Changes to Declining Markets Policy

June 4, 2008, 6:52, am By

Over the past month or so Fannie Mae and Freddie Mac have made a few announcements regarding maximum loan levels. For some odd reason I didn’t post these changes as they were announced. Perhaps I was distracted by other things going on. So, I want to share with you some of the major changes which have been announced recently and how it could affect your situation for obtaining a home mortgage loan.

The really major change is regarding declining markets. As you may or may not be aware the term declining markets entered our lexicon late last year. In fact I even wrote a post suggesting that while “subprime” may have been the word of the year for 2007, “declining markets” has a good chance of being the word of the year for 2008. The reason being that because Fannie and Freddie (along with mortgage insurance companies) announced that they would be automatically cutting 5% off the the maximum loan to value on any property determined to be in a declining market. Now Arizona has been deemed a declining market, so it affects all loans in this great state of ours.

What does this mean to you? Well all Fannie and Freddie loans cap out at 95% which means the borrower needs to put 5% down from his/her own funds. This maximum loan amount was cut back to 90% in declining markets. Which meant the borrower no had to put 10% down for the same loan.

Recently Fannie and Freddie have made some changes stating that they would allow 95% loans again. The problem is finding mortgage insurance companies willing to insure mortgages up to that high of a loan to value. We have developed a relationship with such a mortgage insurance company. Hence, moving forward we are able to do loans upto 95% under the following conditions:

  • Fixed rate programs only (fully amortizing)
  • $417K max loan size
  • Primary residence only
  • Purchase or rate and term refinance (no cash out refinances allowed)
  • 680 minimum credit score

This is only part of the full set of guidelines, therefore it is important to review this completely with your lender. So I will forewarn you that not all will qualify for this new higher loan to value. Additionally this is a lender specific policy, different lenders have different risk tolerance and relationships with different mortgage insurance providers. Do not take this as an industry wide guideline.

The other changes announced are regarding loan to value for investment properties and cash out transactions. But due to the fact that the Phoenix market is designated a declining market, the changes do not really affect anything for loans here. Meaning our terms are already more strict and we are required to follow the more stringent guidelines when making an underwriting decision.

Filed Under: Arizona, Mortgages, Phoenix, Real Estate Tagged With: , , ,

Mortgage Options Changing for Declining Markets

January 10, 2008, 10:42, am By

In the coming months you will hear a lot about “declining markets”. This is because both Fannie Mae and Freddie Mac along with all major mortgage insurance providers have introduced strict rules regarding such markets.

Staring January 15, all loans going to Fannie Mae will be subject to the decling markets guideline:

“Current home price trends indicate that home values continue to decline in many markets across the country. As a result, and based on our continued monitoring of loan performance, Fannie Mae is reinstating a policy to restrict the maximum loan-to-value (LTV) ratio and combined loan-to-value (CLTV) ratio for properties located within a declining market to five percentage points less than the maximum permitted for the selected mortgage product.”

“The reinstatement of the maximum financing policy and the other changes outlined in this Announcement are necessary in light of current market conditions. These policies are effective for all loans delivered with application dates on or after January 15, 2008.”

What this means to you is that if the appraiser indicates that the property is in a declining market then you may be required to put an additional 5% down. However, be aware that only MyCommunity and Flex loans are severely affected since until now we were able to do such loans upto 100%. Now we can only go upto 5% in a declining market scenario.

Does this mean 100% financing is no longer available? Most certainly not. Remember that FHA and VA loans are still around and neither agencies have any immediate plans to change guidelines. This is not to say they don’t care about potential falling values.

In fact both FHA and VA will be asking for detailed explanation in the appraisal on whether or not the property is in a declining market. But they neither program has indicated that they will then force the borrower to put more money down.

I know that most of Maricopa and Pinal county zip codes (Phoenix Metro area) fall with declining markets. While this does not disqualify you from 100% financing, make sure your lender offers FHA as a possibility (and VA if you qualify). With higher lending limits and competitive rates, these are certainly loan options you need to seriously consider.

Filed Under: FHA, Mortgages, Subprime Mortgages Tagged With: , , ,

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