FANNIE MAE, FREDDIE MAC POLICY REVERSAL ON "DECLINING MARKETS" - Tempered by Mortgage Insurers' Inflexibility!
PMI ISSUERS - NO CHANGE ON THEIR "DECLINING MARKET" POLICY!
When I was a kid, I remember my father telling me, time and time again, "If it sounds like too good a deal, it probably ISN'T!"
What is happening in today's mortgage market seems to reinforce this, yet again!
Since the beginning of 2008, Major U.S. Mortgage Investors Fannie Mae and Freddie Mac have created guidelines greatly curtailing loan approval in certain zip codes and market areas they consider "in decline." Few zip codes bear this label here in Chicago and in the suburbs - but there are a few.
Our Team had a deal in the West Rogers Park Neighborhood of Chicago, early last month.
All was clear with our Buyer Client's loan. The buyer had excellent credit, and an acceptable, but hard-fought 5% down payment. When his property appraisal came back with the "declining market" box checked by the appraiser, the lender, under Fannie guidelines, demanded the buyer fork over an additional 5% "declining market" down payment premium.
This demand was made by the lender the day before final loan approval was due per contract!
On his $400,000 purchase - that meant another $20,000 must be put down - IMMEDIATELY! I don't know about you and those you know, but for me - raising $20,000 additional down payment funds overnight is a pretty tall order!
The purchase failed to close!
It seems like the cavalry may be on the horizon, however!
Effective this Sunday, June 1st, Fannie and Freddie is suspending its "declining markets" rules indefinitely. Now, those applying for a loan as low as 3 percent could get that loan, if they meet other underwriting requirements - without worrying that many more thousands of down payment dollars will be required from them at the last minute.
Time to rejoice? Hardly!
Despite pleas from Fannie Mae and Freddie Mac Executives David Berenbaum and Brad German for others in the Mortgage Business to follow these new guidelines, major U.S. Mortgage Insurers are not following suit.
Private Mortgage Insurance (PMI) Companies provide loss coverage to lenders who issue loans for less than 20% down payment. Most have no plans to relax their tight "declining market" guidelines. Many, in fact, seem to be EXPANDING them.
Michael J. Zimmerman, senior vice president-investor relations for MGIC, stated his firm, the largest-volume Mortgage Insurer in the U.S., is "not contemplating any changes." MGIC, which reported a $34 million loss for the first quarter of 2008, has been hit hard by claims resulting from loan defaults and foreclosures.
MGIC recently expanded its list of distressed markets. It also eliminated or drastically cut back its mortgage insurance offerings for several types of low-equity loans. For example, MGIC will no longer insure condominium unit mortgages in Florida. It has also stopped insuring cash-out re-financings and loans on certain types of investment properties.
PMI Group, another major underwriter, has banned cash-out refi's or investor loans in areas on its own "distressed area" list.
Genworth Financial will not consider applications on second homes in Florida. Asked whether his firm might re-evaluate its declining markets policies in response to the changes at Fannie Mae and Freddie Mac, spokesman Terry Souers responded, "we will take them into consideration to see if additional steps are necessary."
AIG United Guaranty will no longer provide mortgage insurance to lenders on condos in hundreds of its "declining market" ZIP codes across the U.S.
The action of Fannie Mae and Freddie Mac to ease restrictions on high-leverage mortgages in all areas of the country has potential to get mortgage money into the hands of modest-income home buyers in geographic areas where it is needed most. Without support of the PMI Companies, however, many borrowers will have to instead turn to loans insured by the FHA, and have fewer borrowing options.
See Kenneth R. Harney's story in yesterday's Chicago Tribune for more info.
DEAN MOSS & DEAN'S TEAM CHICAGO
