Dan Gross/The Gazette Real estate agents say a federal proposal requiring 20 percent down payments for many home purchases could squelch the industry’s fragile recovery.

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A proposal by federal agencies to require homebuyers to plunk down 20 percent down payments or pay higher fees and mortgage interest rates would add yet another obstacle to a still “fragile” housing market, Maryland real estate agents and mortgage officers say.

“In today's world, it is difficult to save or accumulate that much money to purchase a home,” said Linda Simpson of Weichert Realtors in Rockville, district vice president for Prince George’s County with the Maryland Association of Realtors.

The proposal “will do little to reduce the risk of default and [will] strip homebuyers of their savings,” added Buzz Mackintosh, an owner and general manager of Mackintosh Realtors, which has offices in Frederick and Hagerstown. He is district vice president for Frederick County and Western Maryland with the state organization.

The down payment requirement is being proposed by the Federal Reserve, Federal Deposit Insurance Corp., Securities and Exchange Commission and three other agencies under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The idea is to minimize the risk of future home foreclosures, a key contributor to the Great Recession, officials say.

Borrowers with less than 20 percent down will face paying up to 3 percentage points more in interest rates and fees under the proposal.

The requirements are not designed to apply to the entire mortgage market, but only to the segment that is now exempt from risk retention, FDIC Chairwoman Sheila C. Bair said in a statement.

“Lenders can and will find ways to provide credit on more flexible terms, but only if they then comply with the risk retention rules,” said Bair, who is leaving the FDIC on Friday.

But the proposal is so stringent that 80 percent of loans sold to Fannie Mae or Freddie Mac over the past decade would not meet its requirements, Henry V. Cunningham Jr., a board member of the Mortgage Bankers Association, recently testified to a U.S. House Financial Services subcommittee. The organization believes that the regulations, “characterized by high down payment requirements and unduly restrictive qualifying ratios, is contrary to the explicit intent of Congress,” he said.

Maryland buyers have higher taxes and closing costs than those in most other states, Mackintosh said. “Most buyers I deal with don’t have 20 percent to put down,” he said.

About 77 percent of renters would be less likely to buy a home if they were required to put down 20 percent on a home, according to a survey released this week by the National Association of Realtors.

In Prince George’s County, which for years has had the state’s highest foreclosure rate, the market still is “very fragile,” Simpson said. “Any additional regulations such as additional money down, raising the credit scores or eliminating the mortgage tax deduction can knock the bottom out of our market.”

The Frederick market is still lackluster, but there is pent-up demand, Mackintosh said. The proposed regulations have created confusion that tends to keep buyers from acting, he said.

Each home sale acts as a multiplier, pumping thousands of dollars into the economy and creating jobs, Mackintosh said.

“By putting more stringent requirements on the real estate industry, that will only damage the economy,” he said.

After Maryland’s existing home sales rose in January and February from the same months in 2010, sales have declined in March through May. Agents and brokers largely blamed the recent drop on the federal tax credits of up to $8,000 that were offered through mid-2010.

Statewide, median existing housing prices dropped by 5 percent in May from May 2010, to $234,000. The median sales price climbed by 4 percent in Montgomery to about $357,000 in May, while falling 19 percent to $158,500 in Prince George’s and 8 percent to $244,000 in Frederick.

Interested parties can formally comment on the down payment proposal to the SEC and other agencies through Aug. 1.

kshay@gazette.net

Taking comments

A form to submit comments on the 20 percent down payment proposal to the U.S. Securities and Exchange Commission through Aug. 1 is available online at http://sec.gov/news/press/2011/2011-79.htm.