How Exactly Are We Sure About 105%?

An underwriting manager was interviewing a potential underwriter for a “senior” underwriter position. The interview started out pleasant enough, and both the underwriter and the manager were starting to feel like there was probably a good fit between what the company was looking for and the “senior” underwriter’s skill set and experience.

“I just have one last question before we can end this interview” the underwriting manager said as she pulled out a copy of a recent appraisal that was done by an FHA approved appraiser.

“Can you please tell me what the value of this house is?” and she handed the copy of the appraisal to the senior underwriter.

The senior underwriter first glanced at the appraisal and then picked it up and began to thumb through it.

She then put it down on the desk, got up out of her chair and went to the window and closed the door and turned the shades down so no one could see in.

After turning the shades down, she returned to her seat, sat down, leaned forward, looked the underwriting manager in the eye and said in a soft, low voice…

“What do you want it to be?”

How Will The ‘Obama Refinance’ 105% Be Calculated?

Less than 2 minutes after President Obama announced his housing plan, people began asking me what I thought of the plan. My first reaction was generally - I wonder if people will be able to refinance without an appraisal.

Since the announcement, this is probably the most asked question that I get - “how will the 105% be calculated?”

How To Get to 105% - Some Possible Options

Here are a few possible options of what could happen. Obviously - I have no idea what is going to happen, but here are a few possibilities:

1. Design the program similar to the FHA streamline program where no appraisal is required to refinance your home. For anyone who is under water (no matter how much) this plan would seem to make the most sense.
2. Use a standard automated appraisal tool to determine the value of the home.
3. Use whatever the FHA approved appraiser arrived at regarding what the home is worth.
4. Use the tax assessors value.
5. Use a Zestimate.
6. Change nothing - and allow senior underwriters to arrive at a value.

Does 105% Make Any Sense?

Here in Arizona, many homeowners have scoffed at the 105% number - because 105% doesn’t seem like a real option when you are currently owe 40% more than your home is worth. Does the 105% plan make sense? I don’t know for sure… but if it was me that was charged with making this decision, I would study the macro-market environment at the time the FHA streamline program was announced because I think there are many ideas in that program that may work better than trying to set a loan-to-value number at 105%.

Or I guess you can always allow the underwriters to turn down the shades and whisper amongst themselves as to what a property’s value is.

February 26, 2009