Mr. Fratantoni stated, “The most important thing to look at moving forward is household formation. We had a period of decline as young 20-somethings moved back in with their parents and households doubled up. Now those people are turning to rentals, just as rents are going through the roof, which means market dynamics are favorable for a rebound in first-time buyers.”
Central to the panelists’ discussion was the impact of the Qualified Mortgage (QM) rule on lenders and consumers, as well as the implications of the pending Qualified Residential Mortgage (QRM) standards aimed at risk retention. In general, the panelists were in agreement that aligning the QRM standards with the recently released QM standards and ending an ongoing period of uncertainty would be most beneficial to the market.
Notably, panelists expressed concern that strict downpayment requirements as an element of the QRM rule would create a barrier for otherwise-qualified homebuyers, since coming up with a significant downpayment is the biggest obstacle for many first-time buyers, while not effectively minimizing the risk of default. As Mr. Calabria pointed out, “Delinquencies result from a number of factors, not solely the downpayment, but usually a combination of downpayment and very poor credit quality.” Mr. Fleming agreed with this sentiment, adding, “We have to understand there is a risk in not requiring a big downpayment, but mitigate that risk by making sure on the front end that borrowers have a good chance of making their mortgage payment even if something bad happens in their life, like a job loss.”
“There’s a level of fear that we’re creating what will become a standard in the underwriting system that makes it harder for consumers to get a loan,” noted Barry Zigas of the Consumer Federation of America. “We should be more concerned with consumer access to credit than a requirement for down payment. We have to weigh the benefits of these requirements against the cost to the system and decide how far we’re willing to go in closing off credit to many in order to prevent foreclosure for a few.”