Declining Value Markets – the value of my house could do what!?!!??
Investors/Lenders across the country continue to tighten lending guidelines — the newest (and possibly most painful) development is that of designating certain counties as “Declining Value Markets.” Simply put, if a lender or investor is concerned that properties in a certain area are steadily and/or rapidly going down in value, they may want to reconsider how much of a mortgage they are willing to approve for that specific property.
Fannie Mae and Freddie Mac have declared certain areas as “Declining Value Markets” over the past months, but some lenders have taken it upon themselves (in a pro-active protection of their pipeline of loans) to add even more counties to their list. In most cases, for properties located in one of these designated areas, a reduction in the loan to value of 5% is necessary — in other words, the borrower has to put down 5% more than what the normal loan guidelines would require. Add that to 100% financing disappearing and 97% possibly close behind, and a designation of a declining market could mean a minimum of a 10% downpayment for some borrowers.
To make (mortgage) matters worse, some investors — one comes to mind in particular who I have vowed to never use again — have declared counties as a declining market value, effective immediately with very little or no warning to mortgage brokers. (They seemingly “forgot” to notify mortgage brokers about the change in policy. Nice, right?? . . . if only there were a way to communicate important information in mass to a designated group of people or customers).
So, even though the words “Declining Market” were previously only used when talking about million-dollar shacks in California and gold-rush style real-estate prospecting condos in Florida, the term is (unfortunately) too close to home.
So what is your house really worth? It depends. More next time.
Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.