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Declining Market Values-a lenders viewpoint

By
Mortgage and Lending with Christensen Financial Mortgage 385907

You just gotta love those declining market values. Now my favorite guidelines apply to appraisals.

Here's a few thoughts.

Refinances and bailout discussions are a joke when you just don't have any equity. Unless someone is going to go to 150% loan to value there's a problem. Also think about this; while a homeowner may not want to go to foreclosure they also may not want to continue to own a home that's worth $50,000 less than they paid for it 2 years ago.

It's the I don't want to be bailed out syndrome.

I have a client with great credit and an option ARM, you know a program where the only payment he can afford causes his balance to increase, who wants to refinance. I called him with good news and bad news. The good news is that there have been recent sales in his community so we have fresh comps. The bad news is that there have been recent sales in his community and the recent comps are $40,000 less than what he paid for his property.

Purchases (Realtors may want to pay special attention here)

While the guidelines may tell me comperable sales up to 6 months are acceptable I have some surprises for you. 

Underwriters are looking for fresh stuff in markets with declining values.

Now while this may make things more difficult please remember that we went through periods of foolishness and this action is actually prudent, in my opinion (for what that's worth).

If a Realtor used seasoned comps in their market analysis or the listing is ageing you may have an appraisal problem at the point of sale.

Also, we used to look at some sales as distress sales, however they ALL look like distress sales now.

A favorite of mine is when i tell an investor the property is in Lee County, Florida. Here's the reply.

Reduce the LTV by 5% please-thank you very much.

That is not as bad as investors who have multiple criteria which they apply to the appraisal after it has been received. It's a test that the appraisal must pass or "your loan is approved," but not at the 95% you applied for, rather at 90%. No problem just fork over some more dough (if you've got it that is).

I was talking with my buddy "the bus driver" about 3-4 units in Cape Coral and what the value may be. The problem was that there were "no comps" available in the last 6 months.

Good luck with an appraisal there.

Well, as lenders, looks like we have quite the challenge with determining acceptable values.

It only looks that way because we do!      

Comments (11)

Matthew J Blum - (retired from the business)
Palm Beach Gardens, FL
Jay, I am getting tons of those updates to guidelines now from all of my investors.  It is crazy.  Glad I have a solid book of business.
Dec 20, 2007 10:01 PM
Kris Wales
Keller Williams Realty - Lakeside Market Center - Macomb, MI
Real Estate Blog & Homes for Sale search site, Macomb County MI
We're seeing so much of this here also Jay.  What a nightmare for lenders, for realtors, and for buyers and sellers.  It's all quite the adventure lately.
Dec 20, 2007 10:07 PM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

Matthew,

I hate it when it makes sense, although like anything else some lenders will tend to overreact.

Merry Christmas

jay

Kris

make sure your lender orders the appraisal quickly as you could lose the value you need if the application sits for 2-3 weeks.

Merry Christmas

jay

Dec 20, 2007 10:14 PM
Sean Allen
International Financing Solutions - Fort Myers, FL
International Financing Solutions

Hey Jay,

Great post and very accurate. It is getting tougher and tougher to get LTVs that the borrower wants right now.

Sean Allen
The Mortgage Professionals

Dec 20, 2007 10:15 PM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

Sean,

just todays challenge. the realtors need to be aware when listing to get it right or unfortunately it won't get done.

Merry Christmas

jay

Dec 20, 2007 10:19 PM
Charlie Ragonesi
AllMountainRealty.com - Big Canoe, GA
Homes - Big Canoe, Jasper, North Georgia Pros
This is another great post and highlights a problem in your area. It is serious and guess you hold tight , thank God for the roof over your head and wait for the market to turn
Dec 20, 2007 11:11 PM
Brian Sharkey
SharkeyRE LLC - Singer Island, FL
SharkeyRE

Jay,

Sounds like a short sale candidate.  With good timing he can sell the house short and purchase a new house for much less money.  Effectively refinancing with a new house.  Its a sad story but the danger is forclosure is getting close.

Dec 20, 2007 11:18 PM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

Charlie,

thanks, after close to 30 years in the industry i try to see things as they are and not as i would wish them to be, then to deal with them as effectively as possible.

Merry Christmas

jay

Brian,

he has assets and will survive, but his home is currently not a great investment, but it's still his home.

Merry Christmas

jay

Dec 20, 2007 11:37 PM
Rodney Williams
Ocala, FL

Hi Jay,

 

Is there a good reason your client needs to re-fi such as his loan is about to recast? His payment should only go up 7.5% each year and if he is less than three years in to the loan he may be able to ride this out. I know it means no commision to you now but you will get good referrals from him and the re-fi when he is ready.  

Jan 31, 2008 09:31 AM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

Rodney,

 most subprime loans cause a greater payment increase than 7.5% annually. the first adjustment can cause an increase of closer to 21% on the payment with rate adjustments every 6 months thereafter. you may want to read one of these notes sometime.

also this has absolutely nothing to do with my loss of a commission but rather the injustice to a client.

Jay 

Jan 31, 2008 08:45 PM
Rodney Williams
Ocala, FL

Hi Jay,

 The only Option ARM I would put a client into would be one that is indexed to the COSI. The rate seldom makes a dramatic change and the monthly payment is stable for twelve months at a time.At the end of twelve months the minimum pay will only increase by 7.5%.This can go on for ten years until the principle has to start going down. I do not write loans based on the LIBOR unless the borrower is an experienced investor and knows the volatility of such an index. Also I forget that you did say it was subprime. I think I have only ever written two subprime loans in my career. Many of the loans my competitors in this area wrote subprime, could have been written under conventional guidelines. The reason I know is that some were referred to me before they fell into the trap. One borrower was quoted 10% with 5 points on the front. This is not right. I did that loan at 6.75% and 1.5 on the front. This was a $135,000 loan. Hope everything goes well for your client.

Feb 01, 2008 04:08 AM