Comments Due Today on the Future of Homeownership

Comments are due today (August 1st) on the proposed rules that would make twenty percent down the “new normal” for buying a home.

In March, five regulatory bodies proposed a new rule that would interpret the Dodd-Frank law on how to restore safety and soundness to mortgage lending. Dodd-Frank said that banks needed to be forced to retain some of the risk on their home loans. Dodd-Frank wasn’t very specific, but the law did say that the banks should have to have a five percent interest in any loan that doesn’t qualify as sound.

The interesting question, and one that was left unsaid by legislation, was how to define “sound.” The groups agreed that a down payment was perhaps the best means of working through this idea. The question became “how much” of a minimum down payment is necessary before a bank can jettison its five percent. The FDIC said twenty percent. Obama said 10 percent. Plenty of other people said 3.5 or 5 percent.

The numbers vary so much because the results go along way to determine the future of home ownership. If your priority is the deleveraging of the American household, as it is with the FDIC and the Federal Reserve, than a rule that says that people need to put twenty percent down is an effective means of meeting a latent goal. If you are an average family, twenty percent is a stratospheric number.

The Pew Center just came out with some amazing numbers about the changing dynamics of wealth in America. It turns out that some people have fared far worse than other in this “Great Recession,” and how you did might be somewhat coincident with the color of your skin. Today, median African-American wealth is just one-nineteenth of median white wealth. Incomes have grown closer, but the gap in wealth remains. The median African-American household (just as many above as below in terms of wealth) has just $5,677 (assets minus debts). That includes non-liquid assets, such as retirement accounts or a car. More than one-fourth of African-American households are worth less than zero.

It stands to reason that someone with no money at all should probably not own a home. But the math is somewhat bleak, even if you are white. Let’s say that you want to buy an average-priced home. That would cost about $200,000, on average, across the United States. This means that you need at least $40,000, plus closing costs, to buy a home. Hopefully you won’t cash out your retirement accounts or sell your car in order to do that.

Comments are due by the end of the day. Send a note to your favorite regulator. It isn’t hard to do. Their email addresses, along with the name of the “docket,” are here:

 OCC: Docket No. OCC-2011-0002 regs.comments@occ.treas.gov

 Federal Reserve: Docket No. R-1411 regs.comments@federalreserve.gov

 FDIC: RIN 3064-AD74 comments@FDIC.gov

 SEC: File Number S7-14-11 Rule-comments@sec.gov

 FHFA: RIN 2590-AA43 RegComments@FHFA.gov

 HUD: RIN 2501-AD53 via www.regulations.gov

You have to write the name of the docket and the words “Credit Risk Retention” in the subject line of the email. People all over the country are writing in their comments. It seems that concern for this idea is widespread. Enough people are upset about it that the agencies have already received far more than the normal number of comments.

If you are going to write to just one agency, I would suggest that you send your thoughts to the FDIC.