May 16, 2008

Fannie To Drop Blanket Policy, Roll Out Tighter Underwriting Algorithm

As of June 1, Fannie Mae will drop its blanket "bigger down payment in declining market policy" as it rolls out a new algorithm to better screen loans at the individual level.

Under the new policy, borrowers approved by Fannie Mae's automated underwriting program will be able to borrow up to 97 percent of the value of their homes, the company said. Other loans will be accepted with loan-to-value ratios of up to 95 percent, the company said.

UPDATE: Bloomberg "Updates" and adds the bit we were looking for (and a plugged-in reader already found):

Borrowers will still need to find mortgage insurers that will accept the loans...[as the] companies are required by law to have borrowers who want to put less than 20 percent down obtain private mortgage insurance from companies such as MGIC Investment Corp. and PMI Group Inc., which have been tightening policies.

Fannie Mae to Drop Down Payment Rules in Worst Areas [Bloomberg]

First Published: May 16, 2008 6:30 AM

Comments from "Plugged In" Readers

Wow, great news for homeowners! Loose lending policies are back!!!

Except for this minor detail:

"Borrowers will still need to find mortgage insurers that will accept the loans, said Brian Simon, senior vice president at Mount Laurel, New Jersey-based mortgage bank Freedom Mortgage Corp.

The companies are required by law to have borrowers who want to put less than 20 percent down obtain private mortgage insurance from companies such as MGIC Investment Corp. and PMI Group Inc., which have been tightening policies."

Good luck with that!

"Hi this is Fannie Mae calling. It's not US who are denying your 3% down loan, Mr. Irresponsible Knife Catcher, it's those nasty Mortgage Insurance Companies. I guess, either way your loan is denied, but we will no longer be taking the blame for it. Have a nice day."

Posted by: tipster at May 16, 2008 6:56 AM

^ Link to article from which the first quote was lifted (which explains that the changes are in response to objections that FNM was redlining).

http://www.bloomberg.com/apps/news?pid=20601087&sid=alg.WNzJ2awM&refer=home

Posted by: tipster at May 16, 2008 7:02 AM

although I agree that there are still considerable headwinds to relaxing lending guidelines, I would not rule them out entirely.

everybody seems very interested in keeping RE valuations aloft, including/especially THE GOVERNMENT.

It makes NO SENSE from a business perspective to allow higher LTV's in a declining market. And yet Fannie will do it because of Government pressure.

it also makes NO SENSE for the big mortgage insurers to cover properties in these locales. However, there is govt intervention here as well. Perhaps the govt will force the mortgage insurers to insure, or it may set up it's own GSE to do it

a lot can happen where there is govt intervention/manipulation. don't discount it.

a lot of policies are being created by financially ignorant policy-makers, encouraged by financially-interested parties (like the NAR, the NAHB, and so on). Their entire goal is to get back to RAH RAH real estate, no matter what the consequence is to the rest of the economy. (like "zombie banks" in Japan as example)

Posted by: ex SF-er at May 16, 2008 8:20 AM

In declining markets at least 5% will now be required. That may not fix everything instantly, but it is a start in the right direction. It also eliminates the 3% loan application scenario that tipster wrote above.

Posted by: Mole Man at May 16, 2008 8:20 AM

Excuse ALL CAPS contributor, but the government recently had a principal reduction plan get shot down. Principal reductions do not support higher prices, but help push the market lower. The bill was something of a mess and the use of government money made people angry, but turning around and LYING about it in order to make things fit your NARRATIVE is just plain EVIL.

Posted by: Mole Man at May 16, 2008 8:23 AM

Are you really trying to say that obtaining insurance would be absolutely prohibitive? Man. Some of you folks should just write fake offers on some property in order to have a better grasp of the material you constantly write about on the Internet.

Posted by: fluj at May 16, 2008 10:21 AM

but turning around and LYING about it in order to make things fit your NARRATIVE is just plain EVIL.

huh? I never said anything about the principal reduction plan. and I never lied about anything. I spoke about the fact that the government may intervene in the markets, and thus we must be careful about negating the effect of Fannie's change of tune, as the private mortgage insurers could in theory be replaced by a new GSE.

The VERY EXISTENCE of the GSE's (fannie/freddie) is proof of government intervention in the housing market. (like the caps?). Fannie/Freddie have access to lower cost of capital because of the implicit government guarantee, whether or not the guarantee actually comes to fruition. Ginnie Mae has an EXPLICIT government guarantee.

government also is allowing Fannie and Freddie to lend more money by changing the capital reserve requirements set by OFHEO (a government organization). this increases the amount of "liquidity" in the mortgage market. the aim is to get this liquidity to borrowers so they can purchase homes (again, keeping prices up)

The U.S. Senate Banking Committee yesterday agreed on legislation that would overhaul regulation of Fannie Mae and Freddie Mac.

government is also allowing the Federal Reserve to intervene in the Bear Stearns debacle, and now the Federal Reserve is being allowed to hold MBS and other mortgage related securities through its various lending facilities.

This is all GOVERNMENT intervention in the MORTGAGE market. ALL of it is with the intent to avert a massive foreclosure cascade and housing collapse.

there are many more examples of govt intevention into the housing arena.

Principal reductions do not support higher prices, but help push the market lower
are you serious? principal reductions allow people to stay in their homes who otherwise would get foreclosed-upon. foreclosure leads to lower prices. therefore, averting foreclosure helps to keep prices up.

Posted by: ex SF-er at May 16, 2008 10:23 AM

Governments always interfere with markets sooner or later.

Posted by: fluj at May 16, 2008 10:28 AM

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