The Mortgage Process? – Some Things May Just Be A Crap Shoot

A scenario came up recently that has been reoccurring since the inception of the new appraisal guidelines (HVCC ). Even though I have experienced this situation many times over, it’s still an uneasy feeling as a loan originator to address. What do I do? I handle it as any surviving loan officer would and tackle the situation head on, explaining both good and bad.

Allow me to address the value part of the loan process:

The background -

I had a past client who happens to be a personal friend call me up last week interested in refinancing. I updated his application, ran his credit and everything looked great so far. Then I addressed the value of his home, which appraised for 380K in 2007. I did my due diligence as a loan officer, checked home values on Zillow and other online engines and finally ordered a range of value from my appraisal management group. The range of values were huge. A recent foreclosure at 200K up to a similar comp at 450K.

My client lives in a water privileged community that is made up of small bungalows, huge houses and a whole lot of everything in between. In a great housing market this property is difficult to appraise as water view, water front and water privileged. All must be taken into account along with attempting to find a similar sized home that was a recent sale. I structure the deal to be an 80% rate/term conventional refinance. The value needs to come in at 325K to meet the 80% loan to value threshold. Understanding the Washington/Baltimore real estate market I believe the 325K number should be spot on. My client is certain that should be no problem.

The prognosis -

I have such a great loan for my client. I will be lowering their interest rate significantly and even more importantly saving them almost $300 per month. I continue to remind my client that there are three key parts to a loan: Credit, Income and Value. If the house does not appraise for 325K we are going to have a value problem. Not only will the payment and rate increase but with a high debt ratio and the LTV now over 80% there is a strong possibility the loan gets denied.

The dilemma -

The cost of the appraisal is $375. Yes – acting as the loan officer I can guarantee the bill will be paid and roll it into the closing costs of the loan or even elect to issue a lender credit and pay for it myself. BUT – What If the value comes in lower and the deal sours? Do you think my client will offer up to pay for the appraisal then?

I handle as most loan officers would and get my client’s credit card and pay for the appraisal upfront. After all, that is how we are supposed to conduct business these days. In addition, my client is certain the house will appraise.

The point of this story -

Your takeaway?…When a loan officer proposes a deal these days it’s based on their best beliefs in the value of the property. This value is not determined until an appraisal has been completed. Someone has to pay for the appraisal. Deal with an experienced mortgage banker that will clearly explain when applying for a loan and remember, in today’s real estate landscape some things may just be a crap shoot.

Photo Credit: Niffty..