How would a larger down payment requirement impact you?

I have written several posts in the past about the proposed rules being debated.  These new rules could impose down payment requirement of up to 20%.  This is not to say that one could not get a mortgage through FHA for lower down payments or that banks wouldn’t make loans for lower down payments.  However, these new down payment thresholds would determine the pricing of the loan.  So in order to get the best rate you would be looking at a minimum of paying a 10% down payment.  How would this impact you and your ability to buy a home?  If you already own, how much longer would you of had to wait?  Would this make you move on from owning a home?  These are all questions that are being asked.  Please check out this video and then share how this could or would have impact you.

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How the QRM will Change your Mortgage Loan

I have already done a series of blogs on my perspective of the QRM, but I wanted to share a post Adam Rust of BankTalk and CRA-NC did on the topic.  Below is a cross post of his blog.


This is a difficult time for American reporting. Most of America’s attention is shifting between the polar magnetism of Casey Anthony (see CNN’s “Essential guide to the Casey Anthony Trial“) and the debt ceiling crisis.

Left to progress under the radar is a substantial change in how Americans buy homes. You may have seen some reference to the qualified residential mortgage (“the QRM”) in the business section of your paper or perhaps from Bank Talk. The QRM is difficult to understand, in part because it is hard to explain what it means without going into a series of double negatives. But it goes something like this: banks will soon have to extract a down payment of at least twenty percent on any loan that they originate in order to avoid having to keep at least 5 percent of that loan on their books.

Banks don’t want to hold on to mortgage debt. The development of a secondary mortgage market solved that problem and it has changed the entire scope of how loans are now made. The QRM would change that in a sudden fashion. Normally, a bank sells a loan less than 90 days after closing. They are not interested in the interest – they write a loan in order to generate fees. Retaining five percent creates a liquidity strain, particularly for small banks.

The Senate Banking Committee held a hearing about the QRM earlier this month. This is an excerpt from one of the testifiers:

The respondent, Peter Skillern, is getting across a point that should be clear to everyone. Most Americans do not have twenty percent to put down on a home. If you live in any kind of big city, then the price of a new home is probably over $250,000. The average cost of a home across the United States fell from as high as $210,000 a few years ago to now a bit over $170,000. Even at the last price point, pulling out $34,000 plus closing costs is going to stretch a lot of people.

First-time homebuyers are a critical constituency, because they tend to be the ones that buy the houses that more well-off people are trying to sell. Think about it – it is hard to move up to a bigger home when you can’t sell your starter home.

Big Banks trying to advance Payday in NC and beyond

This may be news to some people who think payday lending is just small loan sharks who set up shop in poor neighborhoods, but big banks are in on the game as well.  Wells Fargo has a Direct Deposit Advance product which allows for up to a $500 advance based on your next direct deposit.

Sounds familiar doesn’t it.  The payday loans that people equate to loan sharks in poor neighborhoods operate the same way.  Well Fargo is not alone.  Other banks like US Bank and Fifth Third are also in the game.  Wells Fargo is trying to push this product in NC where payday is illegal.  To find a way around state laws, they are pushing the OCC to create a framework which would legitimize the product and allow then in states where payday is illegal.

The wells product depending on the length of time between your next direct deposit has rates between 78 and 391%, while US Bank and Fifth Third’s rates range between 143 and 521%.  These are insanely high rates for loans that will trap people in the cycle of payday.

The OCC is currently taking comments from the public  on this and groups like the Community Reinvestment Association of NC (CRA-NC) are weighing in.  Adam Rust of banktalk fame on behalf of CRA-NC has already submitted comments.  If you are opposed and want to submit your own comments, the OCC provides instructions here.  The more people and organizations that follow the lead of CRA-NC the more likely we will be able to push back this latest attempt to advance payday.

Finance companies finally have their day

Today in the House Banking Committee the finance companies finally had their day.  House Bill 810 was thrown on the calendar yesterday at the last moment for a committee vote.  I think that it was planned this way.  The bill sponsors and the committee chair did not want the Military to be in the room and did it this way to make that happen.

The vote was pretty much along party lines with the a 15-6 vote for a favorable report out of committee.  The one Democrat who strayed was a bill sponsor.  I have to say that I am disappointed in Rep. Kelly Alexander, Jr.  This was an opportunity to stand up to industry and continue NC along the path of being a great state for consumer protections and being against predatory lending.

I was confused by his logic to support the bill.  When he spoke today, he kept going to the point about these loans being a way for people to access credit and that we should not be taking away that option.  Somewhere along the way the industry has confused him on the point of this bill.  In no way were opponents of this bill saying to banish these loans.  This bill wasn’t even about that.  The point of this bill was to increase fees and change the bracket structure for interest rates.  Increasing the levels that interest rates applied to and raising fees is simply away to make more money off the customers you already serve.

Rep. Alexander never once addressed that in any of his statements.  I am not sure where he made the connection between his logic and the point of the bill.  I don’t want to call the man incompetent, so I will just say he is confused.  What made me the most angry about his statements were his comments about the poor.  He rightly mentioned how the poor are the people most affected by this bill.  However, he was wrong in saying that the poor were not represented in the room.  There were countless advocacy groups in the room all who are opposed to the bill.  He made a statement about the poor not being organized and not having a voice.  The last time he checked there wasn’t an organization representing the poor.  I guess he forgot about groups like the NC Justice Center, Community Reinvestment Association of NC, Center for Responsible Lending, NC Housing Coalition, Action NC and other groups that were in the room.

He clearly doesn’t pay attention to what happens in his own district (Mecklenburg County) if seriously thinks the poor do not have a voice. Or maybe he thinks these loan companies are the voice of the poor since they service them.  Regardless, I found his statements about the poor and support of this bill troubling.  I hope that the people in his district make him realize more than ever that the poor have a voice.

I do think in all this that the advocates made a calculated mistake.  I don’t think that so much emphasis should have been put on the military opposition.  While that was important, I believe it would have been more effective with the voices of all the other groups against it.  However, even with that being the case, I cannot understand how a bill opposed by every consumer advocacy group, military, AG’s office and the Department of Justice could make it out of committee.  The only groups supporting this bill are those who are set to increase their profit margins on the most vulnerable people in the state.

My final thought on the issue deals with consumer protections. Some of the supporters of the bill spoke about this being a step in the right direction for consumer protections in this industry.  There was a small provision in the bill that makes it illegal to push customers to a new loan before they have paid off their current loan by 50%.  I think that is a good measure.  It slows the process of these companies who like to up sale and refinance their customers into bigger loans.  Seriously though, how can you combine that with a rate and fee hike and still call it consumer protections?  Since when does raising rates and fees equate to consumer protections?  Aren’t consumer protections supposed to protect consumers from predatory practices like that?

Hopefully, people come to their senses when the bill hits the floor and stop this bill in its tracks.