Qualified Residential Mortgages: Down Payment Rules Threaten Home Buyers—and the Economy

Print this

Finding the Right Balance
Lack of underwriting, not low down payments, caused the current crisis.  Strong underwriting is the best way to rein in risky loans—and Dodd-Frank already requires this.

As part of implementing the Dodd-Frank financial reform bill, federal regulators are charged with defining a “Qualified Residential Mortgage” or QRM.  Government proposals have called for down payments up to 20% on QRM loans, but new research shows that mandating large down payments would be a mistake for business and consumers.

Analyzing nearly 20 million mortgages made between 2000 and 2008, the Center for Community Capital and CRL find QRM mortgages requiring a 10% down payment would lock 40% of all creditworthy borrowers out of the market.  A 20% down payment would exclude 60% of creditworthy borrowers. Government proposals have called for down payments up to 20% on QRM loans, but new research shows that mandating large down payments would be a mistake for business and consumers.

While higher down payments do result in fewer defaults, restricting QRM loans to borrowers who can come up with a 10% down payment would exclude nine creditworthy borrowers to prevent just one foreclosure.

“Balancing Risk and Access: Underwriting Standards for Qualified Residential Mortgages” Read the full report and press release.

Additional Resources

Published: January 17, 2012