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Federal Regulators Back Off 20%-Down Mortgage Requirement

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(A for-sale sign in the window of a home.  File photo by Tim Boyle/ Getty Images)

(A for-sale sign in the window of a home. File photo by Tim Boyle/ Getty Images)

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By Pat Loeb

PHILADELPHIA (CBS) — Bankers and affordable-housing advocates find themselves in rare agreement today over a change in a proposed federal mortgage regulation.

Both groups are happy that homeowners will not have to put down 20 percent in order to get a qualified mortgage.

Federal regulators had proposed the 20-percent down payment threshold to discourage lenders from giving mortgages to people who were likely to default.

This was a problem during the housing bubble, when lenders bundled bad loans and sold them. When the housing bubble burst, this practice was a key ingredient in creating the Great Recession.

Housing advocates say the understand why regulators want to avoid that from happening again, but requiring 20 percent down payments had unintended consequences for moderate-income earners.

John Dodds, of the Philadelphia Unemployment Project, says the 20-percent requirement was just too high.

“It’s too high for average people to come up with that kind of money — cash — to put down, so a lot of us were very worried that it would choke off the housing market and price people out of the market to buy homes,” he said today.

Dodds says there are better ways to measure the ability of an applicant to repay a loan.

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