In an attempt to prevent a recurrence of the lax mortgage lending culture of years past, there is now a push among government agencies and officials for regulations that would require a down payment of at least 20% for lower risk classified loans.
The Federal Reserve, along with the FDIC and the Office of the Comptroller of the Currency, is on board with a proposal that will require home buyers to make a down payment of 20% of a home’s sales price in order to be categorized as a qualified residential mortgage borrower. Another proposal would demand that a borrower keep a 75% loan-to-value ratio for refinances and 70% for cash out refinances where a borrower is granted a larger loan.
The proposals must be signed off on by six federal agencies, including the Federal Reserve, FDIC, and the Office of the Comptroller of the Currency, as well as the Exchange Commission, Department of Housing and Urban Development, and the Federal Housing Finance Agency. Once the proposal has been passed by all agencies, it will be released to the public for review.
The proposals being considered are ultimately aimed at improving home financing standards, subjecting non-qualified residential mortgages to strict risk retention rules, which will force banks to maintain five percent of the value of a mortgage on their books. The rule is meant to force lenders into a vested interest in their lending decisions, instead of leaving them free to lend to unqualified individuals and then package those loans into securities that are sold to third-party investors.
Keith Munsell 
