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Realtors, bankers warn against a strict down-payment rule

New rules could make it harder for some buyers, the industry fears.Mike Blake/Reuters

WASHINGTON — Realtors and mortgage bankers say they’re hoping President Obama’s call for streamlining mortgage rules will lend new momentum to efforts to head off a strict minimum down payment for home loans.

‘‘Right now, overlapping regulations keep responsible young families from buying their first home,’’ Obama said in his State of the Union address. ‘‘What’s holding us back? Let’s streamline the process, and help our economy grow.’’

The president was speaking broadly about a variety of rules that may be hampering credit availability, said a White House aide who spoke on condition of anonymity because the deliberations were not public.


Still, bankers and real estate agents who are angling for changes in a proposal to require lenders to keep a stake in risky loans say they hope Obama’s comments will help their cause.

At issue is the so-called Qualified Residential Mortgage rule, which six banking regulators, including the Federal Deposit Insurance Corp. and the Federal Reserve, aim to complete this year. The regulators drew protests in 2011 when they released a draft that would require lenders to keep a stake in mortgages with down payments of less than 20 percent and those issued to borrowers spending more than 36 percent of their income on debt.

Bankers and consumer groups said such a requirement would shut creditworthy borrowers out of the market. The rule would fundamentally reshape who can lend and who can borrow because banks would probably make only those loans that conform to the new standards.

Now, industry participants and some lawmakers are pressing for the regulators to align the “QRM” rule with another regulation with a similar name also designed to prevent risky home lending: the Qualified Mortgage, or “QM,” rule. That rule, issued by the Consumer Financial Protection Bureau in January, offers protection to banks that issue loans to borrowers who are spending no more than 43 percent of their income on debt.


Housing industry participants want regulators writing QRM to drop the down payment requirement and raise borrowers’ allowable debt load to 43 percent, essentially aligning the QM and QRM rules.

‘‘The industry, consumers, and legislators on Capitol Hill are all saying QRM should equal QM,’’ said Joe Ventrone, vice president for regulatory affairs at the National Association of Realtors. ‘‘A revised QRM definition should track the QM to ensure that all qualified borrowers have access to ­affordable and safe mortgage credit without a stringent down-payment ­requirement.’’

The concept has drawn support from lawmakers.

Senator Bob Corker, a Tennessee Republican, is drafting a bill that would merge the two rules. He will offer the measure only if regulators don’t act on their own, said Laura Herzog, Corker’s communications director.

Meanwhile, a bipartisan group of senators who drafted the language requiring the QRM rule in the 2010 Dodd-Frank Act wrote to regulators to ruge them to drop a strict down-payment requirement.

‘‘Our intent as the drafters of this provision was, and remains, clear: to incent the origination of well-underwritten mortgages with traditional terms,’’ Georgia Republican Johnny Isakson and Democrats Mary Landrieu of Louisiana and Kay Hagan of North Carolina said in the letter.

‘‘We intentionally omitted a specific down payment requirement and never contemplated the rigid 20 percent or 10 percent as discussed in the March 2011 notice of proposed rulemaking.’’

It will probably be months before regulators, also including the Department of Housing and Urban Development, Office of the Comptroller of the Currency, and Securities and Exchange Commission, come out with the QRM rule. Nonetheless, they are working on it now and are examining the QM rule, Comptroller of the Currency Thomas Curry said Thursday.


‘‘Now that QM is on the table, it gives us an impetus to move full speed ahead on QRM and risk-retention rules,’’ Curry said.

Not everyone favors merging the two rules. Private mortgage insurers, which protect lenders against defaults on loans with down payments below 20 percent, stand to gain if the QRM rule allows its down-payment limit to be waived in some cases when the borrowers buy their coverage.

Regulators should also keep in mind that the purpose of the two rules is different, said Mark Goldhaber, of Goldhaber Policy Services, a mortgage industry consulting firm in North Carolina.

‘‘The purpose of QRM is to set a standard by which you have measurable results of what a prime mortgage looks like for securitization,’’ Goldhaber said. ‘‘That’s a very different intention than QM, which is a consumer-facing provision.’’

A study released this week by the mortgage data provider CoreLogic found that only half of home loans issued in 2010 met the requirements of the QM rule. If the QRM rule had been in effect with a down payment requirement of 10 percent, only 40 percent of loans would have qualified, the study found.

Groups including the Mortgage Bankers Association have been warning about the impact of rulemaking in an already tight market. Borrowers whose loans closed in 2012 had an average credit score of 748, which would place them in the top 37 percent of Americans, according to Ellie Mae, a Pleasanton, Calif., company that provides software for the mortgage industry. Those buyers made down payments averaging 21 percent. The interest rate on a 30-year fixed-rate mortgage averaged 3.9 percent in 2012, Ellie Mae said.


Pete Mills, senior vice president at the Mortgage Bankers Association, said housing advocates would ensure regulators know the QM rule sets adequate parameters. “People will be providing data to them to demonstrate that a lot of these risks are addressed in the QM rule,’’ Mills said. That should help them reach a consensus.’’