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Published: December 2011

5% risk retention for lender should not mean 20% down payment on mortgages for buyers

Coalition: QRM Comments

Consumer Action's Deputy Director of National Priorities Ruth Susswein sent a letter to the Federal Reserve Board asking for a modification to the Qualified Residential Mortgage (QRM) rule so that middle class families are able to afford a home.

Below is the full text of the letter:

We write to ask you to modify the proposed Qualified Residential Mortgage (QRM) rule to ensure that families of moderate means will be able to enter the home buying market in the future.
Consumer Action fully supports the five percent risk retention requirement that imposes a minimal level of responsibility on lenders to reduce the amount of risk-free, irrational lending that some firms engaged in. The five percent requirement helps to dissuade the sale of poorly underwritten loans and requires financial firms to have some stake in a loan’s performance. “Safe” loans that are entitled to exemption from the five percent requirement rightly prohibit risky terms and practices such as ‘no-doc’ loans and prepayment penalties.

However, the proposed rule goes too far in requiring down payments of up to 20% on “safe” QRM loans. A 20% down payment requirement will exclude large segments of moderate to middle income families from purchasing a home. This is likely to affect communities of color disproportionately. We do not believe these were the intended outcomes, but we do expect that they will be the results. QRMs are likely to set the standard for the mortgage marketplace leaving a good portion of the home buying public with unaffordable rates, making a home purchase unavailable to many.
Consumer Action urges regulators to substantially reduced the down payment requirement while continuing Congress’s mandate to diminish risk and inject some fnancial consequence for lenders in the mortgage process.

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