New Proposed Credit Rules Threaten To Disenfranchise Low-Income Buyers

June 8, 2011  |  

By Charlotte Young

After the housing industry crisis in 2008, there was a nationwide recognition that the credit rules needed to be changed. But the new proposed credit rules are threatening to shut down the home-ownership dreams for potential low-income buyers altogether.

the Department of Housing and Urban Development, the FDIC, the Federal Housing Finance Authority, the Office of the Controller of the Currency and the Securities and Exchange Commission.

Among many of the proposed regulations for “Qualified Residential Mortgages,” borrowers need a 20 percent down payment and debt cannot exceed more than one-third of the borrower’s income.

A combination of mortgage lenders, consumer advocates, housing industry officials and lawmakers have formed a coalition to oppose the rules.

Critics claim that minority and first time home-buyers will be charged higher prices to borrow money and families in high-cost markers will have to come up with more money to meet the 20 percent down payment requirements. The housing market will face a significantly smaller pool of potential, credit-worthy home buyers just as it’s struggling to recuperate.

Opponents also fear that the new rules would “create a two-tiered mortgage market.” Borrowers with larger savings will pay less as those struggling to save are faced with higher charges.

A JP Morgan report estimates the disadvantage could add up to about 3 percentage points, which could be the difference between an affordable mortgage payment or continuing to pay rent.

While the regulators gave no comment on the proposed rules, they have extended the comment period from Friday to August 1, in efforts “to allow interested persons more time to analyze the issues and prepare their comments.”

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