Great Roundtable Conversation about Appraisal Changes

July 10, 2008 by 2 Comments

I was just part of the latest 4realz Roundtable hosted by Dustin Luther and featuring Jonathan J. Miller, an appraiser from New York.   This discussion is about the upcoming changes with how conforming appraisals will be ordered, which I wrote about earlier this year at Rain City Guide.  I was planning to be a fly on the wall…but Dustin wouldn’t have that!   Jessie B. from Retro.com was also active on the panel.

This will impact any conforming (Fannie/Freddie) mortgage and I really don’t see ANY benefit to this new procedure that is scheduled to begin on January 1, 2009.   If this goes into effect, appraisals will be ordered from an "appraisal management company" instead of from a mortgage broker/loan originator.   It’s my understanding that even though this change has come about from NY’s Attorney General Coumo suing Washington Mutual and eAppraisal, banks like WaMU will not be impacted.  (Am I the only one who finds this ironic?).

My take on this is that appraisals will take longer and will have less quality if they are ordered via a pool (very similar to VA appraisals).

Listen and learn! Just click the green arrow above.

Filed Under: Appraisals, Legislation, Podcasts

Join Me at 4pm Today at 4realz.net

June 12, 2008 by Leave a Comment

Be part of the conversation with Dustin, David G from Zillow, Joesph Ferrara from Sellisius and yours truly as we discuss The Value of Home Values.  For more information or to join in (the more the merrier) click here. 

The last time I had an opportunity to chat with both David and Joe was Blog Tour USA…it involved a ping pong match at Zillows Headquarters.

The round table begins at 4:00 p.m. PST. 

Filed Under: Appraisals, Weblogs

When an Appraisal Comes in Low for a Refi

April 13, 2008 by 1 Comment

Appraisals are being scrutinized more than ever with our current mortgage climate.  And I am seeing a few coming in lower than what the home owner anticipated.    If you have plenty of equity, a lower appraisal may not impact you.   However, mortgages are often priced based on loan to values and depending on the type of mortgage and property.  Different scenarios have different pricing based on "risk".  A higher loan to value over a certain price point can increase the cost of the loan.

For example, I recently had a refinance for an investment property where the home was appraised for slightly less than the home owner expected.  He estimated $200,000 for the value of the property and the appraiser (with supporting comparable sales a.k.a. comps) valued the property at $180,000.  The difference between 75.01-80% loan to value and 80.01% LTV is 0.5% to fee (that’s 0.5% of the loan amount or repricing the mortgage interest rate to absorb the 0.5% in fee).    

What are the options with this scenario?

  • The property owner could pay the additional 0.5% in fee ($900 based on the above scenario) to keep the same rate or have the rate bumped up to absorb the fee.   Plus they would pay private mortgage insurance since the LTV is over 80%.
  • The loan amount can be reduced back to 80% of the appraised value, keeping the current rate.  The property owner may have to bring cash in to closing if there is not enough equity to absorb the difference.
  • The loan may be re-priced to absorb closing costs and thus reduce cash needed for closing.

Many appraisals now require interior photos (including kitchen, main living area and bathroom).  Since the underwriter is reviewing the photos, you may want to make sure that your home and yard are tidy.  They are reviewing photos for clues of "pre-foreclosure" or fraud.  I recently even had an underwriter question why a room was vacant on an owner occupied refinance, the home owner had just finished a remodel and had not moved his furniture back when the appraiser was there for the photos.  His house appeared too clean!  Appraisers and underwriters are questioning everything and are being very cautious during these historic times.  What it boils down to is that nobody wants the lender pointing a finger back at them should the loan not perform (become a foreclosure). 

Filed Under: Appraisals, Refinance

Major Changes with Appraisals for Conforming Loans

March 29, 2008 by Leave a Comment

This post was first written at Rain City Guide earlier this month.  I’m taking a few days off and thought I would share this information with you here.

This morning it was announced from OFHEO that Fannie Mae and Freddie Mac have agreed to some major changes with regards to how appraisals will be ordered for conforming mortgages:

“…including eliminating broker-ordered appraisals, prohibiting appraiser coercion, and reducing the use of appraisals prepared in-house or through captive appraisal management companies in underwriting mortgages. The agreements also enhance quality control in the appraisal process and establish a complaint hotline for consumers. The agreements include a Home Valuation Code of Conduct that the Enterprises will apply to lenders selling mortgages to Fannie Mae or Freddie Mac. The Code becomes effective on January 1, 2009.”

It’s ironic to me this is eliminating “broker-ordered” appraisals and “reducing the use of captive appraisal management companies” when it was Washington Mutual’s actions with eAppraisal that caused New York Attorney General Cuomo to investigate.

The appraiser I use has been doing his job for over 30 years. I trust him and respect his work. Last year, when he had an appraisal come in low on a property that was in a bidding war with zero down financing, I didn’t doubt him. The agents were furious…even the homebuyer wanted a new appraisal. They wound up buying the home for the appraised value instead of the bid-up price. I wonder if they realize what a favor he did for them by providing a true appraisal? (He’s come in low on some refi’s too). I have to admit, I’m less than happy realizing that I may not be able to rely on using his services for appraisals once the new guidelines go info effect.

I’m concerned that obtaining a conforming appraisal will be very similar to how VA appraisals are done: a crapshoot lottery. This is all well and good as long the appraisers in the pool are all competent and efficient. However when there is no competition for business, will it breed complacency?

I’m also wondering what will happen with the cost of appraisals. Presently, I have a rate sheet from my appraiser and I know how much the cost will be for each transaction after we have loan approval. Unless Fannie and Freddie decide to control what an appraiser will charge, the fees can vary. How will loan originators be able to provide accurate Good Faith Estimates without knowing who the appraisal will be through?

More questions than answers right now…and more changes with mortgages are on the horizon with HUD’s announcement of what the median home prices are due in about ten days.

Update: Fannie Mae is accepting comments until April 30, 2008.

Filed Under: Appraisals

When an appraisal comes in low

June 20, 2007 by 5 Comments

Luckily this hasn’t happened often to me…last week we closed a transaction where the appraised value came in lower than the agreed sales price on the purchase and sale agreement.   Ugh!

The property is a nice home in south King County that was originally listed for $275,000. Shortly after going on the market, a bidding war commences and my client “wins” the home after it is bid up to $300,000 which includes building in $6,000 of closing costs to be paid from the seller.  My client is putting zero down into the transaction (100% loan to value).

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Filed Under: Appraisals, Real Estate Agents, Residential Purchase Tagged With: , ,
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