That's the latest news being reported by the WSJ about the new proposal from Wells Fargo. The Dodd-Frank financial overhaul law is causing regulators to get busy with trying to meet the April deadline for issuing regulations. Not surprisingly, Wells Fargo is also proposing that with this new down-payment requirement, they would be exempt from the regulation that would require them to hold at least 5% of any mortgage that is securitized. Imagine that. "'A lot of originators just aren't going to do' loans that require risk retention" said Steven O'Connor, vice president for government relations at the Mortgage Bankers Association. The trade group's members include Wells Fargo.
As the largest mortgage lender in the nation, if Wells gets their way, others are sure to follow. Couple this requirement with predictions from JP Morgan that rates are to hit 7.75% and home values would have to drop approximately 35% to allow today's borrower to afford the same house in that scenario. Scary.
100% LTV loans (or 103%, or 105% for that matter) were a big mistake. And if you didn't question it at the time, we all realize that now. The fundamental principle of the markets was rocked when houses actually lost value for the first time nationally. But this seems like a severe over-correction. Of all the people I've sold a home to in the $100K range, I can tell you with great certainty that NONE of them had $30K to put down on a house.
If this regulation is passed we are in for a much longer recovery period that any of us had hoped for.
How do you see this affecting your business? Do you think it's a good idea?