Down payment rule could torpedo housing industry, groups warn

A coalition of housing, consumer and civil-rights groups urged Obama administration officials Monday to tread lightly as they consider strict new rules on mortgage lending.

The new regulations now under consideration include a provision that would require borrowers to come up with down payments totaling as much as 20 percent of home prices. The provision would deliver a blow to the lending industry and would-be buyers, especially the working class and people hoping to buy their first house, according to the Coalition for Sensible Housing Policy.

In a letter sent to financial and housing regulators, the group argued that the forthcoming rules should hew closely to a set of lending standards laid out in January by the Consumer Financial Protection Bureau (CFPB).

The CFPB measure, known as QM, set guidelines for qualified mortgages that, if adhered to, would give banks “safe harbor” protection from lawsuits.

 To qualify for “safe harbor” protections, banks would have to restrict certain points and fees on loans and limit other risky features such as terms that exceed 30 years, interest-only payments and negative-amortization, where a borrower’s principal actually increases with each payment..

Industry groups described the CFPB action as largely workable. But they have raised concern about the additional regulations under joint consideration at the Housing Department, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Housing Finance Agency.

The industry and consumer coalition fears that those yet unveiled regulations, dubbed QRM — or “qualified residential mortgages” — would go too far.

“The coalition strongly opposes the addition of stringent down payment and other restrictive requirements to the QRM definition that will ultimately limit the ability of private capital to reach lower income households and first-time buyers,” the group wrote in its letter to the regulators. “QRM should not be more restrictive than QM.” 

No timetable has been designated for the QRM rule, but regulators have said it would be issued soon. 

The Coalition for Sensible Housing Policy is comprised of roughly 50 trade groups, consumer organizations and civil-rights groups.