BluefoxToday blog : Fannie Mae to drop previous guideline

Fannie Mae to drop previous guideline

 Fannie Mae is one of the two gigantic GSEs, or Government Sponsored Enterprises, that helps the nation's housing business by buying mortgages on the secondary market. By doing so it adds liquidity to the banking system and enables lenders to make more home loans. The guidelines for the loans it purchases are crucial to the process.

 As the real estate market sailed arms swinging into rough seas, Fannie Mae started tightening the criteria for the conforming loans it would acquire for its huge portfolio. Just like private banks were doing, simply to deal responsibly with the increased risk.

 One of the guidelines was the declining market "penalty" it instituted in December. What it means is that let's say a loan product requires a 5% down payment, then in a declining market an additional 5% is tagged on that for the extra risk, making it a 10% down payment mortgage. Las Vegas in Clark County for instance is currently considered a declining market, as are most counties in Nevada. 

 But Fannie Mae is about to reverse that policy. It is ready to announce in the coming days that it'll be discontinued altogether and that decision will go into effect in early June. While details are being worked out, this change will evidently apply only to single-family houses occupied by the owner. The reversal then leaves condominiums and townhomes still to be judged by the existing guidelines, as are second homes and investment properties. Those segments continue to be deemed more risky.

 The about-face was largely the result of serious pressure from groups such as national and regional housing advocacy organizations, the National Association of Realtors and the National Association of Home Builders and of course Washington.  The guideline, according to them, was far too restrictive and was putting extra strain on the already reeling real estate market, which is true.  

 The amendment might be also partly backed by the faint signs that the mortgage and housing markets are about as beat up as they will be. There have been no major banking crashes, or near crashes, recently and the real estate markets in some areas are stirring a bit, like here in Las Vegas. The decision makers may be counting on an about-to-happen road to recovery that would justify this move.



Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 12 commentsEsko Kiuru • May 18 2008 12:06PM


That happened here in Orange County, CA.  We were designated a declining market so there was a few problems with some of the escrows with 5% down.

Posted by Adam Brett, The Adam and Eric Group, Fullerton's Finest (The Adam and Eric Group) almost 12 years ago
Here in Houston we weren't too effected by that change but any reversals will be well accepted. Its a starting point.
Posted by Frank Marta, Texas Home Loan Specialist NMLS#: 245813 (Nuhome Group, LLC NMLS#:835196 - Houston Tx | Mortgage Broker| 713-373-0345) almost 12 years ago

All of central florida requires 10% down payment unless you go through FHA which is only 3%. So most everyone that can conform to staying under a loan limit of $354,000 has been doing that. This will help open up a whole new market :)

Posted by Heather the Realtor Orlando, Lake Mary, First Time Home Buyers, Bank Owned Homes (LemonTree Realty) almost 12 years ago

Esko as Heather stated FHA is one option around the declining market designation for Condo's and Multi-Family properties.  But even if Fannie Mae reverses it's position on single family it may be to late because PMI Companies have joined in the act.  Even if Fannie is willing to back the loan, PMI Companies might not insure it.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 12 years ago


The policy affected wide areas of California, just like Nevada.

Posted by Esko Kiuru almost 12 years ago


Anything to help the borrower qualify is good news.

Posted by Esko Kiuru almost 12 years ago


FHA is a good alternative nowadays.

Posted by Esko Kiuru almost 12 years ago


The PMI issue is a good point in this.

Posted by Esko Kiuru almost 12 years ago

Thanks for the update... I've never seen so many guideline changes over such a short time period... it's getting pretty hard to keep up with them.

Posted by Chuck Willman, Utah Homes (Utah Homes) almost 12 years ago


You are right, it's a wild, wild west out there currently. Constant changes.

Posted by Esko Kiuru almost 12 years ago

Esko--- Unfortunately, George hit the nail on the head.  There is not a single PMI company out there who is signing on for this.   So June 1 wont mean anything for those in soft markets.   Fannie is going to have to consider a pool like FHA.

Posted by Aaron Gordon, Home Loan Consultant - Las Vegas, NV (Branch Manager) almost 12 years ago


Hopefully a solution is found sooner rather than later.

Posted by Esko Kiuru almost 12 years ago