Administration faces backlash over down payment rules

Financial and consumer groups are mounting strong opposition to an Obama administration proposal that they argue will make it harder for young people and minorities to afford a down payment on a home.

The Consumer Financial Protection Bureau released sweeping new mortgage lending rules last week aimed at preventing the risky lending practices that helped fuel the financial crisis.

The proposals mostly won high marks from the financial industry and consumer-rights organizations, but a separate call from other regulatory agencies for toughened requirements on down payments is fomenting anxiety.


The administration wants to require borrowers to pony up down payments totaling as much as 20 percent of home costs to ensure that homeowners don’t take out loans they can’t afford.
But many see the proposal as an overcorrection that could damage the fragile housing market just as it is beginning to recover from the national foreclosure crisis. If adopted, the rule would make buying a home prohibitively expensive, particularly for young people and minorities, critics say.

“Saving up for that down payment is really the biggest hurdle to homeownership,” Mortgage Bankers Association spokesman John Mechem said. “That’s all about inherited wealth.”
The plan is opposed by financial and consumer groups, which are at odds over other parts of the lending reform debate. Forty-six trade organizations and other groups, largely hailing from those two sectors, formed the Coalition of Sensible Housing Policy to fight the proposed rule. Civil-rights groups including the NAACP also joined in opposition.
“Requiring down payments of 10 or 20 percent is deemed by some as ‘getting back to basics.’ However, well-underwritten low-down-payment home loans have been a significant and safe part of the mortgage finance system for decades,” the Coalition wrote in comments to federal regulators.

The Center for Responsible Lending (CRL), a member of the coalition, has also raised concerns about proposed rules. The group is pressing regulators to refrain from setting any down-payment threshold in the rule. 

“The market should dictate the down payment,” CRL spokeswoman Kathleen Day said.
Regulators have not said when they plan to issue the final down-payment rule.

— This story was corrected at 4:10 p.m. to reflect that the Center for Responsible Lending is a member of the Coalition of Sensible Housing Policy, and updated at 9:43 p.m.