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NAR wins battle against “Declining Markets”


The Declining Market Debacle

“Declining Markets” have been an increasing concern with practitioners in the past year, and it seemed to be getting worse. However, NAR has stepped up the plate and helped the Realtor by wrestling with Fannie Mae.

“Declining Markets” have been a huge issue in that a buyer making an offer, can be required to bring an additional 5% of the sales price to the table, even if the home appraises for the agreed sales price. The appraiser conducting an appraisal can “predict” the future housing market and may note on the appraisal that the market in the area of the subject property is probably going to be worth less in the near future. When the appraiser looked into their crystal ball and made this predication Fannie Mae would require the additional down payment to protect themselves, and has ruined many transactions for buyer and sellers, where the buyer simply doesn’t have additional funds to get to closing.

Self Serving Policy

This was never a consumer protection; this was simply Fannie Mae protecting it’s investments. In and of itself there is nothing wrong with protecting one’s investments; but this was a policy that existed even if there was evident equity in the property.

NAR President Dick Gaylord said “It stigmatized communities with lower sales and prices.”

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NAR Does What It’s Members Expected

REALTOR Magazine reported the following:

NAR met several times this spring with Fannie Mae officials and sent letters reflecting members’ unease with the policy. “We heard the concerns of NAR and we reviewed and determined that changes in our policy were needed,” Gwen MuseEvans, Fannie Mae vice president for credit policy and controls, said in a statement Friday.

Under the policy change, borrowers can get loans up to 95 percent loan-to-value, even in markets in which prices have been falling. Prior to the change, borrowers could only get loans up to 90 percent to give lenders a 5-percentage-point cushion to protect against possible price declines in the future.

“This new down payment policy reinforces our goal to support successful home-owning,” says Marianne Sullivan, Fannie Mae’s senior vice president of credit policy and risk management for single-family homes.

The new policy takes effect June 1.

I am glad to see NAR get results in this arena. This was becoming a serious concern for both agents and consumers in many areas. Gwen MuseEvans, a Fannie Mae VP also reportedly said “We heard the concerns of NAR and we reviewed and determined that changes in our policy were needed.”

This is a great change and will help many people in the future. I am happy that practitioners and consumers will get to see direct results from NAR’s involvement.

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Written By

Matthew Rathbun is a Virginia Licensed Broker and Director of Professional Development for Coldwell Banker Elite, in Fredericksburg Virginia. He has opened and managed real estate firms, as well as coached and mentored agents and Brokers. As a Residential REALTOR®, Matthew was a high volume agent and past REALTOR® Rookie of the Year & Virginia Association Instructor of the Year. You can follow him on Twitter as "MattRathbun" and on Facebook. Matthew's blog is



  1. Ricardo Bueno

    May 16, 2008 at 9:31 pm

    A positive step indeed for those who just yesterday needed just a tad bit more $ for their down payment…and here in Los Angeles County, that constitutes a lot of potential home owners.

  2. Michelle DeRepentigny

    May 17, 2008 at 12:02 am

    I have always felt like FnMA’s current credit policy regarding declining markets was a new way of redlining, so I’m glad to see it gone BUT a credible, experienced appraiser does not look into a crystal ball to predict a declining market. A credible, experienced appraiser uses HISTORIC data regarding inventory and absorption rates to evaluate a market as of a given day – no crystal ball needed – I threw mine out last year because it was never right anymore.

  3. Genuine Chris Johnson

    May 17, 2008 at 5:02 am

    If indeed the NAR is behind this they are as stupid as everyone says they are. If they forced the further nationalization of mortgage securities, and then forced a lender to act impudently…how can they be serving anyone but themselves/

    This is sort of like crowing about a mugging. “We just caused everyone else to pay for our slimy bidness practices..”

  4. Matthew Rathbun

    May 17, 2008 at 5:58 am

    Genuine: I suppose when I take your comment in context to all the others I have read, I am lead to believe that if NAR were to solve world hunger and bring peace to the middle east you would have a negative spin on it. Fannie Mae is already a federally chartered entity. The policy was unreasonable and damaging to consumers. Sellers who were trying to sell their homes were being stopped from doing so, and in many cases forcing them into foreclosure because they couldn’t find buyers with 10% to put down. I’m all for NAR stopping policy that is damaging to the consumer.

    In our area alone, we have a small county with just about 500 listings. The entire county was considered a declining market and 86% of the buyers in the past six months were 95-100% financing. Continuing to make it impossible to buy in that county would simply continue to make it decline even further and would be the prelude to significant long term problems.

