Friday, November 27, 2009

Mommas don't let your babies grow up to be mortgage underwriters

One minute after this photo was taken, steam came out of my ears.

In a new-to-everyone shocker for today's lending environment, a client's home loan was denied by a large bank because the underwriters did not deem the comparable properties used in the appraisal sufficient. Despite factual arguments made by the ON THE GROUND appraiser, me and the listing agent of the subject property, the underwriters determined the market value of a property (of which they had never been in) on comparable properties they have never seen that are in neighborhoods the underwriters have never been in.

I guess the bank can lend to whomever they want. However, denying a loan to a qualified, ready, willing and able buyer for a renovated home being sold by a non-distressed owner in a stable neighborhood is one example what people are going through right now. The subject property had also a previous higher offer but the buyer lost his job during the purchase process. The property had multiple offers in a shorter than average market time yet market value is disputed.

Specifically, the bank underwriters want to value a renovated town home (that has new windows, baseboards, gutted newer kitchen, gutted newer bath, refinished and stained floors... etc) with over $60K in improvements inside and out at the same price as a mostly original town home built at the same time (mid 1960s). The distressed property was sold as a short sale just two months back. And we are only asking that the subject property sell at $15K above the short sale town home and for the appraised amount! The subject property is also selling well below the median price for three bedroom town homes in the area. Why the red flag?

Why can't the bank order another independent appraisal when there is a dispute? If the valuation is the same as the first wouldn't the bank be satisfied and want to make the loan? We all know most banks burned themselves in the bubble and government and self imposed regulations have made mortgage lending maddening for both loan officials and borrowers. But when transactions are getting stopped cold by underwriters in offices somewhere disputing on-the-ground property appraisals over a $15K difference... this is nuts. And that's what it's like out here.

At the moment, my client's mortgage broker has submitted the file to two other lenders as we all feel this should be a no brainer. Because the buyer is using an FHA loan, we won't need a new appraisal when switching banks. However, there will be a red flag due to the first denial to lend at the contract price. It's wait and see for now. My guy is stuck and the sellers can't close on their new home until they sell their current place... everyone waits with a lot to lose.


Michael S Messinger said...

Thanks for the story Eric. This is the kind of stuff I meant a few months ago when I asked for "from the field" experiences. It's not a nice thing to have to go through but I feel a little better armed knowing this could happen when I start house hunting.

best of luck to your client; please let us know if there is a happy ending to their story.

Sandra said...

I have had a similar experience. In my opinion the banks and appraisers are driving prices down needlessly. And the advantage in doing this is??????

Eric Rojas said...

Thanks Michael,

I warn my sellers that we need to price for the likely appraisal. With buyers, I am trying to negotiate a good price and terms... so, appraisal is usually not a problem as we are basing our asking price on real time market conditions and demand.
Everything has checked out in this process and the bank approved the buyer... we just need underwriters to trust the process on the ground.

The regulations on appraisals are very strict and our data is easily scrutinized, so what else do we need?

Hopefully, one of the two new lenders will want my client's money.