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Declining Real Estate Market Policy Scrapped by Fannie Mae

The Pensacola Real Estate market was listed as a “declining market” by Fannie Mae.  Fortunately, Fannie Mae has decided to scrap the “declining markets” policy. This policy required loan underwriters to boost minimum down-payment requirements by 5 percent in areas where home prices are falling or difficult to determine. Pensacola Florida was considered one of those areas. The policy also applied if an appraiser determined a property was in a declining market.


This is great news for potential home buyers in the Pensacola real estate market. Beginning in June 2008, Fannie Mae will instead require 3 percent down payments for conventional, conforming mortgages processed through its Desktop Underwriter automated underwriting system, and 5 percent minimum down payments for loans processed manually. Larger down payments may be required depending on occupancy, property and transaction types.

Last month, the National Association of Realtors (NAR) sent a letter to Fannie Mae complaining that entire metropolitan areas were being labeled as “declining markets”. Actual values in local neighborhoods were not being taken into account. The result of this policy was to discourage potential home buyers from entering the real estate market. The policy kept some would-be home buyers from taking action because they could not come up with the funds to make the increased down payment. Others avoided buying because they were afraid to do so if prices were still declining.

In the letter, NAR stated “In either case, the impact of the policy becomes a self-fulfilling prophecy that creates declining markets that did not exist before and intensifies the decline for markets that are declining and delays their recovery”

Note that the declining market policy was not considered a factor in getting an FHA loan, which is the loan most first time home buyers find the easiest to get in this market. Either way, I believe it is a good thing this policy was scrapped. Anything we can do to boost our local economy  and real estate market is a plus.

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