FNMA has a new guideline to cut mortgage borrowing. I say borrowing instead of lending, because it affects the borrower heavily.

FannieMae has reinstated a policy to restrict the maximum loan to value (LTV) ratio and combined loan to value (CLTV) ratio for properties located in declining market value areas to five points less than the maximum permitted for the selected mortgage product. This is a direct quote from an announcement made by FNMA on December 5, 2007. Example: Jack Smith is buying a house in Nassau County (New York State) for $400,000 and is applying for a 95% LTV loan. He wants a loan in the amount of $380,000 and the bank will lend it to him. The area the house is in is on the declining value list. Therefore, he can only obtain a loan in the amount of $360,000. If he does not have the extra $20,000 in savings, he will not be able to buy this house. FNMA, however, considers Nassau County a declining value county. As a matter of fact, New York State as a whole is declining in value. This also includes Manhattan, to the shock and dismay of the realtors. The lenders are using information from industry sites to determine the areas and if it should tag the subject property.ÂIf the property is in a declining value area, the lender will ask for further information about the specific home from the appraiser. The lender may also ask for compensating factors on the loan (ie: better credit, more income) and might ask for a review of the original appraisal from another source. Â This is effective now and is being implemented by most of the lenders. So, make sure your understand your loan amount might be knocked down and you might have to come up with some more dough at the last minute.

– Dale Siegel