Recently, Fannie Mae lifted it's Declining Market Policy (word that Freddie is soon to follow). This new update is
effective June 1, 2008 for all new underwriting submissions. Yipee! Yahoo! No more declining market hurdles to deal with!
In it's announcement, Fannie Mae will no longer require lenders to make a downward adjustment to LTV (loan-to-value) based on the location of the property. In other words, no additional 5% down is needed because Fannie is not concerned any longer with Decling Markets. It has, however, replaced the policy with a National Down Payment policy which reduces maximum LTV's for 1-unit primary residences:
- Fannie Mae withdraws their declining market policy effective 6-1-08
- Declining market policy is replaced by a "National Down Payment' policy which reduces maximum allowable LTVs for 1-unit primary residences
- 95% is the maximum LTV, CLTV, HCLTV for manually underwritten loans
- 97% is the maximum LTV, CLTV, HCLTV for DU underwritten loans, including MyCommunityMortgages® and Flex mortgages
Pretty exciting, huh?
NOT SO FAST...Don't start the loan submission frenzy just yet...
MI (Mortgage Insurance) Companies are not so quick to follow suit. In fact, they all have their own, internal version of Declining Market/Restricted Market policies. What exactly does this mean? Lenders are basically forced to keep the 5% reduction in place for areas designated as declining market because the MI companies dictate what they will insure and what they will not. On top of that, many lenders have their own internal policies as well, regardless of what Fannie or Freddie decide to implement. There are some lenders who will not open up the threshold, even if the major GSE's have loosened a bit. It is all about RISK.
So what does SAAVY have to do with any of this? If you are a Consumer or Realtor, you'd be miles ahead by making sure you team up with the SAAVY LOAN OFFICER.
The saavy loan officer knows what policies each MI company has in place and how the new Fannie changes are going to affect these guidelines. They also know what the lenders will allow and won't allow, based on their own internal guides.
The SAAVY LOAN OFFICER can get the deals done.
Case in point: Recently a client wanted to refinance his rental property because of a looming ARM ready to adjust. The problem was the property lost equity and was located in a declining market. (Yes, the Twin Cities--Minneapolis/St. Paul-- continues to be hammered with this not-so-wonderful designation.) His LO told him it could not be done. His loan-to-value was too high and the MI company would not allow for it..."You're in a declining market, you have a rental property and you are SOL." His real estate agent got wind of this and told him to give me a call. Maybe Sherri could figure something out for you. Within the hour I had him AUS approved and 13 days later, we all sat happily at the closing table. Why? Because I knew what each MI company is up to and know the guidelines. And I knew exactly what lenders I could take his scenerio to.
Janet Guilbault wrote a GREAT post recently called Romancing the Loan: Learn or Burn, Baby. It's a Different World Now. She talks about this point to a perfect "T".
On a final note, here is a link to one of the most recent lists of declining markets. Enter your zipcode on the far right side of the screen and press "enter". Are you in a Declining Market?
The "Saavy Loan Officer" and MN Mortgage Mom,
