Countrywide Financial started tagging ZIP codes and counties as “declining markets.” In recent weeks, the major lender sent mortgage brokers a list ranking the softness factor of hundreds of counties. The scale ranges from 1 to 5 with 5 being the softest. Soft translates into risky. So in areas rated 4 or 5, borrowers are now required to put down 5% more than the previous minimum required. If a program previously required 5%, then it requires 10% after the tagging. In areas rated 1 to 3, the 5% additional deposit is required only if the appraisal report indicates an oversupply of available houses.
Where do the Bay Area counties stand in the Countrywide Financial ratings?
Level 2: Marin, San Francisco, San Mateo, and Santa Clara
Level 3: Napa
Level 4: Alameda, Contra Costa, Sonoma, and Solano
Countrywide will likely penalize borrowers in the latter four counties and require larger down payments.
Level 4 Counties: What are the effects?
Tagging counties as “declining markets” and imposing down payment penalties may perpetuate the current situation. Large down payment requirements make it harder to purchase a home in these areas. As the buyer pool shrinks, prices continue to fall and the market declines further. On the flipside, lending to unqualified borrowers with no money or little money down created much of the mess today.
What are your thoughts? Fair or unfair? Is tagging ultimately good for our market, or will it create a self-fulfilling prophecy? Please comment. Next week, I will make the case for and against tagging counties as “declining markets.”
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