Spring Break
The D Market: Fannie Mae's new designation
Jessica White/DC Columnist
Issue date: 1/29/08 Section: Business
I am deviating from the normal question and answer format to write about a new development in the real estate market that will have a tremendous impact on innumerable buyers and sellers: the "D market."
Fannie Mae, the mortgage industry giant who is ultimately responsible for much of the money that funds home purchase loans, implemented a policy of requiring that buyers make a 5% larger deposit on their home than the original loan program guidelines called for if the property is designated as being in a "declining market." The catch - as if having to put an additional 5% down already isn't a catch - is that there is conflicting information at this time about how areas are determined to be declining markets. No list of areas, counties, zip codes, regions, streets, etc., has been released.
The buyer may only learn of the property's declining market designation when the loan, with the property address, is run through Fannie Mae's automated underwriting system. The buyer may also learn of the "declining market" designation when the appraisal is done if the appraiser finds that the property is in a declining market. In effect, the work a lender does when it "pre-approves" a borrower based on the buyer's income, assets and credit score is meaningless without knowing the property's physical address to determine if it is in a "D market".
The ramifications of this new designation for deals that were in the works and got caught in the newly implemented "D market" maelstrom is that buyers and sellers have spent a few harrowing weeks of watching deals fall apart, often after the buyer has spent several hundred dollars on the inspection and appraisal, given notice to vacate his or her apartment, lined up the moving truck, packed the boxes. And of course the seller, too, has paid for an appraisal and inspection for his or her next property, lined up the moving truck and packed the boxes as well.
For the typical first-time home buyer who wants to do a very popular 100% financed loan through Fannie Mae, this "D market" designation means that the buyer will have to come up with 5% to put down on the property. For a lucky few, this could be as simple as a call to the Bank of Mom and Dad. For most buyers, however, the Bank of Mom and Dad is closed or in need of a loan itself.
Fannie Mae, the mortgage industry giant who is ultimately responsible for much of the money that funds home purchase loans, implemented a policy of requiring that buyers make a 5% larger deposit on their home than the original loan program guidelines called for if the property is designated as being in a "declining market." The catch - as if having to put an additional 5% down already isn't a catch - is that there is conflicting information at this time about how areas are determined to be declining markets. No list of areas, counties, zip codes, regions, streets, etc., has been released.
The buyer may only learn of the property's declining market designation when the loan, with the property address, is run through Fannie Mae's automated underwriting system. The buyer may also learn of the "declining market" designation when the appraisal is done if the appraiser finds that the property is in a declining market. In effect, the work a lender does when it "pre-approves" a borrower based on the buyer's income, assets and credit score is meaningless without knowing the property's physical address to determine if it is in a "D market".
The ramifications of this new designation for deals that were in the works and got caught in the newly implemented "D market" maelstrom is that buyers and sellers have spent a few harrowing weeks of watching deals fall apart, often after the buyer has spent several hundred dollars on the inspection and appraisal, given notice to vacate his or her apartment, lined up the moving truck, packed the boxes. And of course the seller, too, has paid for an appraisal and inspection for his or her next property, lined up the moving truck and packed the boxes as well.
For the typical first-time home buyer who wants to do a very popular 100% financed loan through Fannie Mae, this "D market" designation means that the buyer will have to come up with 5% to put down on the property. For a lucky few, this could be as simple as a call to the Bank of Mom and Dad. For most buyers, however, the Bank of Mom and Dad is closed or in need of a loan itself.
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