Your MN Mortgage Mom's Blog

There has been much disturbance currently about the consequences of the designation of Minnesota and the 11 county Twin Cities Metro area (as well as Pierce and St Croix counties in WI) as a "Declining Market".  Yes, our state recently "earned" that label.  Along with this designation comes more challenges for Loan Officers, Buyers and the entire Real Estate Community.

We are now faced with further guideline tightening and LTV restrictions.  Lenders are looking at us like we are the plague (okay, that is a bit of an exaggeration) and every appraisal is scrutinized under a microscope.

Is your state, county or community also falling into a declining trend?  This is going to become critical.  We may all need to address the potential anxiety out there and provide expertise to help our home buyers and educate them on what their local housing market is facing and the loan options that are available. 

With the additional attention and focus on the sub prime crisis and problems with Countrywide/BofA etc. there is a lot of emotional energy being churned up throughout the marketplace and RE industries.  The emotions are reacting to a situation that makes a difficult set of circumstances even a bit more challenging. 

However, there are clear opportunities right in front of us.  We can still get the job done with FHA, VA and Rural Housing and, in many cases, the FLEX conventional programs.  True ZERO down loans will be harder to do, but we can accomplish nearly the same thing with these other products.  Optimism and expertise will help our buyers get the job done. 

In a nutshell, here are the changes that are affecting markets that are declining:

• LOAN-TO-VALUE RESTRICTION: The basic change involves an increase in downpayments by 5% in declining areas.  Loan products, which typically allow for 100% financing, will now need 5% down (95% LTV).   Loan products now at 95% LTV will require 10% down and an LTV of 90%.  See this link, from Fannie's website, which explores these changes in more detail: https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/pdf/declmktsmaxfinfaq.pdf  

• APPRAISALS AND VALUATION: More detail on valuation and the nuts and bolts of this designation: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2007/0722.pdf   

• MIDWEST BEING HIT HARD: This is a general information article about this issue: http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=AP&date=20071217&id=7951026   I wonder about the ranking of Minnesota in third place here, I think the losses in Florida and California far exceed ours, but Minnesota losses are more widespread... 

Where is the optimism?  Well, we are seeing more activity (Minneapolis and St. Paul) among borrowers seeking to get started in the home buying process.  That is good, very good.  Moreover, this whole environment means that Loan Officers who can sell, articulate, and close FHA loans will be much more valuable. Now is the time to ensure LO's are knowledgeable and experienced!  The landscape of mortgages is changing rapidly and there will be no room for those that do not educate themselves and become EXPERTS in the loan programs that will prevail in this market.  

FHA will be the best option very soon.  I am already seeing this in almost every pre-approval I do.  We need to emphasize how, with some family gift money and seller paid costs, buyers can get into their new homes with comparable financial impact and out of pocket funding as before.  

GET EDUCATED, STAY ON TOP OF YOUR MARKET AND MAKE SURE YOU HAVE PARTNERED WITH A GREAT FHA APPRAISER.   WE REALLY CAN SURVIVE THIS HOUSING MARKET STORM!

UPDATE...Be sure to check out more great information and the Black List in Is Your City in a "Declining Market" Part 2.  Want to check an area by zipcode lookup?  Check out Is Your City in a "Declining Market" Part 3.