As Down Payments Rise, Execs Still Fret
Americans who are able to buy homes are putting down payments of more than 12% on average, a survey from mortgage lead generator LendingTree LLC found this month.
But the findings have not reassured mortgage industry members — including LendingTree chief executive Doug Lebda — who are worried about regulatory efforts to raise the minimum amount home buyers must put down upfront.
"I don't like the entire concept at all … [it] would be a significant exclusion of people out of the market," Lebda told American Banker in an interview last week
LendingTree's findings come as down-payment requirements have become a highly controversial issue in the mortgage industry. Policymakers are entertaining several proposals that would raise the minimum down payment for loans backed by Fannie Mae and Freddie Mac. Those minimums are typically 5% currently but can be as low as 3% in some cases.
The industry has voiced vigorous objections to part of the Dodd-Frank Act that would require "qualified residential mortgage" borrowers to pay a 20% down payment in order for the loans to be exempt from new regulations.
Many in the industry are advocating for a 5% down-payment requirement, while some regulators have suggested 10% would be a safer number. LendingTree's data indicates that consumers — or at least those who can afford to buy a home in the current economy — are already paying more than 10% on average in down payments. And buyers in some states are paying even more than 12% in down payments on average, especially in states where property is usually more expensive, the survey found.
But Lebda still supports a lower down-payment requirement.
"You're dealing here in averages. In this data some borrowers have put 40% down and some have put 5% down," he says. "I'm for the 5%."
New Jersey leads the country with the highest average down payments at 13.8%, according to data released by the Charlotte, N.C., company earlier this month. Buyers in Washington, D.C. and New York put down payments of 13.5% of the total property value, those in Hawaii pay 13.4% and those in California pay 13.6%, LendingTree found.
The lowest average down payments are made by home buyers in Wyoming, Oklahoma, Utah and Tennessee, who put down between 11.4% and 11.7% of the total property value on average.
But those averages are not reassuring to mortgage industry members. Because mortgage originations are near their lowest levels in a decade, lenders are acutely sensitive to any plan that would make it harder for more homebuyers to enter the market. More than 5 million borrowers have gone through foreclosure since 2007 and are essentially shut out of the market for three to five years. Many lenders fear there are not enough purchases of new and existing homes to sop up the large number of distressed homes expected to hit the market in the next two years.
Lenders are worried that the so-called risk retention proposal in the Dodd-Frank law would erect more barriers for new buyers trying to enter the market. The proposal requires lenders to hold 5% of the credit risk of loans in any given pool of mortgage-backed securities. But mortgages that meet the proposed QRM criteria, including the 20% down-payment requirement, would be exempt.
The housing market faces many challenges and adding higher down payments would prolong the downturn, many lenders say.
Some borrowers are unable to resell their existing homes and buy another one because they either own more on their mortgage than their home is worth or have been unable to refinance because appraisals are coming in too low, Lebda says. (Changes made to the government's Home Affordable Refinance Program are expected to allow more homeowners to refinance next year because they would not require a new appraisal.)
"Right now you have buyers who can't buy and sellers who can't sell and financing that can't get done, and we just sit here and stagnate," Lebda says. "I'm pessimistic about Washington's understanding of the problems. We need real action from policymakers to clarify the rules on mortgages and to enable borrowers to refinance and maintain access to keep credit."