New down payment rules could impact mortgage rates

Red jigsaw puzzle piece shaped like a house

If you’re looking to buy a house with a down payment of less than 20%, you might want to buy now, because federal bureaucrats are working on a new rule that would penalize lenders who make loans to folks like you.

And when lenders get penalized, you pay more -- in this case mortgage rates of somewhere between 0.80% and 1.85% more than you’d get in today’s market.

Current homeowners who want to refinance would pay more, too, if they have less than 25% to 30% equity in their home.

Six federal agencies are writing the rule as part of their interpretation of the Dodd-Frank legislation -- Congress’ attempt to clean up the housing mess.

The idea was that if you make lenders hold onto a small portion of their riskiest loans, they would stop giving loans to people who can’t pay them back.

Now all the agencies have to do is decide what’s a risky loan and what’s a safe loan, known as a "Qualified Residential Mortgage," or QRM in bureaucrat-speak.

The first draft of the rule says a safe home loan:

And a safe borrower can’t:

Saving that down payment will take you a scant 16 years, says the Coalition for Sensible Housing, a group of 44 consumer advocacy groups, real estate industry trade associations and lenders fighting to overturn the proposed QRM rule.

Even the people who drafted this portion of the Dodd-Frank law think the QRM proposal is a bad idea.

But these lawmakers said there's a simple fix: private mortgage insurance.

When they wrote the bill, they said, they expected the regulators would recognize that having PMI, which borrowers buy to cover the lender’s losses on bad loans, makes a loan safe.

Apparently, that didn’t happen.

The regulators are taking comments about the QRM rule until Aug. 1, and there’s been some indication the Obama administration will make the rule more reasonable.

If that doesn’t happen, and you don’t have a 20% down payment ready to go, be prepared to spend a little more each month.

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