GSEs (Government Sponsored Entities) and MI companies have recently released soft market policies to protect themselves from high LTV/CLTV lending in areas that have declining values and/or have values projected to decline. The main purchasers of mortgages, Fannie Mae and GSEs (Government Sponsored Entities) and Mortgage Insurance companies have recently released new policies to protect themselves from high loan-to-value ratio lending in areas that have declining values and/or are in areas where values are projected to decline.
Real estate appraiser are required to indicate on their reports whether the property is located in such a market. If so, it is possible that the minimum down payment will be increased by 5 percent!
Soft-market areas are rated Category 1-5, just like hurricanes. A property in Catetory 4 or 5 will not be eligible for maximum financing. Category 1-3 loans must reduce maximum financing by 5% if the appraisal indicates a) Declining Market, b) Oversupply or c) Marketing time over 6 months. This rule applies to conventional loans only. FHA, VA and State Bond loans are not affected by this rule.
The Seattle/Everett/Tacoma area has markets listed in Category 1-3 but so far not in Categories 4-5.
What does this new rule mean for home buyers? It means Don’t count on your down payment until the Appraisal has hatched. You could be initially approved for a loan with zero or 5% down, only to find out later that your zero down loan needs 5% down, or your 5% down loan now requires that you cough up 10 percent!
Sorry to give you all one more thing to worry about.
