It's not that people don't want homes, it's that they can't buy them under the stricter lending standards. . . .In 1975, it was not unknown--it was in fact only made illegal that year by the Equal Credit Opportunity Act--to inquire about a married woman's future childbearing plans, her use of contraception, and her religion before deciding whether to "count" any income she might produce for purposes of qualifying for a loan. (If she said "Catholic," forget it.) If you think we are experiencing 1975 mortgage loan underwriting, you were born yesterday.
Lenders are turning the clock back to 1975, requiring larger downpayments and higher credit scores to qualify for low interest rates. That's only prudent, but what they're also doing is tightening appraisals on properties that are being sold or refinanced.
So why is it "prudent" to require larger downpayments and higher credit scores, but another thing entirely to tighten up on appraisals? And how is this nefarious appraisal tightening preventing people from buying homes?
There must be an anecdote, and we actually get a twofer:
Dallas Realtor Mary O'Keefe was hit with the new lending realities in a double whammy just this week.So the purchase transaction actually did close, although it was--gasp!--"delayed," but this poor lady who wanted to cash out the "equity" in a townhome she was not going to occupy was stymied by some evil bank who--get this--wouldn't use a year-old appraisal. Turn on the disco ball and haul out your lava lamps! It's the seventies!
"I had a closing that was delayed because the lender wanted a second appraisal," says Mary O'Keefe, a Dallas broker. "I told my clients absolutely no way would they pay for a second appraisal."
That deal finally closed, but O'Keefe lost another. A client wanted to take out some equity on her townhome, buy another property to live in, and save the townhome for mailbox money. The client had an 800-plus credit score, was approved by a lender, but went to her personal banker for the HELOC. She had an appraisal from the year before for $467,000 giving her about $155,000 in equity.
Because banks want to use appraisals no less than six months old, the personal banker called for a drive-by appraisal, which came in at $400,000, more than $20,000 below the lowest priced home in the community, and $75,000 below a home that sold a year ago three doors down.
I confess to being somewhat alarmed, by the way, about a Realtor who tells a buyer that "no way" are they going to pay for a second appraisal. You would not, in the current environment, even consider paying another $350-$400 to assure yourself that you are not overpaying for your property by thousands of dollars?
The real problem here is that Realty Times wants to continue to perpetrate the view that establishing reliable appraised values is not in a homebuyer's best interest as well as a lender's. For some reason this reminded me of a story we posted just a year ago, in which the Wall Street Journal waxed outraged about some poor rich doctor who was having trouble getting his loan approved to buy a property for $1.05 million when the lender had gotten a broker price opinion stating that it was only worth $750,000. I did a bit of looking in the county real estate records, and it appears that our man did indeed buy the home on April 17, 2007 for $1.05 million. On April 27, 2007, the county assessed the property for tax purposes at $793,400. Per the WSJ he borrowed $885,000. I wonder if he still feels ripped off by the lender who told him he was overpaying for that home.