Ken Concannon
Sr. Loan Officer
Dominion Residential Mortgage
Phone: (703) 890-7002
Fax: (703) 890-7001

What are Declining Markets and How Does it Affect Me?

In an effort to keep everyone informed of our fast changing market I have compiled the following FAQ's regarding 100% financing. Northern Virginia has recently been classified as a declining market by Fannie Mae. This affects you because it impacts lending.


The simple reason is that the US housing market is experiencing the worst national decline in nearly 80 years. With many builders in precarious financial health, new construction becomes a concern because there is strong possibility of unfinished homes and drastic price reductions in these projects. Bank owned homes are depressing the market as well. Add to that the over supply of condos and you have a declining market.

How does a Declining Market Impact Lending?

As protection against loaning money against properties that may decline further, Fannie Mae, mortgage insurance companies and most investors have instituted a 5% reduction in the maximum LTV (loan to value). This means that if the maximum was 100%, it is now 95%. If the maximum was 97%, it is now 92% - and so on. If that wasn’t bad enough, condos, 2-4 unit properties and new (never been occupied) single family dwellings are in many cases reduced by 10% from the maximum LTV.

Fannie Mae has also instituted some additional restriction regarding condos…

· Investor concentrations cannot exceed 30%.

· Condo projects that are less than 2 years old are not eligible.

· Condo conversions that took place after 2005 are not eligible.

Is all of Northern Virginia in a Declining Market?

That actually depends on who you talk to. As you know the entire area is actually not in a declining market. In fact some areas are actually appreciating (albeit minor), but the indexes that are used (the Case-Shiller Price Index, the OFHEO Home Price Index, etc.) apparently don’t specify a level of granularity that would allow specific non-declining zip codes to be excluded. There are a few investors (very few) who actually will review the appraisal to determine if the home is in a declining market.

How is the Value of a Home Determined?

As you can imagine, appraisals are much more complicated than before and the need for thorough and good appraisers is more important than ever. You can expect most appraisals to be reviewed now and some new requirements have been added:

· The appraisal must have been done within 90 days of the date of closing

· Must include 2 competitive active listings or properties under contract

· At least 2 comps that were sold within the past 90 days (120 days for 2-4 units)

· Additional requirements for new construction:

o Comps must include 1 resale – preferably in same project

o 1 resale listing in the same project

Is 100% Financing Still Available?

Yes, although it is certainly not as easy as it used to be. VA and FHA have made a comeback. FHA is still limited by a maximum loan amount of $362,790 (which should be increasing with the signing of the FHA modernization act) but is still a very powerful program. DPA (down payment assistance) is also available for conforming loans making 100% structured financing a reality. We also have programs that do not have declining market adjustments (including 100% Jumbo loans).

To continue to be a successful in this environment it is crucial to align yourself with business partners (Bankers, Brokers, Attorneys, Appraisers, etc.) that understand what is happening as well as what is right around the corner. Please give me a call if I can answer any questions for you.

About DRM
Dominion Residential has funded 100% of all cleared loans since it's inception. Why? We have more than 100 banking relationships with strong private and portfolio lenders. These are the lenders that have cash and are not dependant on the volatile secondary market.

If you would like to discuss this or any other strategies we can utilize to increase our production in today's challenging market, please call me at (703) 868-0155 or email at

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