Feds’ New Mortgage Rule: Here We Go Again

Peter Wallison points out the feds’ new, you-only-have-to-put-5%-down qualified mortgage rule will have the ironic effect of making housing less affordable to low-income consumers rather than more so:

Consider this: If the required down payment for a mortgage is 10 percent, a potential home buyer with $10,000 can purchase a $100,000 home. But if the down payment is dropped to 5 percent, the same buyer can purchase a $200,000 home. The buyer is taking more risk by borrowing more, but can afford to bid more.

In other words, low underwriting standards — especially low down payments — drive housing prices up, making them less affordable for low- and moderate-income buyers, while also inducing would-be homeowners to take more risk. [Emph. added]

via Feds’ New Mortgage Rule: Here We Go Again | Bankstocks.

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