  5. Genuine Chris Johnson

    May 17, 2008 at 6:21 am

    Straw man argument; I judge actions.

    When the NAR stood up against the DNC list, I was happy. When the NAR wanted more socialism, I was mad. Taking a shot at me is an ignorant action and you are not stupid, so don’t do that in future arguments with me or others, it coarsens discourse.

    The problem is that trade associations seek favors and distortions from the government. I would prefer a government without favors to give, and a trade organization that doesn’t force other men to live for its own existence. THe NAR makes its members look stupid with its disingenuous, inauthentic, and stupid advertising, and it blunts the impact of the mavericks, free thinkers, and dreamers that make up its membership.

    I understand. The NAR (not federally chartered) persuaded FNMA (which is) to take on more risk. All the while they are beating the drum of ‘now’s a great time to buy.’

    Imagine, forcing a buyer to have some skin in the game before a loan is made? Well, what a concept! Next thing you know, we’re gonna need income, assets, and creditworthiness. It’s appropriate for lending institutions to mitigate their risk in a way that they see fit.

    I am offended by the existence of FNMA–having a clearinghouse that falsely inflated the ratings of many securities is/was part of the reason we’re seeing markets that are, in fact, declining.

    I don’t care how stupid the NAR looks, I only care when they influence the government to spread the risk to citizen taxpayers. Compelling lenders to lend is absolutely horrible, and will prolong the misery.

  6. Bill Lublin

    May 17, 2008 at 6:55 am

    @Genuine; With all due respect, Matt is not a Straw Man, I have been informed that he is Pink and fuzzy – 🙂

    On a serious note, the declining markets argument that Fannie was making was not limiting the risk as much as it was a knee jerk reaction or pendulum overswing, And 100% financing, with adequate credit and verified income and assets was not what caused the mortgage company meltdown – it was making loans to people without income, assets or creditworthiness. Further, as a GSE, Fannie Mae has an obligation to the American Homeowner to facilitate the homebuying process. .

    On a historical note, NAR was instrumental in the creation of FHA and participated in the the initial creation of Fannie Mae. They aren’t the enemy of the mortgage industry, they are the friend of the real estate industry.

    The problem is that trade associations seek favors and distortions from the government. I would prefer a government without favors to give, and a trade organization that doesn’t force other men to live for its own existence.

    The fact that you don’t agree with the position taken by the trade association doesn’t mean that did something wrong, only that you disagree with them, and I might respectfully submit that hey have an obligation to their members to do things that benefit the membership (which this does) and just might have more information (they may not, but they do have a pretty smart staff who are constantly on top of these issues)

    I don’t undertsand what distortions you’re talking about, and I don’t understand how you think that NAR forces “other men to live for its existence”. That just seems to me to be empty rhetoric. I would be glad to discuss itat if you can show me an example.

    And finally, I am soooo tired of hearing NAR slammed for being what they are, a Trade Organization. They should be putting positive spin on their public relations stuff. And I need to tell you , as a real estate investor, now is a great time to buy (I’m looking and buying regularly) , and for the homeowner, a time where prices are lower, interest rates are affordable, and you can fulfill a need for your family is a great time to buy . What’s wrong with their saying that? When was the last time you saw the American Dairy Association tell you not to drink milk?

    THe NAR makes its members look stupid with its disingenuous, inauthentic, and stupid advertising, and it blunts the impact of the mavericks, free thinkers, and dreamers that make up its membership.

    I pointed out earlier in my response that I don’t believe the advertising to be inauthentic or stupid, and it is certainly not disingenuous, it is self serving – as any advertising is. As far as “blunting the impact of “mavericks, free thinkers and dreamers”, that’s just more rhetoric without substance. What makes you more of a dreamer then Matthew or I or Dick Gaylord for that matter? And what impact can you demonstrate that has been blunted by NAR? It is my experience that Associations welcome with open arms volunteer memberson every level from Local to State to National. If that has not been your experience, again, let’s discuss real things, not just make sweeping statements.

    As far as your statement that NAR makes its members look stupid, I would submit to you that people make themselves look stupid or smart – that is one thing we don’t need an Assocation for.

  7. Bill Lublin

    May 17, 2008 at 6:59 am

    I hasten to point out that the quote below;

    THe NAR makes its members look stupid with its disingenuous, inauthentic, and stupid advertising, and it blunts the impact of the mavericks, free thinkers, and dreamers that make up its membership. ”

    was from Genuine’s comments, and my own stupidity allowed me to forget the blockquotes –

    Thereby making my point that ;

    As far as your statement that NAR makes its members look stupid, I would submit to you that people make themselves look stupid or smart – that is one thing we don’t need an Assocation for.

