A group of federal agencies is considering regulations (PDF) that would restrict a vast number of homebuyers from securing private home loans, unless approved for a “Qualified Residential Mortgage.” To meet this standard, homebuyers would have to have a whopping 20 percent down payment to get a mortgage. Homebuyers also can not have been more than 60 days late on a credit card payment in the past two years or spend more than 28 percent of their income on the house.
Failing to meet these and other tests means your lender will have to hold a certain percentage of your loan on their books, forcing them to charge you – the homebuyer – a much higher interest rate. So, you can either pay a higher rate, or go to the one lender exempt from these onerous rules: the government.
The rule – authorized in the ill-conceived Dodd-Frank financial act – creates enormous risk for taxpayers. Already, the Federal Housing Administration insures over 37 percent of all mortgages – up dramatically from a mere 7 percent in 2007. This rule would expose taxpayers to even greater risk by placing virtually every loan that the government considers "too risky" for private lenders onto government balance sheets. This puts American taxpayers on the line to bail out future, defaulting mortgages.
In a nutshell, the rule will force young, first-time homeowners, and all Americans that can’t pay at least 20 percent of a home price up front, onto a government loan. Just how many people would that be? In 2010, nearly three-quarters of homebuyers put less than 20 percent down. By exempting themselves from these regulations, the federal government is effectively undercutting the private sector, nudging Americans into government-run, taxpayer-backed loans.
Take Action Now. Write the federal agencies and demand that they stop trying to take over home loans.