Last February 5th, we commented on a trend of what many would consider"Redlining" of local real estate market areas by Countrywide Homes Loans. Last January, Countrywide, and several other lenders and Private Mortgage Insurance Companies, have created their own "Soft Market Index" of zip codes or metro areas they consider "In Decline." (Click here for our AR Post on that day).
Although the Chicago Metro Area ranked an attractive "2", on a 1 - 5 scale, with a "5" Zip Code or Market Area showing the greatest potential for decline, many other real estate markets - including those in hard-hit areas of California, Florida, and Nevada - have large portions of their states negatively labeled.
The end result, for many borrowers in these areas, is usually a last-minute demand by lenders for considerably more down payment at closing, additional fees, or, in some cases, higher interest rates for some borrowers. The majority of borrowers, especially those with modest income and assets, have no funds to meet these late lender demands.
Seeing the potential to make a growing problem even worse, many consumer and industry trade groups are turning up the volume on their level of complaints. The cry is especially loud in those groups representing minority constituencies.
Timothy Sandos, President and CEO of The National Association of Hispanic Real Estate Professionals, contends "declining market" labeling may penalize huge geographic areas, even though certain neighborhoods or suburbs within these markets may show stability. Sandos would like to see greater weight on neighborhood-level evaluation by property appraisers.
The "Declining Market" tag, Sandos feels, could further depress neighborhood real estate prices, and scare off additional potential buyers.
Fannie Mae and Freddie Mac guidelines permit exceptions to their declining market scoring model. However, many lenders, flush with thousands of new and likely mortgage delinquencies and home foreclosures, hesitate to make exceptions. Spokesmen for Fannie and Freddie are "evaluating the fairness" of the market-scoring process, but have yet to make any mandates for change.
For more info, please review our post today at BlogChicagoHomes.com, and the included link to Kenneth R. Harney's article in today's Chicago Tribune.
DEAN & DEAN'S TEAM CHICAGO