Fannie and Freddie Abandon “Declining Markets” Policy
In a followup to my previous post on February 5 regarding “declining markets” restrictions, it appears that Fannie Mae and Freddie Mac have reversed course and given up on this method, as Ken Harney reports.
Starting in June, applicants will qualify for 3-5% down payments in all areas, depending if their underwriting was done online or required “manual” underwriting. They will no longer penalize anyone by requiring 5% additional down payment money.
The change is welcomed by many as the main critique of the policy was that certain submarkets can are performing well that fall within an overall declining market. Supposed improvements in Fannie’s automated underwriting system allowed for the change and will allow lenders to assess individual properties and loans more precisely.
However, private mortgage insurance is still an issue as the major insurers are not budging from their declining markets approach. The option is to turn to the FHA (Federal Housing Administration), which does accept 3% down payments, does not have a declining markets clause, and can sell their loans to Fannie and Freddie.
Either way, it’s a positive step in the lending environment that has been nothing but trouble in the past year. This could help stabilize some markets.
