FNMA Fannie Mae’s “geography penalty”
Fannie Mae has announced that it is rolling back its rule requiring additional downpayments in areas that it deemed at risk of declining home prices. Freddie Mac has indicated that it is tempering a similar policy. The recent rule change discards a policy in existence since last December that insisted an additional 5% downpayment be anted up on top of whatever amount was normally required for that particular loan program if the property was in a zip code determined to be at risk of price declines.
The new Fannie Mae policy, effective June 1, once again allows it to buy or guarantee mortgages with downpayments of as little as 3 to 5 percent, regardless of geographic location. This will be a big help if you are a first-time homebuyer with a small bankroll. Until now, your only alternative for a low downpayment loan was one from FHA in so-called “declining markets”.
The rollback only applies to purchases of single-family primary residences. “Downpayment requirements will vary for other occupancy, property and transactions types.”
That means condos, second homes, investment properties and refinances will probably continue to be subject to more stringent requirements. Why did Fannie change its mind? Fannie says it is due to “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.”
What this means is that Fannie recognized its policy was punishing areas already struggling to stabilize their housing markets by reducing the number of potential buyers who could qualify for mortgages. The approach had been described as a “self-fulfilling prophecy.” Fannie says its new underwriting system will allow the smaller down payments by better limiting risk. © 2007, Real Estate Information Services, Capitol Assets, Choice Real Estate, Inc. & Choice Finance®
