Just When You Thought Things Couldn't Get Worse For Obtaining Mortgage Financing

Like most people, you'd have to think things have gotten about as bad as they can get when it comes to the mortgage lending industry. Between all the new regulations, federal and state laws, consolidations, bankruptcies and the discontinuation of numerous mortgage programs, the next phase of restrictions is taking things to a different level altogether.

Effective January 15th, Fannie Mae (FNMA) is instituting a loan-to-value (LTV) reduction penalty for properties located in declining markets. What does that mean? Well, depending on where you live, it means it just became that much harder to get a home loan. How's that you say? Well, not only do you have tougher guidelines to qualify as a borrower for a mortgage, now the property itself is going to play a major role in how much money the borrower will need to close on the loan.

When the appraiser notes that the subject property is in a declining market (falling home values), FNMA will require the lender to apply the maximum financing policy before they will purchase the loan. This policy will require the maximum loan-to-value (LTV) ratio for 1st mortgages or the combined loan-to-value (CLTV) ratio for first and second mortgages for all properties located within a declining market to be reduced by five percentage points versus the maximum LTV permitted for the selected mortgage program.

So, let's say you only have 5% to put down on a new home purchase. If the appraiser notes the property is in a declining market based on recent sales in the area, you will either have to come up with an additional 5% or not be permitted to obtain your financing with that particular mortgage program. And, even if the appraiser does not note such a condition in his or her report, lenders will be using their own screening process to evaluate each properties value prior to their signing off on the loan commitment.

According to FNMA, lenders are urged to utilize resources and tools to validate current housing trends and not rely solely on the information reflected in the appraisal.  Suggestions include but are not limited to:

• S&P/Case-Schiller Home Price Indices
• Office of Federal Housing Enterprise Oversight Index (OFHEO)
• NAR's Statistics on changes in median price.
• Additional Comparable Sales Data (Note: We have already seen this happen with an increase to 5 total comparable sales needed per appraisal).
• Desktop Underwriting (DU) will now automatically evaluate properties for declining market status and notify lenders when a problem exists.
• The only exception to the new restriction is for borrowers with an existing FNMA-owned or securitized mortgage who are requesting a new limited cash-out refinance mortgage product.

So, if you thought you had headaches getting your borrower's credit approved, just wait and see what you are up against in order to get the property approved now, too.

Metro Mortgage Company is a federally regulated Mortgage Banker specializing in Conventional, Jumbo and FHA/VA mortgage loans throughout Florida.

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