I really find it hard to believe that the amount of down payment does not affect the level of default. With enough equity, given decent credit, someone can potentially refinance. Without equity they don’t have options.
I agree that by increasing the amount of down payment you will lock a majority of potential homeowners out of the market. By reducing the number of consumers able to purchase, it would limit the ability for homeowners to move up, prolong the recovery, and possibly even worsen the current situation.
I think this section really points out the fact that a “Qualified Residential Mortgage” would mean a 74% Loan To Value and a credit score of at least 740.
“But for starters, Dodd-Frank states that the agencies must take ‘into consideration underwrting and product features that historical loan performance data indicate result in a lower risk of default,’ including:
- Documentation and verification of financials used to qualify the borrower
- Income and Income-to-payment ratios
- Mitigating payment shock on ARMs
- Mortgage insurance, other insurance, or credit enhancements
- Limiting or banning balloon payments, negative amortization, and other options known to increase the risk of default”
If the amount decided upon for appropriate down payment to become a “Qualified Residential Mortgage” is greater than 5% that will definitely increase the amount of FHA Mortgages originated.
