Declining Markets

Mortgage and Lending with Century 21 Mortgage

Fannie Mae recently revised their declining markets policy.  In a nutshell, their terms are:

Maximum 97% Loan to Value (LTV) on conventional/conforming loans regardless of the market with their proprietary Desktop Underwriter (DU)/Automated Approval, and 95% LTV maximum financing if the loan is underwritten outside of DU (manually).

You can see this here:  Download the latest word on Fannie Mae's declining market policy

The issue is that while this is their latest word, it is not the last word.  One of the underlying issues that consumers don't understand is that when you take out a loan with a loan-to-value greater than 80%, in general, you will be required to pay some sort of mortgage insurance.  Why is that important?  Because, the mortgage insurance companies are the front-line losers when these loans go south.  So, many of the mortgage insurance companies have their own UNIQUE guidelines.  Further, they are not providing a grandfather period.  So, their guidelines are varied and dynamic and this puts a very high burden on all lenders.  If a lender makes a loan at 97% but cannot get mortgage insurance b/c of a change in guidelines they are very likely going to lose a large sum of money and in many instances this is too large a price to pay from a risk/reward scenario and your loan may not close.

My final tidbit of advice or commentary is the following - if you have 10% or less to put down as a downpayment, I would strongly recommend looking at an FHA loan as opposed to conventional (Fannie Mae/Freddi Mac) loan.  I believe in many instances, the overall cost will be less on a monthly basis and your risk of not closing will be all but eliminated.

As always, I'm very curious what everyone else has been hearing, seeing, and experiencing. 



Comments (13)

Rebecca Schrader
Competitive Insurance of Dundee - Dundee, FL

Good info Joe!  We started hearing about PMI problems over a year ago.  That business was really smacked hard.

Jul 11, 2008 04:20 AM
Jared Pomranky ~ Detroit Foreclosures
Urban Detroit Wholesalers - Detroit, MI

Do you still see a lot of people getting loans at above 80% with one mortgage?  My experience has been it's much more common place for buyers to get an 80/20 or in this case an 80/15 to avoid paying PMI.


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Jul 11, 2008 04:23 AM
Bryan King
Ascent Home Loans - Simpsonville, SC

You're right about the FHA aspect.  I specialize in FHA loans.  They take a lot of paper to put through, but they are good, solid, loans!

Jul 11, 2008 04:24 AM
Joe Kupiszewski
Century 21 Mortgage - Tallahassee, FL

Schrader, Inc. - Thanks for your comments.  MI Co.'s have been hard to keep up with to say the least.

Jared - Certainly 80/20's and 80/15's and everything else were the way to go.  I haven't heard or seen many of these lately - especially 80/20's - do you have a bank/lender/wholesaler who does these?  If you can find them, they are probably something worth considering - but the person holding the 20 is in the same position the MI companies are (see IndyMac's End or near end), thanks for your post.

Bryan - Great loan program to be specializing in, thanks for you post.

Jul 11, 2008 04:29 AM
Yvonne Curry
REMAX Preferred - Winslow, NJ

Well I completely agree; I had a loan that almost didn't close because of these guidelines and the transaction could have fallen through.  The loan officer had to switch the loan to an FHA loan which took and additional 15 to 20 days to close.  Luckily for all parties the seller waited.


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Jul 11, 2008 05:06 AM
Jared Pomranky ~ Detroit Foreclosures
Urban Detroit Wholesalers - Detroit, MI

Yes, I definitely haven't seen 80/20s lately.  I was just talking about any sort of 1st and second to avoid PMI.  I agree with you on the FHA loans as this is what I've heard more people going towards.


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Jul 11, 2008 06:02 AM
Joe Kupiszewski
Century 21 Mortgage - Tallahassee, FL

Yvonne - You are not alone.  I have heard countless stories of this happening.

Jared - I'm sure you can find some second money somewhere, the objection I hear most often is that many of these seconds are adjustable home-equity type loans.  After so many problems with the sub-prime mess and adjustable rate mortgages, most of my borrowers don't want anything to do with anything adjustable.  Yes, FHA has been very, very popular.  Our company is up something like 500% for FHA loans this year and it is only growing.

Jul 11, 2008 07:17 AM
Joe Manausa
Joe Manausa Real Estate - Tallahassee, FL
Tallahassee Real Estate

Good stuff Joe. Thanks for keeping us informed.

Jul 15, 2008 11:26 AM
David Lang
The Lang Team - Keller Williams Realty - Fort Myers, FL
Taking the stress out of buying and selling.

With any type of 80/20 combination, whether the 20 is a closed-end-second or a HELOC, the combined LTV is still 100% (or 95% with an 80/15/5);  Now you have guidline limits on CLTV with the second as well as the first mortgage.  Most of these guidlines won't allow for such high CLTVs anymore.

The 97% LTV FHA loan has become, many times, the loan of choice.  Also, as of Jan 1st 2007 PMI became tax deductible, giving the homebuyer less reason to do an 80/20 even if they could.



Jul 15, 2008 02:36 PM
Nancy Larson
I am a licensed referral agent in NJ - Hutchinson Island, FL

100% financing is a thing of the past. Personally I feel that everyone should afford the mortgage they are in. When I bought my house 35 ears ago, I didnt flinch at a 9% interest rate or 20% down, it was just the sign of the times.  WE need to come back to those times. When clients trusted their loan officers to give them mthe best loan for their needs.

Jul 15, 2008 04:03 PM
Joe Kupiszewski
Century 21 Mortgage - Tallahassee, FL

Thanks Joe and David for the comments.  Nancy, I couldn't agree more on your comments.  I can't count how many experienced buyers/Realtors/mortgage people have told me similar stories to yours.  Thanks.

Jul 16, 2008 01:54 AM
Bob Gammache
Carteret Mortgage - Smith Mountain Lake, VA

Joe- Excellent post! It is interesting to me that I have been "sheparding" all of my high LTV clients to FHA for the last several months. Smae page and all that!

Aug 19, 2008 05:51 AM
Joe Kupiszewski
Century 21 Mortgage - Tallahassee, FL

Thanks for the comments Bob.  Things are becoming even more difficult, especially if you live in one of the fab "four" states - aka - Florida, California, Nevada or Arizona. 

Aug 19, 2008 06:24 AM