As many of you already know, Fannie Mae’s “declining market” designation is going bye-bye as of June 1. From Mary Umberger’s column in the Tribune:
The policy typically added 5 percent to the down payment needed in 8,000 to 12,000 ZIP codes where home values were dropping. Many of Fannie’s critics saw it as a long-overdue dose of fiscal castor oil necessitated by too many shaky loans to borrowers who had little of their own funds on the line.
We debated the declining market designation here on Crib Chatter (as some of you thought that the near north side zip codes were NOT designated as declining markets.)
It’s all for naught now, as Fannie is abandoning it. Why?
Having to come up with 10% down was killing sales.
The real estate community was more blunt. It howled that the policy was killing deals, period. The National Association of Realtors complained in writing that basing policies on ZIP codes oversimplifies a micro-market situation. In other words, healthy neighborhoods were being stigmatized by their neighbors, it said.
So, just six months into the tougher rules, Fannie Mae has killed the declining-markets requirement. As of June 1, it will require minimum down payments of 3 to 5 percent on all loans it guarantees for single-family, owner-occupied properties.
The realtors love the change, of course. Easy lending means they can move more properties. And that’s the name of the game.
“I think it’s a good thing,” said David Hanna, president-elect of the Chicago Association of Realtors. “Credit continues to be too tight. Until the issues around financing and credit get resolved, we’re going to stay in this place where we are.”
Others said Fannie was caving to pressure. “We all know one of the critical factors in the rise in defaults was very low down payments, ” said Paul Kasriel, chief economist for the Northern Trust in Chicago.
He conceded that, yes, in the short term, the new policy might help move some houses–not exactly something he opposes, given that he has been trying to sell his home for more than two months.
But, he said, rolling back the declining-markets rule is chancy for Fannie.
“They’re taking on more risk, that’s the bottom line,” he said. “They’re acting in a way that appears to be one of the key factors that got us where we are now.”
But will it really ease the credit crunch? And what about the condo market?
There is still that little thing called “PMI” (or Private Mortgage Insurance). Remember that?
For condos, it seems the tight lending requirements may remain. From the Tribune:
Private mortgage insurers, who provide loss protection to lenders on loans with low down payments, have virtually all adopted highly restrictive policies affecting ZIP codes or metro areas they designate as distressed or declining.
MGIC, the largest-volume insurer, recently expanded its list of distressed markets along with a series of cutbacks on certain low-equity loans. As of Saturday, MGIC will not insure condominium unit mortgages in Florida. It has also abandoned cash-out refinancings and loans on investment properties.
PMI Group, another major underwriter, has banned cash-out refis or investor loans in areas it judges to be distressed. Genworth Financial will not consider applications on second homes in Florida. AIG United Guaranty no longer will write insurance on condos in hundreds of ZIP codes around the country.
The question will remain, are certain parts of the Chicago market “distressed” that buyers will still be required to pony up larger downpayments?
Where Fannie goes, PMI unlikely to follow [Chicago Tribune]
So much for ‘declining markets’ [Chicago Tribune]
