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.
Hop into my skyline
Southeast Austin neighborhood hosts grand opening party for new 21-acre park
One of Austin’s newest and biggest green spaces is celebrating its official opening this Saturday, May 4. Situated in the fast-growing Easton Park neighborhood, Skyline Park is a new 21-acre park featuring views of – you guessed it – the Austin skyline, as well as a splash pad, open lawn, and two playgrounds. Located at 7800 Apogee Blvd., the design also showcases a bridge connection resembling the city’s iconic Pennybacker Bridge.
The grand opening celebration will take place from 1-4 pm on Saturday, May 4, and will include activities for all ages, local food and drink vendors, live music, and special remarks from Austin dignitaries. The event is sponsored by Brookfield Residential Properties, the home builder and land developer behind the 2,700-acre master-planned community at Easton Park.
Parents get stuck in traffic on the big version of this bridge, but kids will love the small one.Photo courtesy of Skyline Park
Brookfield’s regional president of Texas, Brad Chelton, will kick off the event with remarks at 1 pm, joined by District 2 City of Austin Council member Vanessa Fuentes. After the ceremony, guests can enjoy tunes from DJ Cassandra and headlining act CJ Sparks, or wander over to the pop-up market for snacks and family-friendly activities.
“We are excited for Skyline Park to provide Austin’s Eastside community with a vital space for play, events, and programming,” says Chelton via release. “Easton Park is one of the most amenity-focused communities in Austin and the park opening continues our commitment to building family-friendly spaces.”
According to the release, the park broke ground in August 2022, with construction of its two playscapes focused on creating a multi-generational amenity that is engaging, inclusive, and sustainable. While the senior play area is geared toward kids aged 5-12 and features interconnected and cantilever floors with city skyline viewxs from the top of a three-story tower, the woodland-themed junior play area for ages 2-5 showcases an interconnected tree canopy and forest cabin structures.
The park is designed in a series of pocket play areas.Photo courtesy of Skyline Park
Another highlight of the park is a hilltop kinetic wind sculpture, Singing Mountain, designed by local artist and architect Nicholas DeBruyne. With three angled steel and timber columns extending toward the sky, the sculpture creates beautiful and unique triad chords when wind strikes the surrounding 5,000 reflective stainless steel rods. The artist worked with local wind chime company Music of the Spheres to choose three complementary tones that make a harmonious chord when played together.
Saturday’s grand opening celebration is free and open to the public, though RSVPs are encouraged. Kids can enjoy free face painting and balloon twisters, while adults can get their braid or bling on at the bling bar. Epic Entertainment will also provide interactive, circus-themed performers including hula hoopers and stilt walkers for the party, and guests can enjoy an assortment of lawn games and a water balloon toss.
More information about the park is available at eastonparkatx.com.