Loans with risky product features such as high fees, balloon payments, low teaser rates, or interest-only or negative amortization schedules will automatically be ineligible for QRM status, as will loans that do not verify borrower income (so-called “no-doc” or “low-doc” loans). The Center for Responsible Lending (CRL) supports these restrictions. CRL is warns, however, against imposing a mandatory 10 percent down payment requirement. It argues that such a rule would exclude creditworthy families from homeownership, and would undermine the nation’s economic recovery by further depressing the housing market. The report documents the following five points:
Low down payment loans are not the same as subprime loans and have been successfully used to help families become homeowners for decades.
Arbitrary minimum down payment requirements would lock middle-income families out of the mainstream market and widen the wealth disparities that already exist between whites and communities of color.
The high costs of a 10 percent down payment requirement far outweigh sparse marginal benefits (i.e., a small reduction in default rates).
The benefit of down payments in reducing individual borrowers’ default rates could be counteracted by the toll it would take on the larger housing market and economy.
CRL concludes that while recognizing that down payments affect defaults, down payment thresholds should be set and priced by the market, not by the government. <CRL Report>