I offer this as a warning about how a credit card can be compromised, to provide information on a "slick" loan officer twist, outrage over an appraisal, and a lending institution that could have stood behind its new mortgagor.
This is a true story, except with fictitious names.
It's about a mortgage application that has now closed - a refinance in which a 20% down payment was made on the original mortgage. Here's how the story goes:
Scene One - A Twist on "Slick"
Mary received her monthly mortgage statement, is aware of the current interest rates available, and calls the loan officer named on her mortgage statement inquiring about doing a refinance with her current bank, "Bank ABC."
Tom, the very friendly loan officer quoted Mary a great rate for her proposed refinance. Mary figures she will keep it simple, stay with the same bank, and agreed to an appointment at her home with Tom to sign the refinance mortgage application.
Tom showed up for the appointment, application documents were spread out on the table, and reviewed. Everything looked good. Tom asked to see a local phone book. He looked up information about locations of another bank, "Bank XYZ," in the Pike County area.
Of course, Mary wants to know why, and Tom announced he no longer works for "Bank ABC" who holds the existing mortgage, and now works for "Bank XYZ," and yadda yadda, and "Bank XYZ" is a terrific bank for all these reasons, yadda yadda.
"Bank ABC" apparently had pulled out of the area and is no longer doing mortgages in the area. Tom is apparently still responding to calls from mortgagors with "Bank ABC," although he no longer represents the bank and now represents "Bank XYZ."
Mary, a Realtor, is miffed! She already has business relationships with other loan officers representing "Bank XYZ." She had originally thought about calling them for a rate, but was trying to keep it simple. She was now in an awkward position, and suddenly very wary of Tom.
She has a great new rate in front of her. She evaluated other things going on in her life, decided she needs to keep it simple, and continued to move forward with Tom, who has offered her the great rate.
Scene Two - A Compromised Credit Card
The standard credit report application was made to the standard reporting agencies. Mary received a score over 800. She turns out to be the dream mortgagor who any loan officer and mortgagee would want - great property, solid, healthy income, and great credit score.
All things moved forward. Within several days of the credit report being run, Mary received a call from one of her credit card companies - its consumer fraud department. They were inquiring about charges placed against her credit card, and suspected fraud.
Indeed, it was fraud. This particular credit card was opened by Mary for one sole purpose - to transfer a balance. Once the balance was transferred, the credit card was locked away in a file cabinet and never used for any transactions.
Mary looked over the addendum to her mortgage application that reflects the report sent to "Bank XYZ" from the credit score report agency. Curiously, the account number for the violated credit card showed only the last 4 digits of the account number, although all of the other accounts listed on the report had full account numbers represented.
Mary called Tom. She wanted to know who prepared the addendum to her mortgage application, the credit score report agency, or "Bank XYZ." After a heated conversation, Tom stated the credit score report agency prepared the addendum.
Tom offered no recourse or avenue by which "Bank XYZ" could track down anything that might be associated with the fraudulent activity on Mary's credit card in spite of Mary's protestations.
Mary closed her credit card account, and a new account was issued.
Scene Three - You Call this a Valid Appraisal ????
Time came around for the appraisal. For the sake of brevity, a detailed account of the errors and inconsistencies in the appraisal will not be presented in this short story - only an overview.
Mary was contacted by the appraiser, Dick, to set up an appointment for a walk through of the home; appointment scheduled. The appraisal company Dick owns is not from the local area, but from Scranton - a very different market than Pike County, PA.
Dick, the appraiser, and his assistant showed up for the walk through, took many pictures, and many measurements, inside and out. Dick stated several times, although not asked, that he had done many appraisals in this particular community, and was very knowledgeable about the area. Hmmmmmmmmmmm . . . red flag to Mary.
Fast forward, the appraisal was presented and, lo and behold, it is far below the value of the home, outrageously below. It was still above the refinance amount, but not far enough above to avoid Mary having to pay a ¼ point at closing.
