Declining Market Retreat

Under pressure from industry groups, Fannie Mae is retreating from its policy of requiring higher downpayments in markets where house prices are declining. Starting June 1 the mortgage giant will begin purchasing 97% LTV loans again in declining markets, provided the loans are processed through Desktop Underwriter, its automated underwriting system. Fannie also said it will accept manually underwritten single-family loans with 95% loan-to-value ratios under its new policy that will equalize downpayment requirements nationwide. "We are able to adopt his new, national downpayment policy requirement, even in markets where home prices are declining, because our new automated underwriting risk assessment model DU Version 7.0 will limit risk-layering and assess each loan more precisely," Fannie senior vice president Marianne Sullivan said. The National Association of Realtors recently complained to Fannie and Freddie Mac that their declining market policies are contributing to price declines and "stigmatizing" entire metropolitan areas as declining markets. By dropping the extra 5% downpayment requirement, Fannie's "new policies will help stabilize the credit markets," said NAR president Dick Gaylord, and "encourage buyers to come back into the housing market." Freddie recently clarified its policy and urged lenders and appraisers to be more vigilant in assessing local market conditions before determining a property is located in a declining market.