The SEC recently redrew their objection to softening of new proposed
mortgage regulations. Instead they reached a compromise to re-evaluate, and
potentially adjust the rule, two years after the effective date and then every
five years afterward.
The softening, at this point, includes elimination of the down
payment and the requirement for lenders to retain 5% of a loan’s risk once it has
been sold to investors. This is a dramatic change from the standards discussed
as recently as 2011.
The impetus for these changes is to improve the housing markets
which many in housing industry, as well as affordable housing groups and
regulators believe is being hampered by the current down payment requirement.
Home buyers were not the only, or even primary, reason for the
credit crisis. But they certainly contributed to the enormity of the situation
via default on making their mortgage payment.
Is elimination of the down payment an appropriate response to a
weak housing market? Will it weaken a home buyer’s commitment to pay the
mortgage? Will defaults increase over time? At the same time is two years too
long to judge the success or failure of this change? Perhaps we should track
payment history to ensure that we avoid mini-crises.
This is
another step in modifying the Dodd Frank Act (DFA) which is still evolving. At
the same time Congress is still discussing the future role of FNMA and FHLMC. And
now, we are considering eliminating a major part the mortgage qualification
requirement?
Addressing
the weaknesses in the housing market is critical to the financial recovery. But
deciding which entity will guarantee repayment to investors, and how the
guarantee will work is critical to investors as well.
Is this a positive change?
What other changes should be made at this time?
Or, should we be maintain the traditional 20% down payment?