MercoPress. South Atlantic News Agency

Controversy in the US over a 20% down-payment on home loans

The US home market remains stagnant with 13% of the housing stock empty

The United States mortgage market has gone and is going through rough changes. Many laws have been introduced regarding lending and borrowing and a new initiative is again triggering debate as to its effects on the mortgage market.

Many people have been defaulting on their home loans and as a result US federal bank regulators proposed last March that the mortgage lenders require minimum a 20% down payment on home loans.

Because of the US mortgage loan default crisis, the federal bank regulators have anticipated that lenders will require the borrowers to make 20% down payment on home loans. Only if the borrowers have the affordability to make the 20% down payment on the home loan, they may take out a mortgage according to their requirements.

However regulators have also said that they will wait until June 10 and any public comments on the issue are open till then. Regulators are expected to decide whether or not to introduce this regulation based on public comments.

Previously the US was the greatest economic power and people enjoyed the fruits of that good economic health. But as a result of the recession, the economic situation of the country and the people deteriorated so much, that people started to default on their debt payments including mortgage payments too.

The situation so far has not improved much. Not only because of the economic meltdown did most people default on mortgage payments as the mortgage lending rules were not that tough as they are becoming these days. Many people who originally did not have the required affordability to have access to a mortgage also defaulted on payments but so did those who could but faced a huge gap in the current market price of their homes and the mortgage originally contracted. All this obviously resulted in increased defaults over time.

So the mortgage market is moving from a period when lending rules allowed almost anyone to get a home loan to a period where access to a mortgage is becoming really tough. With imperfect credit score and credit report or low affordability level, access to contract a mortgage is becoming an uphill operation.

The US fragile real estate market is nearing a second downturn. In most places of the Union home prices are falling and a supply of homes is ‘flooding’ the market. The US housing price index shows that home prices have dropped another 4.2% in the first quarter of 2011. Moreover, 13% of the nation's housing stock is almost sitting empty with the number of homes heading to mortgage default increasing.

And if the 20% down payment proposal is finally introduced, a great number of people are bound to lose interest in buying homes and the real estate industry may be exposed to further suffering and uncertainties. More info can be checked at http://www.mortgagefit.com/