OK so that kind of sounds funny!
This post comes from an article I received from Fannie Mae back in December 2007.
I have spoken to my preferred lender and we discussed the topic briefly. Really, it is just an incentive for lenders to employ additional tools and processes to validate housing trends and learn how to adapt to them. The way I look at it- people need to buy and sell Real Estate. This is just the way it is- this will never change. Are they sharpening their pencils yes- they should have years ago. Are the implementing new systems-yes. Doesn't mean people can't do 100% financing. Doesn't mean the market is crashing down around us!
DECLINING MARKETS- What are they and where?
Fact: The entire state of Colorado has been deemed a declining market!
Let's throw a party! Anyone up for a gin and tonic?
Fannie Mae defines maximum financing for properties located within declining markets:
"Selling Guide Part VII, Chapter 1, Section 103.02. Limited Cash-Out Refinance Transactions:"
When a property is located in an area identified as declining, Fannie Mae will now require the lender to offer financing at LTV and CLTV ratios that are five percentage points below the maximum ratios allowed for the selected mortgage product. For example, when the highest LTV allowed for a particular mortgage product is 100 percent, maximum financing highest LTV allowed for a particular mortgage product is 100 percent, maximum financing would be 95 percent if the subject is located in an area identified as declining (When the mortgage is subject to subordinate financing, the CLTV ratio for all outstanding mortgages is used for this purpose). Fannie Mae~
How to Determine Value?
"When the appraisal notes that the subject property is in a declining market, the maximum financing policy must be applied. When the appraisal does not indicate that they subject property is located within a declining market, Fannie Mae strongly urges lenders to implement processes and apply supplemental sources and tools to validate current housing trends and not rely solely on the information reflected in the appraisal." Fannie Mae~
Sources Lenders are Referring To...
- S & P/Case Shiller. This company relies on purchase price and additional information from the County Assessor and Recorders Offices.
- Office of Federal Housing Enterprise Oversight Index
- National Association of REALTORS - WHICH is Awesome that we are being depended on!
Lenders are now being extremely cautious when reviewing the appraisal. Which is great really! They are requesting additional support from appraisers- validating the information and truly taking an interest in the process. How is this bad?
DU- Desktop Underwriter usually will generate a message on loan files when a property is identified to be in a declining market. DU the requires additional information to be provided. OK sounds simple...
When receiving this message for requests of additional information, the LTV for the mortgage loan must generally be adjusted to five percentage points below the max for the specific product. However, if the lender receives the message from DU but has evidence that the property is NOT located in a declining market, the lender may offer maximum financing.
REALITY CHECK- Price homes correctly!
Re-finances don't apply when the borrower has an existing Fannie Mae product or securitized first mortgage and is requesting a new limited cash-out refinance mortgage.
For additional information visit Fanie Mae!
Respectfully,
Sarah Solomon
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