Are Larger Down Payment Requirements for Homes Needed?

This week's news reported another 4% drop in home prices in 20 U.S. cities from the prior year (See Bloomberg). With prices lower than we've seen in some time, shouldn't that necessarily translate into home purchases? Not necessarily so. Of course, even if homes are less expensive, one's ability to buy is not just tied to a credit score. It is tied to cash. Right now, cash buyers are the kings in the weak housing market (See USA Today). These cash buyers are primarily investors who account for about 30% of home purchases in the current market.

So, what is happening to the regular people? Well, credit is still tight. According to the Center of Responsible Lending, high down-payment requirements (20% generally) is enough to keep many who might be good bets on home mortgage repayment from buying a home. First time home buyers and minority home-buyers could be hardest hit At the root of some concern about down payment requirements are portions of D0dd-Frank that require lenders to retain a portion of mortgages they sell, but Qualified Residential Mortgages (QRM) are exempt from this rule. To the extent Congress sets the QRM at 20% down payment for residential mortgages, this rate would be expected to have an impact on how the market views risk on residential mortgages (See, Wall Street Journal). This could in turn affect what mortgages are available to home buyers and the cost of those mortgages.

Currently, the regulators have extended the comment period on QRMs until August 1, 2011 (See Federal Reserve). So, if you have an opinion . . .

- JSM