  8. Genuine Chris Johnson

    May 17, 2008 at 7:02 am

    No, he was setting me up to be a strawman.

    This very legislation–advocating or cooercing FNMA to take on undue risk. FNMA has many things; they have to mantain the PERCEPTION of stability. Was there both irratioinal exuberance and irrational panic. Any time you force the fed to do things, you’re doing it at the expense of other people. It’s always theft.

    I don’t have the inclination to teach economics, but you could read Friedman and Hayek to understand the arguments I’m making. You may not agree, but you’ll know the roots of the arguement. Capitalism and Freedom is excellent, as is “the road to serfdom”.

    You may have the last word, I’ve said al I care to.

  9. Jim Duncan

    May 17, 2008 at 7:21 am

    I’m still on the fence about this one – one of the ways we got into this place (market) is because of the easy money that was available to those who really shouldn’t have been buying houses.

    And yes, NAR is a trade group whose goal is to further its members’ best interests. I’m fine with that; consistently saying that all that they do is for altruism and the betterment of society – well, that is a bit disingenuous.

  10. Bill Lublin

    May 17, 2008 at 7:24 am

    No one is forcing Fannie Mae to take undue risk, they have removed a policy that was as an earlier comment states a form of redlining.

    As far as your disinclination to teach economics, I don’t think I need that to understand your arguments or the roots of the arguments, I just don’t agree with them. I have read Hayek. A book written during the second world war which says “capitalism is good” and “facism is bad” has no argument from me, but it doesn’t apply to this situation. Milton Friedman’s big impact was most felt during the Reagan era, and I lived and worked through the recession resulting from that administration. I hope this shows that my position is not indicative of a lack of education or information, but is merely a difference of opinion.

    And thanks for giving me the last word – I’ve been married so long I almost forgot what it looked like!

  11. Tom Vanderwell

    May 17, 2008 at 7:25 am

    While I’m probably not as blunt as Chris is, as a lender with 20 years experience, I’d like to throw in a couple of points:
    1. With property values declining, banks and mortgage lenders are losing their shirts on deals that were done with 100% LTV.
    2. With property values declining (see the Case Shiller index?) people with no downpayment are going to be upside down on their house immediately upon closing.
    3. It’s a proven fact that people with a downpayment are less likely to “walk away” from their house than those with no money down.

    I think there are a couple of issues that this doesn’t address:
    1. what are the MI companies going to do?
    2. Is this for refis? or just purchases?

    My bank (Fifth Third) just went back to requiring a minimum 5% downpayment on fixed rate owner occupied purchases with credit scores of above 680 and no gift funds. I think that’s a sensible compromise.

    How much money did Fannie Mae lose the first quarter of this year? I don’t remember but it was in the billions! Do we really want them to get back into making stupid loans?

    I want to help people buy homes, it’s how I make a living, but we need to be smart about things.


  12. Bill Lublin

    May 17, 2008 at 7:28 am

    “consistently saying that all that they do is for altruism and the betterment of society – well, that is a bit disingenuous.”

    Jim – Did I say that? I didn;t mean to – I actually think that even altruists do things because suceeding at helpin gothers makes them feel good, so if I gave that impression, I am sorry. But I don’t believe that they do anything that they believe will harm some segment of our society –

  13. Matthew Rathbun

    May 17, 2008 at 7:28 am

    Chris… I mean really. Look at the context of your statement and see why one shouldn’t be offended by your delivery. Absent body language, it seems an attack to me.

    I am not one to be threatened by “Taking a shot at me is an ignorant action and you are not stupid, so don’t do that in future arguments with me or others, it coarsens discourse.” trying to bully someone is entirely unprofessional. Are you planning on taking my lunch money? 🙂

    I’ve written many articles regarding my disagreements with NAR, however in this case I agreed with them and the actions. I fully agree that the ‘now is a good time to buy” campaign is not appropriate, but this issue was a consumer (all be it more the seller) protection issue.

    When I read your second comment (after the introduction) I was compelled to ask myself other questions regarding the lenders potential undue risk and other considerations. See, when you take the time to write an argument based on reason and not inflammatory words such as “stupid”, “mugging” and “slimy”, I tend to see it as a healthy debate and not an attack. I’ve read your articulated articles before and would appreciate a “why” to your comments (such as was delivered in the second comment) Whereas the first comment just maked you sound angry but didn’t explain the why or your counter-argument.

