We're starting to see the "Declining Value Area" condition popping up on some of our automated underwriting decisions on Jackson County, Oregon properties. In many cases, this will not affect the borrower's loan amount. For first time home buyers putting the minimum amount down for their down payment, it is creating some challenges, though. Down payment assistance programs are becoming even more valuable to help buyers meet a higher down payment requirement.
A Southern Oregon buyer that was preapproved long before this guideline change went in to affect is now having to consider coming up with an extra 5% to put down if they miss their closing date, which due to circumstances beyond their control has been delayed.
If when we run a file through an automated underwriting system the property is deemed to be in a declining value area, the loan-to-value has to be reduced by 5% - i.e. if an investor may borrow a maximum of 75% of the appraised value on a refinance under the program limits, they can now borrow 70%.
Thank goodness some of the lenders are backing off enforcing their own lists of declining value areas which incorporated areas that Fannie Mae wasn't including. Real estate markets are local markets, and creating criteria based on zip codes just doesn't work in an area like the Rogue Valley.
See you at the closing table!
Karen Cooper - OR/CA Mortgage Consultant - www.Quality4Loans.com
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Karen: The Rogue Valley is such a beautiful area. I would think that declining values would have very little impact in your area... but only if the appraisers realize that all real estate is local. Hopefully they will not have their hands tied.
Karen Anne - The declining value area designation has not been one the appraisers felt to be accurate on any of my transactions so far. Most of our area has been very stable. I think these guidelines will be readjusted once the secondary market investors get their bearings and stop running scared. Thanks for stopping by.
Karen, Your analysis is quite correct. Right now the investors are scared. As the market(s) stabilize this will be phased out altogether.
Bill Roberts
Bill - Some of the secondary market investors are getting a bit carried away, though, don't you think? Today, I read that Fannie Mae is working on another guideline change that will have all appraisals ordered through "the eventual establishment of an appraisal clearinghouse which we assume would assign appraisers to a project". Let's hope this proposed system does better than the automated valuation models did!