Many of you may not be aware that in this new year, the mortgage lending industry will begin to abide by some new rules / regulations / laws that will surely reduce the amount of mortgage loans given out.
The one rule that seems to sum up all of the new legislations is, lenders will be required to verify and inspect borrower's financial records. Granted, this doesn't sound like a bad rule at all, in fact, it's one I could get behind myself because it seems like it's nothing but common sense however, it's not what the industry has been practicing, even after the housing bubble burst. You see, many people who have the credit score, get the loan, with little to no actual "inspection" of their financial records or in other words with no real "inspection" of the consumers ability to pay back the loan.
As a Realtor, I see this lack of true underwriting every day when I meet the buyer's appraiser at the property for the appraisal. He walks in, walks around, takes some pictures, looks under some cabinets, spends about 30 minutes to an hour there, goes back to his truck, says "thanks" out the window...waves and drives off. A couple days later, I see a copy of the appraisal from the lender and to my surprise, it's exactly the same amount of the purchase price. HOW IS THIS POSSIBLE? This makes me mad each and every time I see it. Why.....well, it means the appraisal is a sham, a farce, a magic show. I have been doing property evaluations for banks for years now. NO, I am not an appraiser, I do Broker Purchase Opinions, similar to an appraisal but, not the same. None the less, I know that it's impossible...absolutely, undeniably, impossible for a property evaluator to appraise or provide an opinion of value that is exactly the amount of the purchase price. Why is this, you might be wondering...why would it be so impossible for that to happen? Because if I am providing an unbiased opinion, I wouldn't know what the purchase price was. In short, if the buyer has the credit...the fico score, many banks....all of them....could care less how much the buyer spends or how much the property is really worth because, the buyer is getting the property based on a number, not his true ability to pay back the loan. This happens because these banks are making so much money on the total number of loans they do, taking a hit on a few who can't pay back...well, not such a big deal, that was until 2007 - 2008, that is.
The housing bubble burst taught us all a lesson.......one that we should have learned from the banking crash of the 80's but, we ignored. Banks aren't doing a good job making sure the consumer can pay back the loan, they are doing a excellent job at making themselves money.
Make no mistake, I am not an advocate for more regulations, more laws, more government intrusion in our lives, I am explaining this so that consumers wake up. As friendly as your mortgage lender is, as much as he tells you he likes your shoes and ask your husband if he saw the game this weekend, he gets paid more if you borrow more. You are personally accountable for your decisions so, if you are a taxi cab driver, making $24,000.00 a year.....NO, YOU CAN'T AFFORD A INTERST ONLY LOAN OF $250.00 A MONTH AND IN 12 MONTHS YOU GET A BALOON PAYMENT OF $15,000.00. Have you ever had $15,000.00 in your checking account waiting to be spent? Seriously?
This new rule goes a bit further and says, lenders can't obligate consumers with more than 43% of the person's annual income in the loan. Yes....that means now we have a cap. If you are out there looking for a mortgage loan, you will not be able to get one that is more than 43% of your annual income. In my opinion, this goes a bit too far. Who is the government to tell consumers what they can or can't do? Sure....the government tells us everyday what we can and can't do but, should they be in the business of telling us what we can and can't borrow? I don't think so.
Ok...sure, we have some in our society who are uneducated, un-intelligent, just stupid and yes, they should be protected.......or should they? In many ways, protecting the idiots amongst us who go to a lender, tell the lender they want to buy that $250,000.00 and they think they can afford it on a part time job at McDonalds........then, if the bank is willing to do it.....part of me says, step back, let it happen and watch the situation teach. That's right, some of us just aren't going to learn without going through the fire ourselves. My point is, can you legislate good behavior...I don't think so.
Comments
Jesse, he valued the home approx. $40,000 under what he org. estimated it would be worth when he was chatting with us. My son did talk with him about it, his explanation was that the home was new, but he only had 1 new house within a mile that he could use,he said the underwriter was extremly paranoid about an audit with the new regulations in place so he wasn't allowed to make age adjustments or go further in distance to obtain comps.
Understand, this is in a rural area where all homes are on acreages, and we typically have to go 5+miles to find decent comps. Oh, the new house was a sold comp, like property, but the appraisal still came in way under it.
I'm not completely sure the appraiser is at fault, as I know he has had to provide additional documentation to the underwriter several times through the loan process, even at the low price he appraised it for. The company my son is getting the loan with has apologized many times for the underwriters actions stating that all of thier underwriters are really concerned about fines by not having all the paperwork just perfect.
My sons credit rating is excellent, and he is having a ton of issues getting this closed. I can't imagine anyone with the slighest hiccup on thier credit even getting a mortgage right now.
Mark......UGH! Did you just want to pull your hair out!?!? I don't know if we (as an industry) have any real recourse in these types of situations but, I would love to hear the other side. I have some questions. Is this the way its suppose to happen? Is this the way these appraisers are taught? If not, how do we report it? Who do we report it to? The sad part about your situation is, I would bet that the money needed to pay back was much less than the "value" of the home. In essence, he (the appraiser) likely screwed you out of equity. Just curious...did he?
So true, My wife and I have discussed this countless times. The appraisal just happens to be the same as the purchase offer 90% of the time. A perfect example, my Son just finished building a new house in an area we do a LOT of bpos in,,so we know what the house would sell for. The appraiser shows up, does his thing, after he's done he gives us a rough idea what the value is as he just appraised several other homes in the area. His value was right in line with what we thought it should be. Well, while we were talking my son mentioned that since we built the home ourselves he only needed a loan for$XXXX to pay back the construction money. BIG MISTAKE!, the appraisal came back at the construction loan amount and not the actual value. Coincidence? Ya, I don't think so..