Mary and Tom, the friendly load officer, were furious. Tom stated that he was in Mary's home, had run its information through Zillow, and knew how off base the appraisal was.
Tom encouraged Mary to appeal the appraisal. She did. Being a Realtor, she pulled many comps from the local MLS to disprove the appraisal amount. The comps were sent to the agency that hired the appraiser, along with the appeal.
Dick, the appraiser, stated in the appraisal report that he used all the comps available within a certain range of time, within a certain distance from the home in this particular community, of the same style and square footage and age. He did not, in fact, use all of them.
Dick stated he used homes of comparable square footage? He did not. The MLS reports used for the comparables presented square foot amounts representing "total square footage" of each subject house, not just living area. That method would place the square footage of Mary's home at just over 2000 SF, with about 1300+ SF of living space on the main level. Part of the lower level is living area, making total living area at about 1500/1600 SF. The appraiser used only the living area on the first level of Mary's house against comps relative to square footage, not total square footage, nor the square footage in the downstairs' family room and bath included with the square footage of the main level.
The size of the land was under-evaluated.
Dick stated he used homes of the same type and style, which would be a raised ranch or bi-level? He did not. He used a large ranch, and a very small ranch as two of the four comps.
As a Realtor, Mary knew the homes used by the appraiser in the comps - foreclosures. She had personally shown 3 of them to customers.
The large ranch had significant water damage and warped floors on the lower level, and the heating system was totally dysfunctional requiring replacement, a new furnace, et cetera.
A renter, who lived in a squalid, filthy manner, inhabited the small ranch. Additionally, its basement area was split into smaller rooms, all of which contained unfinished dry wall that was covered with mold.
The third comp had miss-sized rooms, was badly designed, and had water that was seeping up through the basement floor - it required much in the way of repair.
The house that sold at about the right price that would have been the perfect comp because it was so close in size and style, etc. to Mary's house, and which Mary could see from her back deck because it was so close, and that was not a foreclosure with major damage, was not used. Nor were many of the other good comps used that Mary had pulled.
The appeal did not go well. "XYZ Bank" had no choice in picking the appraiser, as you all know - nor could it communicate with the appraiser. Dick, the appraiser stalled and had to be called many, many times before he finally requested more time. Following that, Mary was told by Tom, the friendly loan officer, that the appraiser was "rude and arrogant" to all who tried to communicate with him and stood by the initial appraisal. Apparently the agency who hired Dick did not inform him to get it right.
This mortgage application was run through Fannie Mae / Freddy Mac, although the initial mortgage was placed with 20% down. Mary was told that "XYZ Bank" plus all others were doing it this way so that the mortgages could be sold on the secondary market by meeting the standards set by Fanny Mae / Freddy Mac. Otherwise, the interest rate would be over 9%, so said Tom, the friendly loan officer.
Scene Four - The Uncaring Mortgagee
Stuck with a bad appraisal and the prospect of having to pay for the bad appraisal, Mary told Tom that she expected "Bank XYZ" to waive the ¼ point at closing - she did not require a federally backed mortgage having put 20% down, and being the ideal candidate as she was.
"Bank XYZ" insisted on making its ¼ point, and Tom and Mary ended up splitting the 1/4 point at closing.
Mary has a new mortgage, and a great rate, but she is ticked off!
She is not ticked off so much personally as she is at the system that allows this to happen to the American public as a whole. Government sponsored incentive programs don't do much if properties don't fairly appraise so that deals can be made. It is one thing for the market to adjust, but what is currently occurring goes far beyond market adjustment - it is abuse, in my opinion.
When does it stop, and where is the recourse? What is the NAR doing about trying to make this a better lending environment and to demand more accountability by the appraisers and regulation over what they are doing? And this does not speak to the initial misrepresentation to Mary by the loan officer, nor the credit card that showed fraudulent activity after the credit score report was run and her account information was accessed.
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