In an exclusive interview with HouseLogic, Rep. Dennis Kucinich (D-Ohio) explains why he joined a housing industry coalition in opposing a federal regulatory proposal, known as the qualified residential mortgage, that would require home buyers to make a 20% downpayment to purchase a home.
Matt Dornic: Why are you asking regulators to reconsider this proposal?
Dennis Kucinich: I believe that having a stable and safe place one can call home is the foundation for being a well-adjusted and productive member of society. The Great Recession and the massive foreclosure epidemic left millions of American families bereft of the stability that a home provides. It’s also left our country reeling. The U.S. Census Bureau reports that the home ownership rate is 65.9 percent, the same as in 1998, which means that over thirteen years of gains in home ownership were wiped out by a crisis that began 5 years ago.
In addition, two million foreclosure notices are projected to be filed in 2011, and home prices have hit new lows in most metropolitan areas in the U.S.
Together, these statistics tell us that the definition of qualified residential mortgage, which is yet to be finalized, could have a tremendous impact on the future ability of many middle-class Americans to achieve the dream of home ownership.
MD: Supporters of the proposal suggest that a 20% downpayment rule is a fair way to determine a buyer’s creditworthiness. How would you respond to that?
DK: The financial crisis of 2007-2008 showed us that there are flaws in the model of home ownership promotion that we must address. We have two goals: One is to continue to promote sustainable home ownership.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act was designed to help address the second goal: Reduce the number of “bad” mortgages made by lenders. It imposed a requirement that mortgage lenders keep 5% of the risk on their own books even as they sell off the loans to other financial institutions. The purpose of this rule is to force lenders to care about their borrowers’ creditworthiness, something they didn’t do nearly enough of over the past decade.
However, regulatory agencies have also included a requirement that a lender can be exempt from the 5% rule if a prospective borrower puts down 20% or more of the loan amount up front.
The 20% downpayment requirement risks excluding many moderate- and middle-income borrowers from achieving the dream of home ownership. That’s why I signed on to a letter to numerous federal agencies tasked with defining the qualified residential mortgage. The letter urged the Federal Reserve, the Federal Deposit Insurance Corp., and four other agencies to consider a lower downpayment requirement with mortgage insurance as a relevant factor in creating the definition of qualified residential mortgage.
MD: How do you think the rule should be revised?
DK: Regulatory agencies have rightly proposed that QRMs include loan terms and practices that have been shown to be less likely to end up in default. But they must craft a set of rules that promote maximum home ownership for all eligible Americans, while simultaneously imposing a return to a “plain vanilla” QRM that doesn’t allow for the predatory gimmicks of the last decade that left entire neighborhoods across America hollowed out.
The financial crisis reminded us that the biggest factors affecting whether a borrower can reasonably and responsibly take out a mortgage loan are core issues such as employment, interest rates, the cost of mortgage insurance, the amount of downpayment needed, and the borrower’s credit history.
Would you be able to afford a 20% downpayment? What do you think of this regulatory push to have borrowers put more skin in the game?