Will 20 Percent Down Cure Or Kill The Housing Market?
For home buyers, it looks like the gravy train is finally over.
The idea of actually putting down a substantial down payment has come to seem like a quaint notion, a throwback to a time when every suburban family had a station wagon parked in the driveway.
I bought my house Natick back in 2002 with 3 percent down – and I hardly was unusual.
Well that’s about to change – and big time.
There’s a lot of hot air about giving the boot to federally controlled mortgage giants Fannie Mae and Freddie Mac. Of course, the Obama folks are letting Congress decide how to do that.
Wow, now there’s a prescription for quick action.
But tucked into the overhaul plan is a proposal to rework what the standard mortgage will look like.
And one key tenet of the proposal – which the feds can put into action without congressional approval – involves raising the minimum down payment to 20 percent.
Bankers and federal regulators have spent months hammering out the outlines of the so-called Qualified Residential Mortgage.
In fact, Wells Fargo had wanted to push it to 30 percent, but apparently did not win out. Obviously, that would have been good for the big banks but bad for smaller banks and mortgage companies.
Anyway, 20 percent down is nothing to sneeze at. It would certainly thrust the mortgage market back to an earlier era - the 1980s if not all the way back to the 70s.
And it’s coupled with another big change that would really hit the jumbo mortgage market hard, especially in the pricey Boston area.
Starting this fall, Fannie and Freddie won’t be able to buy mortgages larger than $625,500 – down from $730,000 currently.
That might sound like a lot of money out in Oklahoma, but not around here, where, if you are lucky, it will get you a fixer-upper in Newton.