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Friday, June 27, 2008

Fannie Mae eliminates "declining market" downpayment.

Starting June 1, mortgage applicants who are underwritten by Fannie Mae's automated system online will qualify for 3% minimum down payments, wherever the property is located.

Borrowers whose applications require "manual" underwriting will pay 5% minimum down payments.

Under Fannie Mae's prior system, applicants buying in designated declining markets had to contribute 5% extra in upfront equity compared with borrowers in nondeclining market areas.

Freddie Mac's policy, which never employed a list of areas designated as declining, relied instead on lenders to flag applications using appraisal data or home price indexes. Freddie's policy also required 5% higher equity contributions upfront.

Critics, including the National Association of Realtors and consumer advocacy groups, had charged that Fannie Mae's policy served to further depress sales and real estate values in areas tainted as declining.

They also argued that many metropolitan markets experiencing price decreases contain sub-markets performing relatively well, and they do not deserve to be underwritten as high risk.

Fannie Mae's and Freddie Mac's policy switches should open the door to some additional low-down-payment mortgages -- and home sales -- in local areas once tagged as declining.

However, without the participation of private mortgage insurers, who report solely to stock market investors rather than to Congress, many borrowers will likely have to turn to the Federal Housing Administration, which accepts 3% down, does not have declining markets restrictions and whose loans can be purchased by Fannie Mae and Freddie Mac.

Source: Washington Post c/o NAR