Metro Denver residents face larger down payments and higher interest rates on their mortgages because home values are declining in the region.
Fannie Mae, the country’s largest backer of mortgages, is knocking 5 percentage points off the amount it will finance in areas with declining prices.
Borrowers in such areas also can expect to pay an interest rate about an eighth of a percentage point higher than in areas where home values are holding up better, lenders said.
Jerry Kaplan, vice president of capital markets with Cherry Creek Mortgage in Greenwood Village, said he hasn’t ever seen Fannie Mae tighten up like this.
But rising defaults and declining values have put the agency under pressure to raise more capital to stay solvent.
Lou Barnes, owner of Boulder West Financial Services in Boulder, said the move makes mortgages tougher to get in areas that need them most, making a more severe downturn likely.
“In every credit panic, the government must maintain a good supply of new credit,” Barnes said. “The authorities have failed since the crunch onset in August.”
A borrower previously eligible for a 100 percent or no-money-down loan with a lender working through Fannie Mae will now have to come up with a 5 percent down payment starting in mid-January.
A borrower using a loan with a 10 percent down payment will have to come up with 15 percent soon.
Barnes expects Freddie Mac, the second-largest federal agency backing mortgages, to follow Fannie Mae’s lead shortly, making home loans even tougher to get.
Douglas Braden, president-elect of the Colorado Association of Mortgage Brokers, said he expects the tighter restrictions to push more borrowers toward loans through the Federal Housing Administration and Department of Veterans Affairs.
While underwriting on such loans is more rigorous, the FHA requires only a 3 percent down payment.
Wholesale lender Flagstar Bank has already put Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, Park and Weld counties on its list of areas with declining values.
Those counties join others in California, Florida, Ohio, Michigan and Virginia, among other states, it expects will be on the list of declining areas.
Fannie Mae, in a memo last week, required lenders to determine whether an area has declining prices. If prices are in decline, lenders must shave 5 percentage points off the amount financed or justify why a given home in a declining area should be exempt.
The sources being used to measure declining prices are statistics from the National Association of Realtors, the S&P/Case-Shiller Home Price indexes, and an index from Fannie Mae’s regulator, the Office of Federal Housing Enterprise Oversight, or OFHEO.
Median prices for home resales in November in metro Denver fell 2 percent year over year, according to a report from independent researcher Gary Bauer.
The S&P/Case-Schiller index showed a 0.9 percent decline for metro-Denver home prices in the third quarter.
The tipping point for metro Denver likely came Nov. 29, when the OFHEO index showed a price decline of 0.32 percent in the third quarter, the first year-over-year decline it has recorded for the area since 1989.
The tighter lending requirements come at a time when many people are trying to escape rising adjustable-rate payments on properties where they have little or no equity, said Braden.
“It is scary,” he said.
After a severe credit crunch this summer knocked out many Wall Street lenders, loans made through government-sponsored agencies have become about the only show in town.
Fannie and Freddie have been writing $100 billion in mortgages a month following the credit crunch, taking their market share from 38 percent last year to more than 60 percent this year, according to James Lockhart, executive director of OFHEO.
Kaplan said the bigger down payments and higher interest rates in some areas are a small price to pay to make sure there is liquidity in the market.
“What would our economy be like if Fannie Mae and Freddie Mac were not around?”
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
