Wednesday, June 8, 2011

Isakson: Federal Regulators’ Plan to Require 20 Percent Down Payment
from Highly Qualified Homebuyers Will Devastate Housing Market

WASHINGTON – U.S. Senator Johnny Isakson, R-Ga., on Tuesday again warned regulators that their plan to require a 20 percent down payment from highly qualified homebuyers for the newly enacted Qualified Residential Mortgage will devastate the housing market and prolong economic recovery in the United States.

Isakson, who spent more than three decades in the housing industry, worked with Senators Hagan, D-N.C., and Landrieu, D-La., to include a provision exempting Qualified Residential Mortgages (QRM) from a provision in last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act that requires originators to retain at least a 5 percent interest in loan pools, known as “risk retention,” sold to investors. Their provision was intended to ensure that highly qualified homebuyers have access to affordable home loans.

The financial regulators who are preparing to implement this provision have proposed that homebuyers must come up with a 20 percent down payment in order to qualify for the exempted mortgages.

“If a 20 percent down payment requirement for highly qualified homebuyers is put in place, it would be a second hit to what is already a very fragile U.S. housing market,” said Isakson. “It is critically important that when you pass regulation that the unintended consequence does not cause a bigger problem than the one you are trying to correct. The unintended consequence of this proposed rule would create lower demand in the housing market, perpetuate declining housing prices and a cause a continued protraction of the worst housing recession in the history of the United States of America.”

Isakson commended regulators for extending the comment period on its proposal from June 10, 2011 to August 1, 2011 due to “the complexity of the rulemaking and to allow parties more time to consider the impact [of the rules].”

In May 2011, Isakson, Landrieu and Hagan led a bipartisan group of 39 Senators in urging federal regulators to avoid restricting credit to middle class families working to own a home. The full text of the letter can be read here.

On Feb. 16, 2011, Isakson, Landrieu and Hagan sent a letter urging the FDIC, the Secretary of Housing and Urban Development, and the director of the Federal Housing Finance Agency to adhere to the framework designed in the legislation for the Qualified Residential Mortgage.

On February 17, 2011, Isakson expressed similar concerns to Sheila Bair, chairman of the Federal Deposit Insurance Corporation (FDIC), during a Senate Banking Committee hearing.