Business With Greg Mortgage and Real Estate Blog

A declining market has become a subject we have mentioned over the past year quite frequently. The overall economy plays an important role. But, even when the economy was thriving there still were markets that declined in value.  I am also going to discuss my opinions on what I feel about the industry changes that affect these area’s. 

Some changes in the lending industry have been made to offset the risk on properties located in these markets. It is in place to prevent the inevitable which seems to be the properties will continue to decline in value. Fannie Mae and Freddy Mac have both decided to reduce their maximum LTV by 5% in these area’s. From a risk standpoint I feel ”A” change was needed. However, there are other consequences involved that make this change a further disaster not only for the investors but for the economy in the market.

First thing you have to understand is the piece I wrote yesterday about how 100% financing is becoming almost unavailable and how credit score restrictions are simotaneoulsy reducing the number of qualified home buyer’s. The changes are weeding out consumers who missmanage credit and do not have significant liquid assets. The pool of qualified buyers is greatly reduced yet again. Then you are adding that they will need another 5% down payment in the affected counties. This change is not going to help the economy in these areas. It is not going to stimulate home prices to increase. It is going to make them decrease and also decrease more rapidly. People with limited down payment funds are going to consider moving to the next county that does not have the restrictions.

So, the banks holding loans in this area will be hurt by this as well. People may not have options to refinance any longer. 90% is the maximum LTV for cash-out refinancing under a Fannie Mae or Freddy Mac program. They will be declined to 85% LTV maximum.

Maybe, in these area’s a better idea would be to adjust the loan price and not the LTV.? That would still keep standard financing open and available yet offset the risk of a declining asset.

I fully support our government and their decisions. But, they recently injected some 200 billion into Fannie Mae and Freddy Mac. Wouldn’t it be wise to inject money like that into helping buyers with down payment money to try and restore balance in the housing market? Federal grant money is available to qualified individuals in qualified neighborhoods. How often is it used? I do not see a whole lot of Economic Divisions in the counties who help people buy homes in Urban and Suburban areas.

I want to open a debate on how we should move forward here to improve the situation we are in.