Wells Fargo has recently asked U.S. regulators to create a new standard for down payments. This standard would raise the conventional 20% down payment all the way up to 30% in order to cut back on lender’s losses when there is a default. If put in place this would raise interest rates for those unable to come up with the 30% down payment because they would be considered higher risk.

A lot of the housing industry does not like this proposed new standard and most feel it is much too high for the average buyer. Wells Fargo argues that about half of all mortgages “already have that big of a down payment”.

Personally I think 30% would be too high, however it might become the new standard because of one loop hole. The Federal Housing Administration (FHA) would be exempt from this rule, and loans with as low as a 3.5% down payment would remain available through an FHA loan. This would drive A LOT more business to the government and take away from private companies.

With this FHA exemption in place I can’t see why Wells Fargo would want to push the 30% standard because they would be potentially losing many clients to the government. However, a 30% standard would give banks an added bonus of charging mortgage insurance on loans with less than a 30% down payment instead of less than the current 20%.

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