Wells Fargo has a new hurdle for homeowners: a 30 percent down payment on a qualified residential mortgage (QRM)[1]. The FHA and the Department of Housing and Urban Affairs are working steadily to establish a firm set of new mortgage rules by the end of April, and Wells Fargo, along with other major lenders, are looking for minimum 20 percent down payments with Wells Fargo pushing for an additional 10 percent. The Dodd-Frank financial reform bill passed last year requires that the new mortgage rules make their debut by April 2011.

Critics of the proposal insist that these hefty down payments, for which buyers may have to “scrimp and save for years,” could shrink the pool of eligible homebuyers right out of existence or push prices so low that the market will never recover. Furthermore, they fear that such a move could potentially “kill the housing market and…derail the economy again as well.” On the other hand, if this does not happen, then the move could finally bring home prices back in line and send the economy on the road to recovery.

Bob Walters, Quicken Loans’ chief economist, believes that “from a credit standpoint…we’re toward the bottom of that cycle [of difficult homebuying]”[2]. However, he predicts that things are going to hover at the bottom for some time to come, particularly in light of new, stringent lending regulations. “You’ll hear a lot more noise pressuring the industry to ease guidelines,” he predicted. “And you’ll hear…that we don’t want a redo of what’s happened.”

Among mortgage reform proposals are a requirement that mortgage lenders maintain “skin in the game” by holding a minimum of 5 percent of the credit risk on loans. While the intent is to prevent repeats of risky lending practices, lenders are eager to work around this restriction, which prevents the bundling and wholesale of loans. The QRM would be an exception, and until the industry has a firm definition for this loan, uncertainty could prevent lenders from making loans and borrowers from even attempting to qualify.

Would you apply for a home loan right now?

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[1] http://www.boston.com/realestate/news/blogs/renow/2011/02/would_30_percen.html

[2] http://www.washingtonpost.com/wp-dyn/content/article/2011/01/07/AR2011010700003.html