ALBUQUERQUE — Three Rio Rancho residential areas have earned a place on a most unwanted real estate list. It’s a designation that will make it tougher for people who live there to sell their homes and more costly for people who want to buy a home there. And if it’s happening in Rio Rancho, one Realtor says Albuquerque might not be too far behind.

 
"It’s a form of red lining that we really don’t want to see take hold," says Ken Sanchez, a Realtor since 1997 and a current City Councilor.
 
The three ZIP codes — 87124, 87144 and 87113 — earned a declining market designation, which signifies that that properties there are losing value, resulting in higher interest rates, loan fees and down payments for buyers.
 
 
Sanchez said local Realtors should band together in opposition of the designations, and that if needed, he would consider creating city policy to prevent the designations in Albuquerque.
 
The designations have been creeping up since 1997 when some mortgage lenders, investment firms and insurers, began compiling lists of local markets, even entire ZIP codes, and dubbed them "declining markets." Critics say these lists will hinder a real estate recovery and hurt minority and moderate to low income buyers disproportionately.
 
Last week a local Realtor sent e-mail messages to her clients stating that homes in the 87124 and 87144 ZIP codes of Rio Rancho, and homes in the Vista del Norte subdivision — 87113 — are now in declining market designations.
 
"On a development by development basis and/or a home by home basis (if on the market a long period of time), homes in our area for the first time now reflect what has happened in many areas around the country - Declining Market Designations," according to the e-mail.
The widespread designations of entire ZIP codes and metropolitan areas has been increasing. Denver was put on the DMD list last year.
 
But the reaction against declining real estate market policies is mounting. Consumer and industry groups are demanding that lenders and investors abandon the approaches, and are urging mortgage insurers to rethink the designations.
 
An alliance of three "multicultural" real estate trade groups representing Latinos, blacks and Asians recently asked the mortgage industry to get rid of its current patchwork of proprietary — and often contradictory — lists, according to Kenneth Harney of the Washington Post’s Writer’s Group.
 
Homes in declining market designations are considered by insurers, mortgage lenders and some banks to pose higher risks because housing values are dropping. Within those areas, borrowers are charged higher rates, loan fees and down payments — costs that can rise significantly when applicants have credit scores below designated minimum levels.
 
In some cases, the extra fees can add more than two percentage points to the interest rate, and require much higher cash upfront from applicants. At their extreme, declining market designations remove entire categories of real estate from financing eligibility.
 
In Rio Rancho, a home with such a designation will require 5 percent more of a down payment than a home without such designation, and the appraised value carries no weight.
 
Timothy Sandos, president and CEO of the National Association of Hispanic Real Estate Professionals, has said current policies have the effect of cutting out or penalizing huge geographic areas that contain many smaller submarkets where values are relatively stable or do not pose exceptional risks. Sandos wants greater emphasis to be placed on what appraisers find and document about the direction of the local market, rather than computer-generated statistical models.
 
In the article by Harney, Sandos said his procedure "would allow homes to be evaluated as individual risks," rather than painted wholesale with scarlet letters as "declining" when in fact they are not. Minorities and moderate-income households may be disproportionately affected by such broad-brush designations, he added, and they are often less able to come up with the higher down payments and extra fees demanded. That, in turn, makes selling and buying tougher in their neighborhoods, lowers demand and prices, and constitutes what Sandos calls "a circular, self-fulfilling prophecy," with the designation actually fueling further decline.
 
Sandos’ group co-authored the critique along with the National Association of Real Estate Brokers, which represents black realty professionals, and the Asian Real Estate Association of America.
 
The biggest real estate lobby, the 1.3 million-member National Association of Realtors, also has taken a stand. The group’s president, Richard F. Gaylord, sent letters in to the chief executives of Fannie Mae and Freddie Mac asking them to "discontinue the policy of stigmatizing entire ZIP codes or (metropolitan areas)" as declining markets since they "typically include widely differing" local neighborhood conditions.
 
Things haven’t changed yet, however. So in Rio Rancho, if you own a property or plan to buy in one of ZIP codes dubbed declining, expect to pay extra when you apply for a loan: at least 5 percent extra on down payments and a higher interest rate.