With Fannie Mae's new 5% LTV reduction penalty scheduled to go into effect tomorrow, I thought I'd post a notice we started receiving from many of the major wholesale lenders across the country this morning:

Effective January 15, 2008; a 5% LTV reduction is required on all conforming loan programs when the appraiser notes any of the following attributes: DECLINING MARKET VALUE OR AN OVERSUPPLY OR GREATER THAN 6 MOS MARKETING TIME. There will be no exceptions to this rule. THIS IS ESPECIALLY IMPORTANT FOR FLORIDA, CALIFORNIA, AND NEVADA PROPERTIES and ANY OTHER PROPERTIES EXPERIENCING DECLINING MARKET VALUES.

I posted a blog about this new rule from Fannie Mae (here) over the weekend.

Let the fun begin folks.

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Benjamin Dona, Broker/Owner
Gulf Coast Associates, Realtors
Metro Mortgage Company
Bonita Springs Real Estate | Florida Home Loans | Naples Real Estate

I think this is just the beginning of new rules that will be imposed on consumers as this mortgage crisis shakes out.

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Atlanta Real Estate

Hasn't this already been in effect for a few month already? I know at least in Tucson certain neighborhoods that fit "declining" status this is exactly how they have to be handled. When a home is in one of these neighborhoods it does make it tough

I started seeing this in November here in Connecticut. There are quite a few "risk based" changes that are going on right now. For me, the biggest thing that hurts is the restriction of DAP's for some lenders!!

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Andy Scherer
Senior Loan Specialist
Mortgage Trainer

In the 20 years or so I have been involved in mortgage lending there has never been a "mandatory LTV reduction penalty" for "conventional loan" programs based on FNMA's new criteria.

Before, if you got an appraisal marked "declining market etc", you had the opportunity to get additional comps from the appraiser and most lenders allowed for an expanded comp review zone around the subject property. If the appraiser could not justify what was happening in that particular neighborhood, the loan was declined. But, that was when the housing market was considered normal. Now, declining markets are everywhere and in many cases include large areas in some states. Here are some examples of states which many wholesale lenders consider to be in a high risk of decline: AZ, CA, CO, DC, FL, ID, ME, MD, MA, MI, NV, NH, NJ, NY, RI, VT, VA. Other states with numerous soft markets include LA, OH, RI, VA, and WV.

When you combine this new LTV reduction penalty with the low FICO Score penalties added to the interest rates and PMI, you are effectively making it almost impossible for many first time homebuyers to obtain financing. Basically, they are now in a position where they may be facing having to have an additional 5% down to qualify for a new loan. And, even though FHA is upping their maximum loan amount, you still have to deal with the county by county MSA loan amount limits. So, in many areas, that does not leave FHA as a viable alternative.

In addition, some of the major players are going even further. For example Chase is doing the following effective tomorrow (16th):

Maximum 95% LTV/CLTV requirements for all conventional loans. As a result, the 80/20 and 75/25 features are no longer available with the only exclusions being the "reduction of CLTV does not" impact the Chase DreaMaker Opportunity, MyCommunityMortgage™, and HomePossible® programs. These are 97% to 100% programs and have so many add ons and interest rate adjustments that they are not very competitive to begin with. For example, a 30 year $150,000 loan in the 97% DreaMaker program is at 6.5% + 0 points today assuming a 680 credit score or better. The rate goes even higher if you have a lower credit score.

Maximum 90% LTV/CLTV requirement for jumbo loans.

Minimum 660 FICO Score requirement for Jumbo loan programs.

No more non-traditional credit alternatives. You must have an actual credit report history.

Eliminating Alt-A programs which are for individuals with only minor credit problems.

The point behind all this is, it just got substantially harder for all types of folks to qualify for affordable financing and depending on where you live, the home you try to purchase is also going to play a major role in your ability to get the loan. The impact from all these changes are in no way going to help our sagging housing market.

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Benjamin Dona, Broker/Owner
Gulf Coast Associates, Realtors
Metro Mortgage Company
Bonita Springs Real Estate | Florida Home Loans | Naples Real Estate

I agree with that, the amount of buyers that can actually get a loan that allows them to buy a home is declining quickly, even as interest rates and home prices continue to make it more affordable to do so.

This will only put additional pressure on prices and sellers as less able buyers + more listings available= more pressure on prices to further decline

Benjamin - Ouch, that is a hit. The good news is that I think that we are finally pulling out of a declining market here.

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Ryan A. Martin - Windermere Real Estate / Whatcom Inc.

Your Bellingham real estate professional specializing in the listing and sales of Bellingham condos. Also check out my Anacortes real estate website for information about Fidalgo Island and Anacortes, WA

That, right there, is probably the biggest statement of truth that anyone could have made about this debate! Excellent post!

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Andy Scherer
Senior Loan Specialist
Mortgage Trainer