Fannie Mae (FNMA) has announced plans to drop the “Declining Market” designation & its associated adjustments, in favor of a new nationwide maximum Loan to Value (LTV) of 95%. The FNMA announcement needs close reading but it does not say that FNMA is going to a 3% minimum down payment. Well, it says that, but what it means is that the intent is to flip back to “yester-world” and go back to 5% minimum down payment. For those programs and people who qualify for the 3% down payment, that would be available to them. The 3% down has historically been reserved for first time home buyers, mostly with income limitations (ceilings) and the like.

Now, to the real world. In the first week of May, several investors (lenders) made a move on their own to take the owner occupied, single family (Single Family Residence (SFR) – Planned Unit development (PUD) - Condominiums) to a straight 95% max LTV.  That was great news for today's home buyer, as it reduced the minimum down payment requirement from 10% to only 5%. Notice that this FNMA bulletin did not come out until a few weeks after that move. The mortgage world was already set to move to higher standards (more restrictive)  in the high LTV maximum that was going into affect June 1, 2008. This move is still in place and it centers around the Mortgage Insurance (MI) companies. Most, if not all MI companies are instituting increased MI costs for high LTVs as of June 1, 2008. Essentially, the price increase is about 0.15%. This would raise the monthly MI cost. In recent years, MI wasn't really a part of the mortgage landscape due to the use of seconds and HELOCs in so-called “combo” transactions. But, with seconds and HELOCs going by the wayside, MI is back and with it now being tax deductible (consult your tax professional for your scenario), the primary reason not to go the MI route vs. the "combo" loan no longer exists. The strongly believe this MI change will remain and will be implemented June 1, 2008.

I have polled several investors (large and small) on what they are doing in response to this new bulletin from FNMA. So far, there is not one single investor who has taken a stance to my knowledge. Predominantly, they say that they are taking a “wait and see” attitude. This is very similar to the stance at the beginning of the "Stimulus Package" announcement back a few months ago. As you recall, it took several weeks for all of that news to settle into place and show up on the mortgage main street.

So, whereas it is real that there are currently homes loans for 95% LTV, 1 unit, owner-occupied, purchase loans (mostly <=$417,000.00), this FNMA announcement is more for the purpose of leveling the playing field across the board to remove the declining market stigma.

I'll keep you up to date as I hear things.