This entry was posted on Thursday, August 23rd, 2007 at 6:52 pm and is filed under Appraisals, Changing Guidelines. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
“Check Your Appraisal”
….was the heading on yesterday’s email from Wells Fargo Wholesale. This is a heads-up to Realtors and home buyers…
Fast Rewind
In mid July, FannieMae issued Announcement 07–11, entitled Collateral Valuation Practices and Declining Markets. Here are several key points from the memo:
- FannieMae’s Desktop Underwriter (DU) Version 5.7 released July 22, will now generate a message when it thinks that a property is located in a declining market.
- The appraiser must also indicate when the property is in a declining market.
- The lender is responsible for ensuring the accuracy of the appraiser’s work.
- Any pressure by the lender on an appraiser will cause the mortgage loan to be subject to immediate repurchase by the lender.
What’s The Big Deal?
The appearance of that term—declining market— in an appraisal has thrown a monkey wrench into many a loan approval. Appraisers avoid saying it, and lenders discourage the use of the term. However, FannieMae is tightening its jaws on past practice with this announcement. The teeth in those jaws are threat of immediate loan repurchase by the lender.
Fast Forward
Yesterday, I received emails from Wells Fargo and Sierra Pacific Mortgage stating that the maximum loan-to-value for any given loan program will be automatically reduced by 5% when the subject property is located in a declining market, as determined by either the appraisal or the DU findings.
Thus, a 100% FannieMae Flex, CalHFA, or MyCommunity Mortgage approval might suddenly require a 5% cash down payment. A 3% down FHA loan may become an 8% down.
Sierra Pacific actually provided a list of California counties considered to be in declining market areas. The list includes Sacramento, Placer, Yolo, El Dorado, Sutter, San Joaquin, Fresno, Imperial, Madera, and Merced counties.
For its part, Wells Fargo will automatically reduce the maximum LTV by 5%—without exception—for any of the following reasons:
- Declining Property Values
- An Oversupply
- A Marketing Time Over 6 Months
So as the memo says: CHECK your APPRAISAL. The last of the 100% loans may be in jeopardy in tough markets.
August 26th, 2007 at 7:41 am
So who decides that a property is in a declining market? Are we at the mercy of whatever an appraiser thinks?
August 27th, 2007 at 9:10 am
Check your AU findings closely. I received a declining market indicator from DU on a property located in Yuba county (not listed on the Sierra Pacific list of declining counties).
August 27th, 2007 at 11:13 am
Wow. I don’t get this kind of information from my mortgage guy. You are gonna get my next deal!!
August 28th, 2007 at 5:46 pm
I can’t even find my mortgage guy right now. Maybe he’s at his “day job”.
August 30th, 2007 at 6:19 am
I’m the listing agent on an escrow where they buyer is using a CalHFA loan (100% financing). The “declining market” was indicated on the appraisal and now the deal is stalled and under scrutiny by the lender. Not sure yet what the effect will be…..a field review and cut appraisal, a lower LTV.
Thanks for the heads-up. I appreciate knowing this stuff in advance.
September 16th, 2007 at 5:03 am
How can Wells Fargo change FHA downpayment requirements? Since the loan is 100 percent insured this does not seem right. Can you check into this? Thanks.
Also, if Wells Frago has such a policy borrowers can simply go elsewhere.
September 17th, 2007 at 9:43 am
WFB is not changing FHA requirements, they are simply adding their own additional requirements on top of FHA’s (should they so choose to put these into effect).
Lenders are all required to adhere to the minimum investor requirements, regardless of the product (Conv, FHA, VA, etc…). It has always been their right to require more, if only to be more prudent, in an attempt to further protect themselves. It may not be the best business decision, but it is their right as a lender.
The great thing about being a broker is that when one lender adopts these additional “bank guidelines”, there are plenty of other lenders that still abide by traditional “investor guidelines”.
As you stated, “simply go elsewhere”.