REAL Exclusive Magazine

Why Are We Still Considered A “Declining Market”?

By C. J. Coury

Many of my Mortgage Loan Officers and REALTOR® acquaintances have asked me this question lately. The primary reason for their inquiry seems to be the fact that Fannie Mae and Freddie Mac eliminated this damaging and self-fulfilling moniker months ago. While that is true, the fact that these agencies no longer consider this classification a requirement in setting their loan to value ratios the problem persists.

The primary enforcers of the “declining market” designation are the Mortgage Insurance Companies. This is why the additional 5% down payment requirement only applies to loans that require PMI.

The other ramification of this stigma has to do more with the definition of a declining market than being branded as one. When appraisers compare a property in today’s market against one that sold last quarter they are required to make a time adjustment due to the change in market conditions. As long as that trend is downward, this will remain an issue. This is more problematic than the adjustment to the loan to value as it directly impacts that appraiser’s opinion of current market value.

Although we are all seeing a dramatic increase in interest and demand we will not see the “declining market” classification disappear until we have at least 1 quarter of stabilized pricing over the previous quarter. I would not be surprised to see it take 2 consecutive improving quarters to finally put this subject behind us.

In the mean time, please do all that you can to provide detailed comparable information to the bank appraiser when they contact you for the inspection appointment. Remember, the MLS only goes so far – there is no replacement for your expertise and intimate knowledge of your market and properties that have recently sold within it.

Take the time to prepare in advance of receiving the inspection call and you will discover that the impact of the “declining market” obstacle can be overcome in most cases.

C. J. Coury is a Senior Vice President with Bank of America and oversees their residential mortgage division serving Sarasota, Manatee and Charlotte Counties. Prior to joining Bank of America in 1995, C. J. was President of Mortgage Brokers of America in Birmingham, MI for 7 years. He has been an active mortgage finance professional since 1983. C. J. may be reached at (941) 952-2888 or by email at charles.j.coury@bankofamerica.com.