Say it ain’t so!!! Will 20% Soon Be the Minimum Down Payment on a Home? j.mp/XXELwo

— Patty Knaggs (@pattyknaggsalot) January 23, 2013

Gloucester Real Estate agent Patty Knaggs posted A link to this article-

Will 20% Soon Be the Minimum Down Payment on a Home?

by The KCM Crew on January 23, 2013 · 2 comments

Several government agencies are reviewing data to determine what will be the minimum down payment required under the new Qualified Residential Mortgage (QRM) guidelines scheduled to be revealed in the next few months. In the original Mortgage Market Note issued by the FHFA, it was suggested that loan-to-value (the percentage of the overall purchase price which was being borrowed) was a major factor in determining if a loan would default:

“For most origination years, requirements for borrower credit score and loan-to-value ratio are the factors that most reduce the ever-90-day delinquency rate of mortgages acquired by the Enterprises that would have met the proposed QRM standards.”

The note then made the following proposal:

“An LTV ratio qualified residential mortgage must meet a minimum LTV ratio that varies according to the purpose for which the mortgage was originated. For home purchase mortgages, rate and term refinances, and cash-out refinances, the LTV ratios are 80, 75, and 70 percent, respectively.”

Basically, the original note suggested that a 20% down payment should be the new guideline. We realize that there has been much debate on this issue since and that the minimum down payment required under the new QRM guidelines will probably be less than 20%. However, we can’t know for sure.

Bloomberg reported last week:

“The six regulators drafting the separate QRM rule, including the Department of Housing and Urban Development, the Office of the Comptroller of the Currency and the Securities and Exchange Commission, must decide whether to include such a requirement — and whether to make it less than the 20 percent they originally proposed.”

Will it be more difficult to qualify for a mortgage after the new QRM rules are announced? Probably

As David Stevens, President of the Mortgage Bankers Association said during a speech in Washington on Jan. 16:

“I have consistently warned of the regulatory tidal wave to come and it’s finally upon us. These changes will impact business operations and the future of mortgage access for years to come.”

My response:

I remember going for my first loan back when I was 22 years old.  I had a decent enough amount of money saved from working every summer since I was 9 down here at the dock but the bank turned down my loan application.  The reason they gave me was because it was for one half of a duplex and they didn’t like to give loans on duplexes in case the other half of the duplex turns out to be a stiff and doesn’t have the money to maintain the place properly.

It was the very best thing that ever happened to me in my financial life.  Not because the investment would have turned out to be a good one or a bad one but because it made me so angry, so determined to prove that bank wrong it drove me to work and save like a maniac. 

Remembering advice my dad had told me- “A bargain isn’t a bargain unless you really need something” and   “Just because something was on sale doesn’t mean you should buy it” and another one he used to say- “The guy that makes $50,000 a year but saves $10,000 is way better off than the guy that makes $100,000 but spends $110,000.”   Two great pieces of advice that served me well.  I’m not quite the maniac saver that I used to be but being disciplined early on has definitely helped me in mid life.

Anyway before I get too far off track I’d like to say that I think that our Federal Government and Business Community and American Workforce has Become INSANELY OUT OF SKEW WITH WHAT THEY DESERVE.  As if owning a home is a right and you should only have to put down 2.5% or zero percent.  Or businesses should always have access to cheap money in the form of crazy low interest rates just to keep the American Economy going.

These cheap rates and low thresholds for homeownership are exactly IMO what got us into the mess we are in.

Damn right someone should have to prove they can save the 20% for a down payment before they own a house.  Have a goddamn stake in the game.  If you can’t afford it, forgo  the trips to the mall and the playstation and make the sacrifices you need to make to get there.  If you still can’t afford it, rent til you can. 

Perpetually low interest rates for business communities seems to make capital flow to less than perfect investments.  The people that saved all their lives and should be rewarded by the ability to invest in low risk cds and bonds but there’s no payback any more.  They’ve made money so cheap by printing so much of it it forces people at the end of their lives when they should be investing conservatively into riskier stocks.

When I was 20 years old 20% down was more or less standard for what you would put down on a house.  If you defaulted on the loan the financial institution who took the risk on you at least has that 20% that you put down to work with in trying to get out of that bad investment they made in you.

Every time it comes around to the discussion of interest rates on CNBC these financial dudes keep clamoring for lower interest rates, artificially lowered by the amount of money they want the government to print.  Well our financial system has become so addicted to these cheap rates they’ve backed us into a corner that any rise in rates would be catastrophic.  It’s catastrophic because you’ve put on way too much risk for what you can handle.  How about teaching responsibility instead of bail outs?  How about rewarding savers instead of teaching people that being a good American is to spend spend spend?

In my opinion there shouldn’t be any as in ZERO no money down loans or 2.5% down loans.  Not unless you have other assets that you can pledge in case you bail out on it.  It should probably start at 10% down and that’s only if you have a pretty good track record of job history and savings.

Maybe I’m old fashioned that way.