U.S. mortgage regulators made a wise decision last month to keep mortgage credit available to people of modest means, but Ireland may go in the opposite direction. Ireland’s central bank has proposed limiting most mortgages to those with a 20 percent down payment, but has recently signaled it may back off. Our friends across the pond are facing, in essence, the same question we just resolved. How many people are we willing to exclude from homeownership in an attempt to avoid repeating the mortgage bubble?
After several years of study, debate, and (of course) bureaucratic wrangling, six separate U.S. regulators decided not to impose a 20 percent down payment requirement as part of the new risk retention rules, but instead to align with the product restrictions in the qualified mortgage rule. NHC and many other coalition alliesin our un-ironically named Coalition for Sensible Housing Policy worked hard to clarify for regulators that high down payment restrictions do more to exclude responsible low-wealth borrowers than to reduce systemic risk (the best quantification of this tradeoff came from UNC’s Center for Community Capital). Simply put, having a down payment at all matters much more for the likelihood of default than how big the down payment is, and safe, stable 30-year fixed rate loans are far less likely to default than the no-doc, exploding rate loans eliminated by the recent qualified mortgage rule.
The housing crash and financial crisis hit Ireland even harder than the U.S. Property prices fell by more than 50 percent and the country coined a new term for abandoned, partly built developments: ghost estates. With that experience so recently with them, it’s no wonder Ireland’s financial regulator wants to prevent another housing bubble. U.S. regulators clearly felt the same way. But the Irish should take a page from our book and try to tailor new policy to keep out risky loans while allowing responsible households to take out mortgages, buy homes and help the economic recovery along.
Ireland’s Taoiseach (or prime minister) has already offered a plan to deploy government insurance to get around the central bank’s proposal and allow down payments as low as 10 percent, in part because he recognized that keeping people out of homeownership puts even more pressure on stressed rental markets. The comment period for the central bank’s proposal remains open, and I expect others there will weigh in before the new rule would take effect on Jan. 1. I’ve sent some of our work to fellow housers across the pond, along with hope and encouragement toward a path that keeps housing affordable for all.