Reality Check: Why new housing requirements could force all mortgages to come from the Feds
(FOX19) - The Feds are proposing new rules under the Dodd-Frank bill that would put new requirements on lenders to prevent another housing crisis.
Before we get to that, how did we get in this housing crisis in the first place?
In 2002, the Bush administration urged Congress to pass the American Dream Downpayment Act, which subsidized the down payments of prospective home-buyers whose incomes were below a certain level.
Traditional mortgage loans with traditional safeguards began to decline and mortgage loans made under the "innovative" and "flexible" standards urged by government increased.
Yes, there were lot of lenders who were making loans to people who could not afford them, but don't kid yourself, Freddie Mac and Fannie Mae knew it was happening and supported it.
The Washington Post reported when the Department of Housing and Urban development or HUD "allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in sub-prime loans as a public good that would foster affordable housing,"
You know the rest. All those bad loans wrapped into mortgage backed securities led to the housing market crash.
To be clear, Congressman Barney Frank oversaw Freddie Mac and Fannie Mae as the housing crisis hit. In response to the housing crash, Congressman Frank and then Senator Chris Dodd introduced and passed the Dodd-Frank bill.
That bill sets new rules for lending to now protect the housing industry.
The bill is massive, 2,300 pages. Bankers expect it to result in 5,000 pages of new rules as regulators turn its mandates into specific instructions for financial institutions in coming years.
In that bill, is a proposal to require lenders collect a 20 percent down payment from home buyers.
In the event that you want to buy a $150,000 dollar house, hardly a mansion, you would have to come up with $30,000 dollars cash.
Who has that kind of money in savings? Not most Americans.
According to study on retirement savings, fewer than 57 percent of Americans have even $10,000 dollars set aside for retirement.
So will everyone be locked out of buying a home?
Not exactly, lenders will be able to make loans outside of the 20 percent down payment but would have to keep in reserves 5 percent of the total loan amount
Here's what you need to know.
All these rules apply only to private lenders and banks. They will not apply to any FHA or Federal Housing Authority loans.
FHA loans require at the most, a down payment of only 3.5 percent.
In fact, between 2005 and 2009, the FHA loan program grew over 900%
Which means if these regulations go into effect, the only place most Americans will be able to buy a new home will be if they fund it through the Feds.