Fannie Mae is one of the two gigantic GSEs, or Government Sponsored Enterprises, that helps the nation's housing business by buying mortgages on the secondary market. By doing so it adds liquidity to the banking system and enables lenders to make more home loans. The guidelines for the loans it purchases are crucial to the process.
As the real estate market sailed arms swinging into rough seas, Fannie Mae started tightening the criteria for the conforming loans it would acquire for its huge portfolio. Just like private banks were doing, simply to deal responsibly with the increased risk.
One of the guidelines was the declining market "penalty" it instituted in December. What it means is that let's say a loan product requires a 5% down payment, then in a declining market an additional 5% is tagged on that for the extra risk, making it a 10% down payment mortgage. Las Vegas in Clark County for instance is currently considered a declining market, as are most counties in Nevada.
But Fannie Mae is about to reverse that policy. It is ready to announce in the coming days that it'll be discontinued altogether and that decision will go into effect in early June. While details are being worked out, this change will evidently apply only to single-family houses occupied by the owner. The reversal then leaves condominiums and townhomes still to be judged by the existing guidelines, as are second homes and investment properties. Those segments continue to be deemed more risky.
The about-face was largely the result of serious pressure from groups such as national and regional housing advocacy organizations, the National Association of Realtors and the National Association of Home Builders and of course Washington. The guideline, according to them, was far too restrictive and was putting extra strain on the already reeling real estate market, which is true.
The amendment might be also partly backed by the faint signs that the mortgage and housing markets are about as beat up as they will be. There have been no major banking crashes, or near crashes, recently and the real estate markets in some areas are stirring a bit, like here in Las Vegas. The decision makers may be counting on an about-to-happen road to recovery that would justify this move.
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