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WASHINGTON - Jan.17, 2011 - The mortgage industry is divided over how much downpayment a borrower should be required to have in order to be considered less risky. Regulators have until April to come up with a downpayment requirement as part of the Dodd-Frank financial overhaul legislation.
Wells Fargo & Co., the nation's largest mortgage lender, has asked U.S. regulators to set a new downpayment standard of 30 percent on mortgages. If approved, banks would have to retain 5 percent of the loan if it is securitized for any borrower who came with a downpayment below 30 percent in order to meet a risk retention requirement. The new requirement is aimed at preventing lenders from facing big losses in case the loan goes into default. While banks would still make loans to borrowers with downpayments lower than 30 percent, those loans would be more costly to banks because of the risk retention requirement. Analysts say that lenders will likely pass that cost on to borrowers via higher interest rates. Much of the housing industry opposes the Wells Fargo proposal, saying that a 30 percent standard is too high. The National Association of Realtors (NAR), along with the Mortgage Brokers Association and other groups, sent a letter to regulators warning that an "inordinately narrow" mortgage definition "would mean that millions of creditworthy borrowers would be deemed, by regulatory action, to be higher risk borrowers." If the 30 percent requirement does stand, some in the mortgage industry say it will drive more of the lending business from the private sector to the government. The Federal Housing Administration is exempt from the risk retention rules and offers loans with downpayments as low as 3.5 percent. Wells Fargo says it suggested the 30 percent requirement because about half of all mortgages already have downpayments that big. Source: "Banking Law Hung Up on Down Payments," The Wall Street Journal (Jan. 13, 2011) Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688 |
