Economists' Outlook

Housing stats and analysis from NAR's research experts.

Low Down Payment Mortgage Risk?

One of the benefits of living in the Washington D.C. area is the free national museums. There is no such thing as a free lunch, so aside from charitable gifts, the nation’s taxpayers are footing the bill. A taxpayer subsidy can be justified if the service or product provides societal benefits well beyond the individual visiting the museums. Such societal benefits come in the form of a better awareness of American sacrifices and the simple appreciation of hard work by average Americans to make this country great.

I encountered the following plaque during my stroll through the American History Museum on a recent weekend:


Note the importance of “no-down-payment” mortgages in the building of the middle class families. Nearly all these families became successful homeowners with little foreclosures.

Today, we are crossing our fingers on a QRM (Qualified Residential Mortgage) regulation that may impose 20-percent down payment requirements starting next summer. Regulators are reviewing comment letters and doing analysis to come up with minimum down payment requirements. Most certainly we need to avoid another housing market bubble and a subsequent financial market crash. However, the underlying source of the housing market bubble was about lax or non-existent underwriting standards and not really about down payment, in my view. Anyone with a heartbeat could pretty much get a mortgage well beyond the person’s budget.

Let’s do a simple scenario of who would more likely be a successful homeowner:


Washington regulators will hire Ph.D. economists and statisticians and try to build fancy econometric models to run analyses to see which family will succeed. Everyday Americans with an abundance of common sense already know the answer. It would be most maddening if the regulators in the end come up with a new rule of 20 percent minimum down payment to obtain a mortgage, as initially proposed.

Click here to view NAR's comment letter to regulators regarding QRM.

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