Commentary: Ginnie and the new down payment proposal

BY LAWRENCE YUN
CHIEF ECONOMIST, NATIONAL ASSOCIATION OF REALTORS

Ginnie Mae turned over $1 billion in internal profit to the U.S. Treasury, according to its latest annual report.

Okay, great. But who is Ginnie, and who cares?

First, Ginnie Mae is not Fannie Mae or Freddie Mac. Ginnie Mae securitizes only FHA and VA mortgages and provides guarantee payments to investors of these mortgages. Because the premiums collected on FHA and VA loans are always more than sufficient to cover any defaults, Ginnie Mae never requested a single dime of taxpayers’ money and, in fact, turns over profit each year to the U.S. Treasury which reduces the overall federal deficit.

Interestingly, the FHA requires a very low down payment of 3.5 percent from borrowers. The VA loan is a no-down payment loan. This point is important in light of recent discussion in Washington related to what are known as QRM rules. This Qualified Residential Mortgage rule will, in essence, require a 20 percent down payment from home buyers.

This is a clear overreaction to the housing market bubble and collapse on the part of Washington lawmakers and regulators. What demonstrably works is for people to stay well within their budget. What does not work is loose underwriting that permits people to overstretch, or providing easy loans to people who have not demonstrated a history of financial responsibility.

Down payments are not and should not be an issue – as long as underwriting standards are sound. Yet, unfortunately, many people in Washington are trying to implement QRM rules to require a very hefty down payment.