Senators urge regulators to scrap down payment rule

By Vicki Needham - 02/14/13 11:50 AM ET

A bipartisan trio of senators is pressing the Obama administration to revise a mortgage rule they say will hamper home ownership.

Sens. Kay Hagan (D-N.C.), Mary Landrieu (D-La.) and Johnny Isakson (R-Ga.) urged regulators to quickly revise the qualified residential mortgage (QRM) rule and eliminate the requirement for a 20 percent down payment.

"The QRM rule published over a year ago proposed an overly rigid, narrow standard that will result in many responsible borrowers being denied the opportunity to purchase a home with sustainable terms and pricing they can afford," the senators wrote in a letter to regulators.

"For the U.S. housing market to continue on its path to recovery, consumers, lenders and investors need greater certainty regarding the boundaries of mortgage lending."

In 2010, Landrieu, Isakson and Hagan drew up the mortgage rule for inclusion in the Dodd-Frank financial reform law in an effort to protect the ability of well-qualified, middle-class families to obtain a mortgage.

However, in drafting the proposed rule, banking regulators said a QRM should require a 20 percent down payment — "a misinterpretation of the intent of the provision in the law that could needlessly slow the housing market’s recovery and price well-qualified Americans out of the market," they wrote.

Housing industry leaders have called on regulators to avoid specifying a downpayment requirement and, instead, weigh a borrower's ability to repay the loan in assessing risk.

If the proposed rule isn’t changed, borrowers who cannot reach the 20 percent threshold would wind up with loans that would be considered risky because they would not fall under the QRM requirement.

In addition, banks may decide to refrain from making loans outside the requirements, potentially keeping capable borrowers out of the housing market.

A final rule is expected from housing regulators sometime this year.