Down Payment Requirements…

For borrowers unable to make the 30% down payment requirement, it is suggested that mortgage rates might rise by as much as 3%.

Critics (including most other banks and lenders) believe this will lead to a large pool of loans subject to the five percent risk retention rule, greatly increasing mortgage rates. In fact, the MBA (Mortgage Bankers Association) believes rates could be as much as three percentage points higher on loans subject to the rule. It’s similar to how jumbo mortgage rates exceed conforming mortgage rates because there’s less of a secondary market for the non-conforming loans.

Some lenders believe Wells and other large banks would grab even more market share because they’d be able to keep the loans on their books long enough (two years) to sell them off without being subject to the risk retention rules. It looks like the originate-to-distribute model is in serious danger, significantly reducing mortgage competition that could translate to higher rates going forward. An addition and troublesome concern is the huge foreclosure inventory, which could take all that much longer to clear if down payment requirements and/or mortgage rates rise thus lengthening the recovery of the housing market.

May the market be with you.

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