Like a college grade these days, appraisals are being met with sceptical eyes by lenders who are facing losses on their loan portfolios. During the salad years of easy lending, loan officers played the nudge-nudge wink-wink game as stated income loans that came in with appraisals that were over the top with optimism rolled across their desks right into the approved basket.
Now with the subprime market in the toilet and losses piling up on all sides, lenders are taking a much more sceptical look at what crosses their desks. Gone are the 100 percent stated income loans, and gone are the inflated appraisals that once were commonplace. Instead, some lenders are taking it into their own hands to lower the appraisals on properties.
Especially in areas where the market has slowed and homes are not selling, you are seeing lenders discounting the appraisals by tens of thousands of dollars. This is putting borrowers in a bind as they are unable to refinance the adjustable rate loans these same lenders told them not to worry about.
But all news is not bad, when markets tend to tighten, it usually means the worst is upon us or past. Just as these same lenders were loose with their loans long after they should have tightened, they are now tightening too much. The pendulum swings are fairly common in commerce.
So do not give up hope, but also do not be surprised if the appraisal done on your home has been lowered and the appraiser who was so malliable a couple of years ago now is much stricter in his work.
A loan officer from Quality Home Loans, a lender that downgrades appraisals, said, “Appraisals can be downgraded for a lot of reasons, like market saturation, houses that stay on the market too long, or if when doing a public records search we see that though additions were made to a residence, the proper permits were not obtained. So then we disallow those additions.”
Real estate lawyer Stephen Greenwood said he thought lenders are “being oversensitive” to avoid financial problems such as those that affected New Century Financial, which went bankrupt.
“I don’t know if it is actually legal to decide to reduce somebody’s appraisal,” he said. “Then again, the lenders are the ones loaning the money, and they want to make sure their risks aren’t worse than what they already are.”
Ashidda Khalil, executive director of the Baltimore branch of the Neighborhood Assistance Corporation of America, was familiar with the practice. “Imagine your neighbor with the identical house in the same condition gets 100 percent LTV, and not only do you get double-digit interest rates and only 60 to 70 percent LTV, but now they drop the value of your home by tens of thousands of dollars,” she said. via the Examiner.com
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