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Effective Today Fannie Mae's Declining Markets Reinstated Guideline Takes Effect

Well, today is the day. Loan Applications dated January 15, 2008 or later may be subject to this reinstated regulation. Freddie Mac, VA and HUD have all posted similar notifications, making Fannie Mae the last one to the table on this issue. I'm finding that with a such a wide-based and undefined criteria, not all lenders are treating the regulation the same. Most lenders are ignoring Fannie Mae's recommendation that since real estate markets are local markets, and properties in one neighborhood may have stable values, while those in other neighborhoods may not. Fannie Mae Notice 07-22 states that if an appraiser stipulates on their appraisal report that a property is located in stable market, with adequate supporting documentation, a Fannie Mae Desktop Underwriting Decision that designates a property to be in a declining market subject to a 5% reduction in the maximum loan-to-value for the program may be rebutted.

Some lenders are designating all property in the State of California and Florida to be in Declining Value Areas, others are using Zip Codes to establish these areas, some use Metropolitan Statistic Areas and others Census Tracts. Depending on the number of properties included in these methods, chances are they are not differentiating between stable value neighborhoods and declining value neighborhoods. So, in the fearful environment lenders are operating in today, they blanket whole areas unnecessarily!

I'm contacting my lender partners to find out their position on this issue, and reconsidering my business relationships with lenders:

"Thank you for your message from last night, XXXX. I appreciate the feedback, and wish all lenders were looking at the "Declining Market Areas" as specifically as your company. Those lenders that are making the decision based on zip codes alone are subjecting properties in stable neighborhoods to this rule unnecessarily. Those lenders that will not consider Fannie Mae's recommendation in Notice 07-22 to consider exceptions AND are blanketing areas improperly are lenders I'm staying away from, as I don't believe that sending my clients' files to those lenders is in the clients' best interest. In this current market environment it is critical that brokers and lenders work togetherto serve the borrowers as best we can within the tightening criteria required by the secondary markets. Some of the steps being taken today will have long-ranging effects - such as eliminating many first time home buyers (a large demographic today, one that for the past decade plus FNMA, FHLMC, FHA & VA were trying to help) trying to enter the real estate market. Increasing their down payment requirements while forcing them to have to pay points to get their loans, merging entities and company closures thereby decreasing competitive interest rates are not the direction I believe is best for the consumer. Not all children of Baby-Boomers will be given free and clear property for their first home! Please understand, I am NOT in favor of assisting buyers with obtaining loans they cannot afford or loans that are not suitable tools to help them reach their homeownership goals. I have done maybe 6 sub-prime loans EVER, and they were to fulfill very specific criteria for educated borrowers. I will not miss these products, as I recommended against them 99.9% of the time. I will miss the stated income loan for the self-employed borrowers who had unusual circumstances, but whose cash flow could support their mortgage payments, and hope to see that product return for them - not the "liars' loans" - when the dust settles. My hope is that the secondary markets, regulators and elected officials will turn their attention toward educating borrowers, while establishing effective disclosure and education requirements for the lending industry - banks, thrifts and mortgage brokers alike - increasing accountability measures for those that do not comply. I'm getting off my soapbox now, and will look forward to working with your organization toward a mutually beneficial goal of providing sustainable, quality loans to borrowers."

I'll also continue to contact my elected officials as these Bills come up addressing the real estate and mortgage industries. As professionals, we all need to stay informed and engaged in the decision making process. Please join me in this process, and contact your lending partners and elected officials. Together, we can make a difference.

Karen Cooper - OR/CA Mortgage Consultant - www.Quality4Loans.com

Posted by Karen Cooper - Mortgage Consultant for OR/CA on 01/15/2008 01:48 PM

Comments (9)

declining value market, fannie mae, freddie mac, fha, va, hud, first time home buyer, karen cooper, quality home loans, ashland

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9 Comments on Effective Today Fannie Mae's Declining Markets Reinstated Guideline Takes Effect

JAN

2008

Declining market values, that is all I am hearing lately. Just got another one back from the bank. The bank wants the appraiser to do more comps and adjust accordingly. Holding the closing up another week. Truly frustrating.

Great post, Karen!

I am seeing the same thing from various lenders: some have made all of California a declining market, some have made certain counties, although the trend seems to be to make the whole state a declining market.

Nicholas - Although I've yet to have any of my transactions affected by the Declining Value Market, I'm hearing of others' that have been. Like you, I've had underwriters ask for additional comps to support values...had one file with 7 comps in it!

James - Hope they don't hit the whole State for the 5% LTV reduction AND target certain areas for more!

Thanks for commenting.

JAN

2008

The even worse part, is that even if you have a lender that is throwing out the 'declining market' response from their decision to approve or not, the M.I. companies are still adhering to it!
The problem will be more-so that you cannot get M.I. on these deals, even if you can get an approval from the lender~

G - guess we'd better add MI companies to the letter writing campaign! Thanks for commenting.

APR

2008

I understand that FNMA has new guidelines overriding desktop underwriting models in cases where a local appraiser determines the local market is not in decline. In fact, the appraiser might consider the subject property in a pocket of "non-decline" in a larger area of decline. True?

Karl - Fannie Mae's guideline states exactly what you understand. Unfortunately, most lenders and mortgage insurance companies have chosen to disregard this provision, and will not entertain exceptions. We need to contact our lender and mortgage insurance partners and press that the exceptions be entertained, because the all-encompassing policy they have embraced may be a simpler policy for them to enforce, but it penalizes many borrowers who should not be subjected to this ruling. Thanks for commenting.

We have sure been living this situation here in the south central valley of California the past few months. I wish the "powers that be" would consider neighborhood by neighborhood, but alas, I realize that it's a lot of work to accomplish. :( Meanwhile, I am diligently calling lending partners and finding out their criteria and 'moving on' to lending partners that are more realistic, that is time-consuming work.

My pet peeve is to have the borrower out the money for an appraisal that is virtually worthless to them and me! That in itself prevents me from "jumping" into a relationship with an unfamiliar lender. What's a girl to do?

I have always insisted with my appraisers to be sure to have 'solid' comps and this is getting much better where I'm at (as far as comp availability) but we still are named as a 'declining market' even though articles in the local papers seem to differ greatly from that opinion recently.

I was just speaking to a colleague and she was telling me that if she has a borrower that wants a high LTV loan, she tells them they will need 2 appraisals. She then orders an appraisal from two different appraisers. If the values match, she forwards the file on to her lending partner. She said she explains to her borrower how the situation is right now with the market and it is up to them if they want to take the risk of asking for a higher LTV, whether purchase or refi!

Good post Karen!

APR

2008

Kelly - Your area has been hit pretty hard by a lot of these rulings because there is a concentration of investor, interest only and subprime adjustables resetting. Doesn't look like the 5% LTV reduction will be going away anytime soon, plus the proposed centralized ordering of appraisals is likely to complicate transactions even further. It's a tough job we have these days, with the fittest loan officers surviving. Thanks for commenting.

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