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.
![Quantcast](http://pixel.quantserve.com/pixel/p-XbYU6bNwx_qJ9.gif)
Texans may think everything here is bigger and better, but the Lone Star State has fallen behind many others in America when it comes to ensuring the academic success of its children, according to a new report by personal finance website WalletHub.
Texas landed a middling rank as No. 29 in WalletHub's annual "States with the Best and Worst School Systems (2024)" report, earning a score of 49.86 out of 100 total possible points.
The report examined all 50 states and the District of Columbia to determine the quality and safety of each state's public school system. Thirty-two metrics were considered in the study, including school graduation/dropout rates, standardized test scores, SAT/ACT scores, the number of school shootings, youth incarceration rates, and more.
Massachusetts is home to the No. 1 best public school system in the nation, earning a score of 74.36 points.
According to the study's findings, Texas has the sixth highest rate of bullying, and the eighth highest dropout rate in the nation. The state ranked No. 34 for its median ACT scores, and No. 40 in the nationwide ranking of median SAT scores.
Here's how WalletHub broke down Texas' ranking in other educational categories:
- No. 1 (binary) – Existence of Digital Learning Plan
- No. 18 – Math test scores
- No. 29 – Percentage of licensed/certified public K-12 teachers
- No. 31 – Pupil-teacher ratio
- No. 40 – Percentage of threatened/injured high school students
- No. 42 – Reading test scores
While securing enough public school funding is important for students' education, WalletHub analyst Cassandra Happe warns that "simply having more money doesn’t guarantee success." What school districts do with that money is what matters.
"How funds are applied also plays a big role in how good a school system is, as does the quality of educators, other professionals, and the curriculum," Happe said in the report. "In addition, schools need to focus not just on test scores but also on making sure that students feel safe, comfortable, and cared for.”
Despite Texas' bleak state ranking, Austin ISD’s Liberal Arts and Science Academy was ranked among the best high schools in the country earlier in 2024. Nine other Austin schools were included on the list of top 100 schools in Texas.
The top 10 states with the best public school systems are:
- No. 1 – Massachusetts
- No. 2 – Connecticut
- No. 3 – Maryland
- No. 4 – New Jersey
- No. 5 – Wisconsin
- No. 6 – New Hampshire
- No. 7 – Nebraska
- No. 8 – New York
- No. 9 – Virginia
- No. 10 – North Dakota