More Cash Down In These 'Declining Markets'

However, Jim Foley, senior vice president for George Mason Mortgage's Bethesda office, said automated underwriting systems from investors he works with are flagging all of the District plus the following cities and counties in Maryland and Virginia as "declining markets." In Maryland: Calvert, Charles and Prince George's counties. In Virginia: Alexandria, Arlington, Clarke County, Fairfax County, Fairfax City, Falls Church, Fauquier County, Fredericksburg, Loudoun County, Manassas, Manassas Park, Prince William, Spotsylvania, Stafford and Warren.

Freddie Mac of McLean is not flagging loans with a "declining market" notice, said Brad German, a spokesman for Fannie's competitor. But Freddie Mac has warned participating lenders that they are responsible for monitoring whether loan applications are coming from declining markets.

That's having a similar chill on lenders. "You don't know if Freddie is going to decide after the fact that you have to buy [the loan] back," Stevens said.

Even buyers using jumbo mortgages for more than $417,000, which are beyond the purview of Fannie and Freddie, are facing tighter lending requirements. A year ago, a borrower with a 20 percent down payment, but a credit score of only 660, could have qualified to borrow as much as $3 million. Today, that same borrower would be approved for only $1 million.

As for the Piersons, they continue to hunt for a home, with their renovation budget now converted into a down payment budget. Both of them expect to remain in the Washington area for years as they pursue Army-financed graduate degrees.

I asked Tony if that declining-market notice gave him pause about investing in a home. "No, because you need a place to live," he said. "We're going to be here at least five years. We're not under the mistaken assumption that we're going to get rich. When you're renting, you're losing $20,000 a year in rent plus whatever tax breaks you miss. You don't know what's going to happen in the future."

He also summed up how the fear of real estate losses just may bring about such losses. "They're not loaning the money after they've made a written agreement to do so because of what they feel might happen in the future. . . . They created the problem [through lax lending] but their solution is making it worse."

E-mail Elizabeth Razzi atrazzie@washpost.com.