In a Realty Times article today Blanche Evans points out that banks are "turning the clock back to 1975," when higher downpayments were required to purchase a home.  This comes on the heels of FNMA's abandonment of their "declining markets" policy just ten days ago.  So what's happening here?

Fannie Mae and Freddie Mac can renounce any policy they want with regard to markets, but if the discussion is about downpayments of less than 20%, the private mortgage insurance companies are the ones making the rules.  In fact, it seems that those companies are less concerned about creditworthiness of borrowers than about the local market.  There is anecdotal evidence that people with superior credit scores (over 800) are still experiencing difficulties obtaining mortgages with less than 20% down.  Those mortgage insurance companies are still smarting under some huge losses (real and anticipated), and want to remove all risk.

Continuing risk avoidance on the part of mortgage insurance companies will lead to continued paralysis of the market.  What will break this logjam?