Is your neighborhood Declining?

Chances are that if it's in CA or FL, Fannie Mae has deemed your entire county as being in a Declining Market.

On December 5th. The large GSE sent a memo to all it's Lenders suggesting that they reduce the maximum loan amounts for the counties mentioned by 5%.

This new policy was slowly adopted by almost every lender. One by one they all fell in line.

The bad news is that Fannie looked at the state of CA in a county by county basis. This is a gross macro view. Within each county there are areas that are harder hit and others that might very well be experiencing a level appreciation. Because of that - they also included an loophole:

"If the lender receives the message from DU but has evidence that the property is not located in a declining market, the lender may offer maximum financing."

What exactly is that evidence?

Here's the answer. It's up to the appraiser. It isn't a matter of finding a nice appraiser. If they mark in the appraisal that the neighborhood is "Stable" - there's your proof.

Here's how they are going to determine "STABLE".

For an appraiser to declare a property within a neighborhood, in a micro economic way, as STABLE, they will look at the neighborhood sold comps quarter over quarter. If the comps from this quarter compared to last quarter have declined LESS than 2% they will consider the market as stable. To put this in real numbers, for a $417,000 home this is an allowance of only $8,340 per quarter. The quarter isn't calendar driven - it's actual days so they'll look at the last 90 days and compare that to the sold comps that occurred from 180 to 89 days ago.

But that's not the end of the fight.

Although there are many Lenders that will fund a conforming loan, you'll need to find one that chooses to accept the proof provided. Yup. Even though you provide them with real proof they can still choose not to accept it!

A very large lender that I was arguing this case with very adamantly said,

"We will not make this exception!"

So this very large lender will not loan the maximum loan amount in almost all counties (with the exception today of but a handful) in California? If the guidelines state a maximum 80%, 90% or even 100% - count on dropping that figure by 5% right off the bat.