WASHINGTON — Mortgage bankers and consumer advocates showed a united front Thursday against a proposed down-payment requirement in a new special class of mortgages, saying it will push the market too far in favor of the wealthy.
Regulators have said borrowers must make at least a 20% down payment and meet other criteria to receive a "qualified residential mortgage," a class of loans that will be exempt from a Dodd-Frank Act requirement that lenders retain at least 5% of the credit risk.
But while the banking agencies have said the QRM is meant as a limited exemption, the Mortgage Bankers Association and four consumer groups said the proposal risks creating a new model for home loans in which borrowers without the means for the high down payment will be penalized with costlier loans. They argued that data from loan product types is better than loan-to-value ratios as a predictor of performance.
"What we're really talking about is what the mortgage market will look like in the future and who will be able to buy a home," Kenneth Edwards, policy counsel for the Center for Responsible Lending, said at the joint press conference with representatives from the MBA, the National Community Reinvestment Coalition, the Consumer Federation of America and the National Housing Conference.
A coalition of bankers and housing advocates is unusual in the wake of the mortgage crisis. But the participants said that, given the potential impact of the QRM rule, their collaboration was a no-brainer.
"I'm glad to be part of this very eclectic group," said John Taylor, the reinvestment coalition's president and chief executive. "All biases aside, we're very right on this issue. … Coming from the very agencies who had the job and responsibility to prevent the kind of predatory lending that got us into this mess, we now get a solution that is going to constrict access to housing in a way that we haven't seen since the Jim Crow era."
The 5% risk retention and the QRM label were intended in Dodd-Frank to ensure better underwriting for loans sold to the secondary market. In the March proposal, regulators said that to meet QRM criteria, a borrower not only has to make the high down payment, but also has to comply with debt-to-income restrictions and retain strong credit histories.
Supporters of the narrow exemption say that the rules should keep risk retention as the norm, and that broadening the QRM category could overheat the mortgage market, as rampant lending did before the crisis.
But the groups at Thursday's press conference said Dodd-Frank never intended for QRMs to be rare, and said consumers who do not qualify will almost certainly pay more as a result. "Congress didn't direct the regulators to come up with a small exemption," said Barry Zigas, the consumer federation's director of housing policy. "The regulators have chosen to set the size of the box. Our view is the box should be set based on criteria that matter and have relevance to the challenge of meeting the test of creditworthiness."
"We really don't know what the price differential will be" between QRMs and non-QRMS, Zigas added, "and one of the concerns we have is that the market hasn't yet been able to explain it, partly because there are so many uncertainties."
David Stevens, the MBA's president and CEO, said the industry realizes homeownership overexpanded before the crisis, but that does not justify veering too far the other way, he said. "We all recognize collectively that too many people were pushed in or got excited about this overenthusiasm towards homeownership and … were pushed into unsafe and unsound mortgage products and bought homes that they shouldn't have bought," Stevens said.
"However, when you look at the alternative of going to the extreme in the opposite direction — creating a society of renters — that's going to put pressure on the rental markets."