Fannie Mae continues to trod where other lenders don’t dare to tread- they are no longer worrying about loaning in "declining markets":
WASHINGTON, DC — Fannie Mae (FNM/NYSE) today announced a new, national policy on down payment requirements for conventional, conforming mortgages the company will purchase or guarantee. Starting June 1, 2008, Fannie Mae will accept up to 97 percent loan-to-value ratios for conventional, conforming mortgages processed through its Desktop Underwriter® (DU®) automated underwriting system, and 95 percent loan-to-value ratios for loans underwritten outside of DU, in all geographic locations in the United States. The new national down payment policy will supersede the policy the company adopted in December 2007 that required higher down payments in markets where home prices are declining.
"As another part of our ‘Keys to RecoveryTM‘ initiative, we are today announcing that we will be equalizing the down payment requirements for borrowers in all parts of the country, regardless of local market conditions," Marianne Sullivan, Senior Vice President, Single-Family Credit Policy and Risk Management, said. "This new down payment policy reinforces our goal to support successful home-owning, not just home-buying, as we seek to bring liquidity to all communities and help the housing market recover."
The new national down payment requirements of 3 or 5 percent will apply to loans for purchase of single-family, primary residences. Down payment requirements will vary for other occupancy, property and transaction types. The company will implement systems and operational changes over the summer to accommodate the new national policy.
Three percent down in a market with sharp market declines means that many homeowners will find themselves underwater in less than a year. How will building the underwater mortgages of tomorrow help the housing market to recover?
I guess they want a bigger elephant.
http://news.yahoo.com/s/ft/20080509/bs_ft/fto050920081327143194
Igor says nohope
There’s so much wrong with that article, it’s hard to know where to start. But I’ll try.
1) Key’s to Recovery? Sounds more like they’re holding the keys to the jail, knowing uneducated or undisciplined buyers are willing to step into the cell. Fannie Mae is speaking of recovering their own assets, not about recovering the housing market.
2) No longer requiring higher down payments in markets where home prices are declining. Are you kidding me? Who doesn’t see the writing on the wall for this one? And how does that accomplish their stated goal of bringing liquidity to all communities? Aren’t they loaning money? The last time I checked, debt and liquidity are not the same. Neither are liquidity and equity. So how do you build liquidity by allowing loans with less equity in a declining market?
3) Two words: Desktop Underwriter. //shiver//
It sounds as if they have nothing to lose, and that they were apparently only worried for a little bit.
Loan guidelines are changing all the time in this market. Anyone who thinks they know all the facets of lending hasn’t checked the news lately:
http://www.foreclosureexpert.info/2008/05/sorry—that-wa.html
It sounds to me like someone must have told them at a high level that it was more important to be giving away money to people liberally than worrying about staying solvent. Either that, or their executives are really, really dumb.
Maybe the government let them know through back channels that they were too big to fail. Or maybe they know they will fail anyway, so they are trying to look altruistic so that when they go belly-up, they can plead that they were trying to help the American people, and strengthen their bailout case. Either way, I would certainly not want to own their stock after a move like this.
Seems evident that unless the reqirements are relaxed Fannie (and Freddie) won’t be making very many loans. Soon they’ll be writing them just like New Century, CWF, MAMU and all the rest. Only need to have a pulse to qualify. Got to get the market going again.
FNMA and Freddie still require Mortgage insurance for less than 20% down. FNMA has been getting the heat for the the declining market classification but until MI companies, MAGIC, PMI, RMIC follow suit this is just blowing in the wind. Mortgage insurance not delivered by FNMA and FNMA but is still will require for MI with loans less than 80% LTV.
What I hear is “Not so fast” FNMA!
>You are requiring MI on the loans, we the MI companies will adjust to the higher Risk you will accept and transferred back to us the MI Co’s by simply increasing MI Rates.
Oh yeah that pesky MI requirement. What the hell, watch that fall by the wayside soon enough. In the national interest Congress will relax that as well. All caution to the wind, full speed ahead!
You are correct Coffee, the M/I companies are still cutting back, and some of them will not even insure condos in some markets (Florida). Additionally, lenders are on the hook for Representations and Warrants so are unlikely to stick their necks out for free. Higher LTVs are likely to cost a lot in both rate hits and insurance. Probably a lot more than FHA which is why I don’t think FNMA’s pronouncement means much.
Mortgage brokers and of course the main stream press are oblivioius to these facts.
Julie 15th, 2008 the new MI rates come out. The 95 and 97% showing 3.5% 5 year insurance. All MI rates are going up. Thank you FNMA. The cost is transfered to all new “Hipotecarios”.