Denver I Q

You may have read the article in The Denver Post last week “Fannie Mae Deems Denver a “Declining Market” (Larry McGee was quoted in the article). To read the headline, you would assume that Fannie Mae had declared the entire Denver Metro area, except Boulder, as a “declining market”.

THIS IS NOT TRUE!

It is true that Fannie Mae (and soon to follow, Freddie Mac) has issued a Declining Market Announcement (7-22) to lenders.

This announcement reinstates the LTV (Loan-to-Value) restrictions in declining markets, reducing the maximum LTV by 5%–so if a borrower was approved for a 95% loan, but the property is in a declining market, the maximum LTV is 90%. As always, the lender is responsible for using the appraisal and other third party sources to determine the property value. Fannie Mae’s underwriting engine, Desktop Underwriter (DU) will generate a message on loans when it appears the property is located in a declining or stagnant market. When the lender sees this message, they must carefully review the apraisal and request additional support from both the appraiser and other third-party sources to determine accurate market conditions.

Many investors have classified declining markets and at this time, the only county in Colorado so designated is Adams County (although Countrywide Broker has issued a “soft market guideline” statement to its Brokers that includes most of the counties in Colorado). Although only Adams county is currently listed, most investors have are increasing appraisal review and underwriting. We will likely see increased down-payment requirements in the near future for more metro area properties. While it may pose immediate issues for borrowers, in the long run, getting back-to-basics and asking borrower’s to have skin in the game is okay! The best lenders are qualifying their borrower’s for more than one loan option–and there are many options available to most qualified borrowers.

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