This week, I have spoke with more than one person who is involved with the Arizona Real Estate market who has made the comment “my best lenders are saying they have never seen conditions like the ones they are getting recently from lenders!”
The first time I heard it, I kind of shrugged my shoulders and went about my business. The second time I heard it (from a different person), I made a mental note. The third time I heard it (again, from another different person), I thought to myself “hey, this may be a good blog topic”. The reason for this next series of posts was actually the FOURTH time in ONE DAY that I heard someone mention this and she actually said “hey, that would be a great blog topic!”
Hat tip Dru. Way to make me go to work and start talking about this kind of stuff!
In today’s mortgage environment there is rarely such a thing as an “easy loan”. Even if you have an 800 FICO with a DTI of 20% and $200,000 in retirement funds, you still don’t have an “easy loan”.
Well, one common set of “hey, these are new kinds of conditions” are related to appraisals. Many lenders have put “inflated appraisals” at their top of their list as one of the major contributors to our current foreclosure problem.
In Arizona (remember, Arizona is considered a “declining market”), you will generally see that most lenders will call for 2 comps within a mile that have sold within the last 90 days.
How many houses have sold with a mile of your subject property within the last 90 days that weren’t a foreclosure/REO/short sale?
Not very many?
So even though you may have an appraisal in-hand that is for your contract sales price, if it doesn’t have 2 comparable sales within 1 mile within 90 days – be ready! The lender will probably do at least one of the following:
- Order an AVM (Automated Valuation Model) — almost every time
- Order a “field review” (where the lender orders a second opinion on the appraisal) — sometimes
- Ask the appraiser to address every little thing he wrote in his/her report, such as; why was this large of an adjustment made for X, or how do the foreclosures in the area impact the marketability of the subject property — almost every time
- Ask for additional comps beyond the 3-5 already provided –- almost every time
- They might even want a couple of active listings — sometimes
These are probably the top 5 things that we are seeing lenders ask for in today’s environment that they weren’t asking for a year ago. In the best case when these conditions come back from an underwriting department, the they are able to be satisfied within a few days and it just makes the time your clients file is spent in underwriting a few days longer.
In the worst case scenario? You no longer have a deal and everything goes wrong fast.
I am no expert in contract language — but it might be very, very good idea to have a clause in your contract that says “subject to lenders approval of appraisal” or something similar rather than “subject to appraisal”. (I bet we will get a few comment ideas on this from a bunch of smart folks who read this…)
Coming soon — Conditions that we are seeing relating to borrowers income calculations.