
Last week, however, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency and the Federal Housing Finance Agency (FHFA) agreed to relax the down payment obligation, so that consumers would no longer have to cough up 20% at the outset. A lender does, however, need to verify that borrowers have a favorable debt-to-income ratio, so that they can be reasonably counted upon to repay their loans. (If the borrower’s debt threshold is 43% or lower, the bank can similarly avoid having to take on that 5% risk, as well.) According to the FHFA, some mortgage companies—such as Fannie Mae and Freddie Mac—may even guarantee loans with down payments as low as 3%.
There are those who are critical of the federal government’s seemingly increasing involvement in the housing system; some fear that the recent officially-sanctioned mortgage leniency might bring about the same bubble-to-bust pattern that we saw after the lax borrowing and lending practices caught up with the housing market and brought it crashing down less than a decade ago. FDIC chairman Martin Gruenberg (as reported in the Wall Street Journal), however, is confident that the new regulation “’promotes compliance’ and minimizes costs for lenders by providing a unified federal standard for mortgage lending.” Likewise, Julia Gordon, director of housing policy at the liberal Center for American Progress confirmed that research has established that “low- down-payment loans to lower-wealth borrowers perform very well if the mortgages are well-underwritten, safe and sustainable.”
The new mortgage standard is scheduled to go into effect this time next year, and its influence on the economy will be evaluated regularly thereafter. According to a statement released by the FHFA, they believe that the implementation of this policy “means more clarity for lenders and encourages safe and sound lending to creditworthy borrowers.”