require mortgage insurance.
The housing industry is concerned that if regulators require a 20% down payment it could hinder the recovery of the housing industry making it extremely difficult for first time home buyers to purchase a home. While there are no official statistics kept for average down payment first time home buyers historically account for 30 – 40% of all home sales.
For now it appears unlikely that regulators will require down payments to be at least 20% of the purchase price but it does seem likely that the Qualified Mortgage Rule will include a provision requiring a minimum down payment but likely in the 5 – 10% range. With the final version of the rule expected by April there will be plenty of time for the housing industry and politicians to protest before the rule goes into effect.