Fannie Mae is expected to announce Friday (today) that it is scrapping a policy requiring higher down payments on home mortgages in areas where house prices are falling.
In a letter to the Realtors last week, Freddie also said that it is applying the policy flexibly. For instance, if appraisers can demonstrate that home prices in a given neighborhood are stable or rising even though values are falling in the wider metropolitan area, the declining-markets policy doesn’t apply.
I am undecided as to whether this is good or bad in the long run. In the short run, it’s probably good. Short-run thinking is one of the (major) ways in which we got to where we are today – having buyers “buying” houses with 100% loans who didn’t have any “skin in the game.”
But … many buyers now, while having great credit and job histories don’t have the cash to put down.
This lending market makes advising clients almost impossible. Should the sellers accept a 95% loan? Should they not? Should they wait for a 90%? What if they accept a 95% and roll the dice that by the time the appraisal comes back their house won’t be in a declining market?
This market is fluid and dynamic.