FANNIE MAE ELIMINATES SURCHARGE

Declining-market surcharge dropped
Fannie and Freddie reverse the policy that made buyers cough up bigger down payments in certain locales.
By Kenneth R. Harney, Washington Post Writers Group May 25, 2008
WASHINGTON -- Could the controversial mortgage industry practice of listing hundreds of local real estate markets as "declining" -- and restricting lending through higher down payments or credit scores -- be scrapped?The two biggest players in the home mortgage field, Fannie Mae and Freddie Mac, did precisely that on May 16. Reversing its policy of penalizing buyers in troubled real estate markets with 5% higher down payments, Fannie Mae switched to a nationally uniform policy of charging borrowers the same minimum down payments irrespective of location. A spokesman for Freddie Mac, Brad German, said his company would be "suspending" its declining markets policy indefinitely as well.Starting June 1, mortgage applicants who are underwritten by Fannie Mae's automated system online will qualify for 3% minimum down payments, wherever the property is located.Borrowers whose applications require "manual" underwriting will pay 5% minimum down payments.Under Fannie Mae's prior system, applicants buying in designated declining markets had to contribute 5% extra in upfront equity compared with borrowers in nondeclining market areas.Freddie Mac's policy, which never employed a list of areas designated as declining, relied instead on lenders to flag applications using appraisal data or home price indexes. Freddie's policy also required 5% higher equity contributions upfront.Critics -- including the National Assn. of Realtors and consumer advocacy groups -- had charged that Fannie Mae's policy served to further depress sales and real estate values in areas tainted as declining.