(Hartford, CT) – Senator Richard Blumenthal last week joined a bipartisan group of 39 senators to urge federal regulators to adopt policies that keep credit available to middle-class families that are looking to purchase a home. The proposed rule in question would require a 20 percent down payment for a mortgage to be considered a historically safe "qualified residential mortgage."
In the letter, Blumenthal and his colleagues maintained that while it is important to pursue regulations to protect the housing market from another subprime mortgage crisis, overly restrictive rules would discriminate against first-time home buyers and jeopardize many families’ chances of receiving the credit they need to purchase a home.
“The proposed regulation goes beyond the intent and language of the statute by imposing unnecessarily tight down payment restrictions… Well underwritten loans, regardless of down payment, were not the cause of the mortgage crisis,” wrote the senators in a letter to Shaun Donovan, secretary of the US Department of Housing and Urban Development; Federal Reserve chairman Ben S. Bernanke; and Sheila C. Bair, head of the Federal Deposit Insurance Corp; Mary Schapiro, chairman of the Securities and Exchange Commission; John G. Walsh, the acting comptroller; and Edward Demarco, the acting director of the Federal Housing Finance Agency.
According to the Warren Group, the median price for single-family homes sold in Connecticut for 2010 was $250,000 meaning that homebuyers would be required to put down at least $50,000 in cash to be exempt from this rule. The National Association of Realtors reported that in sales of homes to first-time buyers last year, 96 percent of sales included down payments that were less than 20 percent.
The full text of the letter is below:
Honorable Shaun L. S. Donovan
United States Department of Housing & Urban Development
451 7th Street, SW
Washington, DC 20410
Honorable Mary L. Schapiro
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Honorable Ben S. Bernanke
Board of Governors of the Federal Reserve System
20th & Constitution Avenue,
NW Washington, DC 20551
Mr. John G. Walsh
Office of the Comptroller of the Currency
250 E Street, SW
Washington, DC 20219
Honorable Sheila C. Bair
Federal Deposit Insurance Corp.
550 17th Street, NW
Washington, DC 20429
Mr. Edward J. Demarco
Federal Housing Finance Agency
1700 G Street, NW
Washington, DC 20552
Ladies and Gentlemen:
We the undersigned intended to create a broad exemption from risk retention for historically safe mortgage products when we included the Qualified Residential Mortgage (QRM) exemption in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Statute requires the QRM definition to be based on “underwriting and product features that historical loan performance data indicate result in a lower risk of details,” and provides clear guidance on the types of factors that can be used, including:
· Documentation of income and assets;
· Debt-to-income ratios and residual income standards;
· Product features that mitigate payment shock;
· Restrictions or prohibitions on non-traditional features like negative amortization, balloon payments, and prepayment penalties; and
· Mortgage insurance on low down payment loans.
The proposed regulation goes beyond the intent and language of the statute by imposing unnecessarily tight down payment restrictions. These restrictions unduly narrow the QRM definition and would necessarily increase consumer costs and reduce access to affordable credit. Well underwritten loans, regardless of down payment, were not the cause of the mortgage crisis. The proposed regulation also establishes overly narrow debt to income guidelines that will preclude capable creditworthy homebuyers from access to affordable housing finance.
The extensive additional requirements for QRMs in the proposed rule swing the pendulum too far and reduce the availability of affordable mortgage capital for otherwise qualified consumers. Many borrowers would simply be forced to pay much higher rates and fees for safe loans that nevertheless did not meet the exceedingly narrow QRM criteria. Sadly, in many cases, some creditworthy borrowers may not be able to get a mortgage at all.
Congress included the QRM to exempt safe, well-underwritten mortgages that have stood the test of time from the risk retention requirement. We urge you to follow our intent as you modify the proposed risk retention rule.
The Honorable Timothy Geithner
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220