New Research: Requiring Large Mortgage Down Payments Would Hurt the Economy

As the nation continues to grapple with a weak housing market, policymakers are seeking safeguards to ensure that American families will never again face such massive foreclosures and billion-dollar losses of wealth. Some have suggested that the best guarantee against future housing crises would be to require down payment for many home purchases to be 10 or even 20 percent.

But after the Center for Community Capital and the Center for Responsible Lending analyzed nearly 20 million loans originated between 2000 and 2008, researchers found that while high down payment requirements might lower foreclosure rates somewhat, these larger down payment requirements would prevent a much greater share of credit-worthy borrowers from getting lower-cost mortgages. If mandated down payments were at 20 percent of a home’s purchase price, that requirement alone would exclude 75 percent of qualified African-American and 70 percent of Latino borrowers from lower-priced loans, or from becoming homeowners altogether.

By CRL’s estimates, the average American household earning $50,000 a year would need more than 10 years to save for a 10 percent down payment on a home. For black households, averaging $32,000 a year, the years needed to save would rise to more than 14 years to save for that same down payment.

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