On March 1, the Los Angeles Times reported that key U.S. financial regulators have agreed to a miniumum 20% down payment when financing a home. These mortgages would be exempt from the so-called risk retention standards for banks.
Buyers with less than 20% could face higher borrowing costs, or could be priced out of the market, altogether.
The Office of the Comptroller in the Federal Deposit Insurance Corporation have agreed on this rule. The Federal Reserve is in favor, also. All regulators are supposed to come to an agreement by late April.
There will still be some 5% down mortgages that could be waived for qualified mortgages with more responsibility for the banks holding these mortgages.
If this rule becomes standard, it may result in less homes being sold, but on the other hand, banks will experience less defaults and it will strengthen the housing market in the long run. It doesn’t help the real estate market when many people buy homes with very little money and only hope they can meet the payments.
We have seen, in the past few years, the thousands of homes that are in default and facing a foreclosure as well as those already foreclosed. When it is too easy to take on a debt like owning a mortgage, it becomes, in many cases, too difficult to hold on.
Making sure that buyers can truly live up to their obligations will help stabilize the real estate market.
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