    In this case we have two different points of view. I see the damages to the Sellers for something that isn’t’ their fault and you see the potential damage to the lender. Either way someone is getting screwed, and only time will tell which is more correct.

    I’ve made it a personal policy to not carry on extensive debates by comments any longer, because after awhile it becomes argumentum ad hominem. I honestly would like to know more about the opposing view, so I can be e-mailed at matthew [at] or skyped at matthew.rathbun

  14. Matthew Rathbun

    May 17, 2008 at 7:36 am

    My concern about the lenders tightening it’s risk, is that all of real estate is risky. It’s always there, it always has been and always will be. I simply think that the lenders should tighten their risk management based on the buyer’s ability to repay – not the location of the house. This is simply an open door to going back to red-lining. It puts too much authority in the hands of an appraiser. Once the first or second appraiser declares an area a distressed market (which is arguable 75% of Virginia) that means all the other appraisers are going to do the same and now it’s simply compelled the issue even further with no hopes of recovery.

    Like Chris, I really don’t have more to my argument than this. I look forward to reading others who are more educated on the topic…

  15. Genuine Chris Johnson

    May 17, 2008 at 7:41 am

    You took a shot at me. Matthew, by saying I’d hate the NAR if they solved hunger. That incinuates I have an ax to grind with the NAR itself, and am myopic. For me to take umbrage with that is normal, and I was trying to steer you into the arena of ideas.

    You tried to diminish me by making it seem as if I was so blind I don’t realize that actions are good.

    If you call yourself an educator, please apply the same standard to yourself as you require from others.

  16. Tom Vanderwell

    May 17, 2008 at 7:42 am


    You say, that the risk has always been there, but in reality, the mortgage system has been built on a foundation for the last 20 years that in most areas and most of the time, property values will at worst stay the same and more likely go up. Negative equity wasn’t an issue for the first 19 years and 6 months of my career but it is a big issue now. That’s shaping a lot of the thinking behind underwriting guidelines these days. In addition to that is the growing perception (I don’t know whether they are facts or just perceptions) that people who don’t have “skin” in the game are more likely to walk from their houses when going gets tough.

    As you know well, the game is different than it was 6 months to a year ago and we’re going to have to reevaluate the way that everything gets done.

    Thanks for sparking some lively discussions…..


  17. Matthew Rathbun

    May 17, 2008 at 7:45 am

    Tom: Sorry, I missed your comment… I have no problem with lenders not giving 100 LTV loans – if the purchaser knows this up front. But waiting weeks after the contract has been ratified and based on an appraiser’s opinion is damaging to the Seller. If Fannie Mae or others want to stop giving 100 LTV loans, then great, but that should be known at the time the purchaser gets counseling from the Originator and not 3/4 through a transaction.

    Ok, really I’ll stop now 🙂

  18. Matthew Rathbun

    May 17, 2008 at 7:52 am

    Chris (I’m only coming back to say this publicly) I agree that my point could have been better laid out. The snarkyness was intended in jest (as I recall I’ve agreed with you more often than not. in the past), but I forgot that tone and body language does not convey the 70% of communications needed to pull off humor.

    So, I do apologize for us not knowing each other well enough to pull that off.

    However, we still disagree; but in reading you and others on here, I am compelled to see that the principal of “unintended consequences” may be applicable here.

  19. Matthew Rathbun

    May 17, 2008 at 7:55 am

    Man…. I wish I could rack of AR points for being on AG…. 🙂

  20. Benn Rosales

    May 17, 2008 at 8:29 am

    I think fannie/underwriters may need to look specifically to declining markets and create a seperate guideline for those particular markets- guidelines that look to solve the problem of credit shortage and stregnthens lending.

    The problem we’re facing is areas of the country that were preforming take huge hits on guidelines written for the worst hit areas of the country. The last time I checked, there is no ocean or shortage of land in Texas that would create quite the situation Florida, Seattle, or even California has. Panic rules do not solve crisis. Looking into areas on a micro level should be the rule and both fannie and lenders creating a solution that allows sellers to sell (especially those trying to escape resetting loans). I know there is a solution but it’s going to take something more creative than a blanket approach, and that’s why I supported Fannie making this decision.

    I have the highest respect for appraisers, but if I’m an appraiser right now, it’s all a declining market- CYA- not CMA?

