As of June 1st, Fannie Mae is changing it controversial policy of requiring an additional 5% down payment for home in designated as being in a “declining market”. Back in January, Fannie Mae changed its lending guidelines which had a major impact on Ventura County home sellers and buyers. Ventura County was on Fannie Mae’s list of declining market areas. Buyers qualifying for a loan program requiring a 5% down payment now had to come up with 10%. If the loan required 10% down, an additional 5% was added bringing it to 15%. Buyers and lenders switched en masse to FHA financing which allows up to 97% financing and does not require an increased down payment for homes in designated “declining market” areas.
What was particularly obnoxious about this policy was it did not take into account the extremely diverse nature of the cities making up Ventura County. Even worse was the danger of the potentially self-fulfilling prophecy of having been declared a declining market.
Effective June 1, 2008, any conventional conforming loans will require a 3% down payment if the Desktop Underwriter (Fannie Mae’s proprietary loan underwriting software) is used, and a 5% down payment if the loan is processed manually. This will be uniform across the country.
Will this have a significant effect on the Ventura County Real Estate market? For the near term—probably not. For loans of more that 80% of the purchase price private mortgage insurance will still be required and they have their own separate underwriting criteria. Current FHA loan limits are $729,750, same as Fannie Mae’s conforming limits under the Stimulus Package until December 31st, 2008. At the moment FHA is a more attractive option for many borrowers with less than 20% for a down payment.
You can read more by clicking here: Fannie Mae’s Single National Down Payment Policy Press Release.
One of the one that started the whole problem was Fannie mae. They should not of loaned what they did in the first place and we would have to worry about an over bought market to begin with.