Thursday, May 8, 2008

Some Suburbs and Neighborhoods of Chicago now "Declining Markets."

For the first time, this week I heard the term "declining market" applied to a Suburb of Chicago - Western Springs. I heard from a loan officer friend of mine that this new designation pretty much torpedoed a deal he was working on.

So, what's a declining market?

When a property is located in an area identified as declining, Fannie Mae will now require the lender to offer financing at LTV and CLTV ratios that are five percentage points below the maximum ratios allowed for the selected mortgage product. For example, when the highest LTV allowed for a particular mortgage product is 100 percent, maximum financing would be 95 percent if the subject property is located in an area identified as declining.


Here's a map from Countrywide Mortgage of their "declining markets."

It's important to know that the map is dynamic - constantly changing. It could even happen that a town or a neighborhood may not be labeled "declining" when you apply for your loan, but get the designation at some time during the mortgage processing.

In my friend's example above, the first mortgage was approved. But the second mortgage didn't get processed in time to beat the dreaded designation, and was denied.

This is a stern reminder to borrowers out there to be ever more vigilant about monitoring every step of their mortgage process. And a vivid reminder that it's not just the borrower that has to qualify for the mortgage. So does the property; and today - so does your new neighborhood.