  21. Scott P. Rogers

    May 17, 2008 at 8:47 am

    >> I’ve made it a personal policy to not carry on extensive debates by comments any longer, because after awhile it becomes argumentum ad hominem.

    Matthew — in my opinion, the comments can sometimes draw out just as many good insights and perspectives as the post itself. While it can sometimes become a bit argumentative, the amount of dialogue that follows posts on Agent Genius is one of the reasons it is such an extremely valuable blog/resource/community. So — do what you need to do, but I think engaging in “debates” via the comments adds value!

  22. Matthew Rathbun

    May 17, 2008 at 8:57 am

    Scott, I don’t mind debates, it’s the on going “how should you deliver your content” and “we offended each other” that I think should be one on one. Chris and I offended each other and I think that that issue has nothing to do with the post, per se. Since is so small, it’s important for these issues to be resolved, but to do so in the venue of “comments” hasn’t personally gotten me where I want to be. I’ve found many people are more apt to work these types of issues out one on one and not with a crowd.

    Thanks for the opportunity to clear that up. I know that I am more apt to be offended when being called out in a group, than to feel it’s constructive when done one on one.

  23. Genuine Chris Johnson

    May 17, 2008 at 9:06 am

    You didn’t offend me; that would indicate that I either was surprised or cared. Do not ascribe anything to me or others in the future–i say this for clarity…you did attack me, however crude, disingenuous and ineffective it was.

  24. Ken Smith

    May 17, 2008 at 2:30 pm

    The declining market policy was a self full filing prophecy in many markets. A market got labeled as declining and naturally there where less buyers able to purchase homes. Demand decreased overnight and without an equal decrease in supply prices had to decline.

    This change has the potential to cause a shift in buying patterns in many markets and help speed the recovery.

    BTW, any agent that hasn’t seen the direct impact of a city being labeled a declining market and needing an extra 5% down payment it would be impossible for you to understand. This truly is one of those times that you just have to experience it to understand.

  25. Shailesh Ghimire

    May 17, 2008 at 4:27 pm

    I’m in one of those declining markets situations and I’ve been ambivalent about the whole thing. I can understand Fannie wanting to ask people to put more money down when the trend has been downwards the past 12 months. However, my main point against it is the foreclosure’s we’re seeing isn’t a all attributed to high LTV borrowing. It’s more due to the lack of income verification. In hindsight the declining markets rule appears to be more of a knee jerk reaction and not very helpful. A better approach is to in fact ask for better income verification, and demand a higher credit score for greater LTV. Which they are starting to do.

    Now do I think NAR has the right intentions in this issue? I don’t necessarily think so – considering their main objective is to serve its members. But they are correct in pointing out that Fannie wasn’t thinking right when they made the rules changes for declining markets.

    Again an issue where we don’t have enough facts to say for sure what the right path should have been. I’ve always been of the opinion that most of the policy makers in Washington these days are flying blind.

  26. Dan Sullivan

    May 17, 2008 at 5:07 pm

    The problem in my area (Denver), is that the entire metro area has been classified as a “declining market” – every single zip code, despite the fact that a good amount of our neighborhoods are experiencing a steady rate of appreciation.

    I have a listing in a zip code that appreciated over 18% from January 2006 – January 2007. FNMA has declared it a “Declining Market”.

    Whoever said “kneejerk over-reaction” hit it right on the head.

  27. Tom Vanderwell

    May 17, 2008 at 8:34 pm


    In regards to comment #17, I’m glad to hear that you aren’t opposed to the elimination of 100% LTV loans. The thing that puzzles me is how a good loan officer can have, in today’s market, a deal get surprised by the declining market issue several weeks into the deal? I’ve had a LOT of them, but I’ve done my homework up front, educated customers AT application, and haven’t had any that have blown up because of it.

    It’s a matter of understanding the rules and doing the extra homework that it takes to clarify things in advance.


    P.S. Has anyone asked the question – is it really better for consumers to be buying houses with no money down in today’s market?

  28. John Sabia

    May 17, 2008 at 10:21 pm

    “This change has the potential to cause a shift in buying patterns in many markets and help speed the recovery” – by Ken Smith

    I Agree.

  29. Eric Blackwell

    May 18, 2008 at 7:20 am

    I think I am in with ken on this as well… I do think that some of the changes became a self fulfilling prophecy in some areas. I think that some support in this case could have the opposite effect. Right now, I think a shortening of the recovery time is needed.

    Interesting discussion, though.

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