So, you're thinking about buying a home. You haven't won the lottery, so you're going to use a mortgage. I hope you've been saving your pennies - 5 million of them. If regulators in Washington have their way, that's what it's going to take to buy an average-priced home in Austin.
Last summer, Congress passed a sweeping overhaul of the financial system called the Dodd-Frank bill. That bill created a new class of mortgage loans called "qualified residential mortgages" (QRMs). This class is important because the bill makes it harder for mortgage lenders to securitize any loan that is not a QRM, and securitization is the grease that makes the mortgage market work and keeps interest rates low.
The problem is the bill left it to regulators to define a QRM, and as regulators seem apt to do, they have made a mess of things. The proposed definition for QRM is a 20% down payment with other limiting restrictions. In Austin, to buy a $263,700 average-priced home, that means you would need $52,740 for the down payment.
Senators inserted the QRM language into Dodd-Frank in an effort to encourage less risky lending. But as with a lot of government meddling, the unintended consequences may be horrendous. Many industry pundits expect the QRM to become the new "conforming" mortgage, the loan product offering the lowest interest rates. Non-QRM loans are likely to have interest rates as much as 2% higher.
The real estate industry and consumer groups are united against this proposed definition. The Community Mortgage Banking Project released a report in March that analyzed 33 million home loans written between 2002 and 2008. The results showed higher down payments had a very small impact on mortgage defaults. Doubling the down payment from 5% to 10% only reduced the default rate by 0.2% to 0.3%, and increasing the down payment requirement to 20% would eliminate between 27% and 40% of potential homebuyers from eligibility for a loan.
Consumer groups point out that middle-class and minority borrowers would feel the greatest impact from the proposed definition. A recent study showed it would take the average consumer more than a decade to save the required 20% down payment in most parts of the country. Homebuyers unable to afford the minimum down payment would be considered high risk even if they have an otherwise stellar credit history.
The senators responsible for QRM recently wrote regulators advising them that they intentionally did NOT include a down payment requirement in the definition and they never intended the definition to be so strict. More than 160 House lawmakers also wrote to regulators stating that the "overly burdensome dictate could threaten a full-fledged economic recovery."
Regulators have responded to all this pressure by extending the comment period for the definition to Aug 1st. It is not clear whether regulators are having second thoughts, but at least this gives lawmakers, consumer group, industry representatives, and YOU more time to encourage them to develop a more reasonable definition.
If you have a mortgage question, please leave a comment below, and I'll address it in an upcoming column.
Not-so-happy news for Texans living in Austin – they're not exactly living in the happiest city in the nation, apparently.
A recent SmartAsset study ranked Austin the No. 65 happiest city in the U.S., based on an analysis of 90 large cities for their residents' quality of life, well being, and personal finances.
Austin has fallen far from grace after previously ranking the No. 20 happiest U.S. city in SmartAsset's 2022 report.
The latest study found about 45 percent of all Austin households make a six-figure salary or more, and only 10.5 percent of Austinites are burdened by their housing costs, which is one of the lowest figures out of all 90 cities in the study.
Austin has a marriage rate of 41.3 percent, and its residents have a life expectancy of 78.2 years old. The report also found that an Austinite has fewer than five "mentally unhealthy" days per month on average.
Most notably, SmartAsset says Austin has the lowest rate of traffic out of all cities that were analyzed – including Dallas and Houston – further proving it's not really that bad to drive on Mopac or I-35. At least we're not in Boston, which was deemed the most traffic-ridden city.
"Compared to the amount of roadway, Travis County has an average traffic volume per meter of major roadway [totaling] 137.7," the report said. "On the other hand, residents living in and around Boston, Massachusetts, in Suffolk County face the highest traffic volume per square meter of major roadway at 6,821.6."
There's still room for improvement, but it's not all doom and gloom for the Texas Capital. Besides the numerous new restaurants opening every week, Austin is also home to one of the best universities in Texas, and the city still has a thriving music scene and many community-focused events. Happiness is subjective, after all.
While money can't necessarily buy happiness, SmartAsset suggests that having a higher quality of life can influence a person's financial decisions, therefore leading to a greater probability of beneficial outcomes. Of course, that's assuming high financial literacy and strong money management skills.
"Depending where you live, certain quality of life factors, including metrics like life expectancy, infrastructure and the rate of marriage can ultimately impact your happiness," the report's author wrote.
Elsewhere in Texas, the Dallas suburb of Plano soared to the top as the No. 2 happiest city in the nation. More than half (52.5 percent) of all Plano households make a six-figure salary or more, and only 12.1 percent of residents are burdened by their housing costs. Plano's poverty rate is less than five percent, its marriage rate is 56 percent, and nearly 90 percent of Plano residents have health insurance.
Other Texas cities that earned spots in the report, that notably aren't as happy as Plano, include: Fort Worth (No. 38), Arlington (No. 47), Irving (No. 64), San Antonio (No. 70), Corpus Christi (No. 77), Lubbock (No. 78), Dallas (No. 80), Houston (No. 81), El Paso (No. 83), and Laredo (No. 89).
The top 10 happiest cities in the U.S. are:
- No. 1 – Arlington, Virginia
- No. 2 – Plano, Texas
- No. 3 – Fremont, California
- No. 4 – San Jose, California
- No. 5 – Seattle, Washington
- No. 6 – Boise City, Idaho
- No. 7 – Raleigh, North Carolina
- No. 8 – Chesapeake, Virginia
- No. 9 – San Francisco, California
- No. 10 – Anchorage, Alaska