I have a wonderful couple looking to buy their first home. I have them approved but something has come up. Fannie says the home may be in a declining market area. It’s a sparkling clean approval. Full Doc. W-2’s. Copious amounts of reserves. The comps? They are buying at seriously well under market value. As of yesterday, they now have a fully executed contract. The clock is ticking.
It’s that declining market issue that’s bothering me. I’ve tried calling AE’s, Underwriters, and the setup people. I’ve tried the fax and the email route as well. I just want to make sure of one little thing before I order the appraisal.
Here comes the rant…
I can’t get people to call me back. Between the holiday office parties, the “closing early days”, and not to mention the layoffs and personnel shuffling, I’m getting nowhere fast.
Then I get an email back yesterday from an AE that was obviously B.S. - I know he never read anything I sent him.
“Why don’t you run it thru D.U. and see what the findings are? Then submit the file with the appraisal and we’ll get an answer.”
If he had read the email, or listened to the voicemail, or read the fax he would have known, I already have a DU approval. I already have submitted the complete file. I already have everything, except the appraisal. I just have one question to be answered and it requires an interpretation of the guidelines. Come down off the slopes and start doing your job - or go on vacation.
One little answer. That’s all I need.
Then I read this story of a former loan coordinator (John Ngo) and how he’s admitted to taking big cash (we can call them bribes) to fix loans and push them through. I’m sure he’s no longer working there with the mortgage fraud and FBI and all, but at this moment in time, I would gladly PAY someone to get the correct answer in a timely fashion. Is that too much to ask for?
Hey Big Lenders… Hire John Ngo, please. He knows how get things done!
(you know I’m kidding - right?)
Think you might be able to help? Give me a call. (925) 288-9977
Oh, we’ll be closing early today due to our office holiday party.
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{ 16 comments… read them below or add one }
Please see my post from a week or two back about how slow and ridiculous the underwriters were being. It seems that no one wants to make decisions anymore.
I think what we’ll see for aps dated January 15th or later is an across the board 5% LTV cut when the findings show a declining market indicator.
For now, the appraiser can document that the property is in a stable neighborhood and the max LTV applies.
The appraisal is what the appraisal is (meaning: influencing the appraisal is a USPAP violation), so to a degree I agree with the AE’s autoresponder: “submit the file with the appraisal and we’ll get an answer”.
FHA’s looking better every day, Mike!
Paul - This is great material for another post but…
What determines the “Label” of declining market?
Fannie says it’s my entire county. Contra Costa.
But I am very close to Antioch and Brentwood (they are in my county) Up and over the hill is Stockton - Foreclosure capital of the US.
Nearby is Walnut Creek and Lafayette (also in the county)
I’d like to know the determining factors for the label.
Is it a year over year basis?
Is it a month by month?
Is it the Median Homes sold for that period?
Then, geographically speaking… is it the entire county? is it the city? The Zip Code? or maybe down to the neighborhood?
My question is more about the determining factors that go into the label of Declining Market. If this house falls out of contract because I can’t get ANY lender to loan 100% - I’d like to be able to instruct them as to where to look or what to look for so that they could fund.
I just got off the phone with CalHFA - it get’s curiouser and curiouser, as my friend Alice would say.
Here’s another thought.
I had the Agent pull comps that would support the value. He had no problem. As a matter of fact the identical house next door sold for $40,k more a month ago. As you might guess, they are buying this from a very motivated seller.
But does the fact that the purchase price is so much lower than the value of the sold comps around it distinguish this as a declining market?
Or did they just get a really good deal? In doing so, did they not lower the potential upside down risk going forward, assuming they could have paid what the next door neighbors house sold for?
Either way, it creates the argument for and against a declining market - doesn’t it?
Here’s a page with 6 charts from Altos
http://www.patagoniafinance.com/altoscharts.html
You can see what a varied difference we have.
Mike, have you already read this?
This is an ugly situation and I feel for both you and the buyers. Sellers, too. They have to be motivated for a reason. The declining market rule will only make matters worse. By reducing the LTV buyer’s can qualify for it takes more buyers out of the pool which means prices will fall further.
As to the AEs, I find this behavior is way too common. We have a few that are fantastic, but others are no help at all.
Paul said:
[The appraisal is what the appraisal is (meaning: influencing the appraisal is a USPAP violation), so to a degree I agree with the AE’s autoresponder: “submit the file with the appraisal and we’ll get an answer”.]
I agree. Mike and Chris, Underwriters are just now being trained to be actual underwriters. For many of them this is blue sky. Undoing the crappo standards of 15 years won’t be easy. I know because I used to train underwriters.
Just relax and present FULL packages with appraisals. A REAL underwriter needs a complete picture to judge a file and the appraisal is critical. Anything less is just a waste of time.
Opinion humbly presented…..dc
PeterT:Real live human underwriting - get used to it - deals almost exclusively with reality. It’s real live honest to goodness risk analysis, something that has been missing in the mortgage biz for the last 15 years or so.
Motivation is low on the list of reasons for approval. Ability to repay the loan and viability of collateral in the event of default are the two key ingredients.
Diane, We are going to have to get used to real underwriting again , and I admit, I was spoiled with relying on DU and LP approvals. But now they are reacting, too late, with fear which means there will be over tightening and it will make things worse.
The declining market rule is a one size fits all concept, and like Mike said, in that county there is a whole range of markets, some that are probably declining rapidly and others that are holding their own. Applying the rule to all properties will cause values to drop. It would make more sense to give the underwriter the authority to make the decision, but they are all cover their but mode, too, so it probably wouldn\’t make any difference.
Paul - “Mike, have you already read this?”
Yes.
And at the top of Page 3 it says…
“However, if the lender receives the message from DU but has evidence that the property is not located in a declining market, the lender may offer maximum financing.”
Which brings us back to the question - what determines a declining market?
PeterT, Diane, - Absolutely right. I am a big on tech but nothing compares to a human underwriter using common sense. Tech is a double edged sword. “Follow the Findings” is a flawed concept.
I’ll argue in part with with the statement to just submit the complete package with the appraisal. As an originator, I am a filter of sorts. I check to make sure ratios are correct, I check to make sure income is computed correctly, I check the liabilities to make sure they are accurate. When the appraisal comes back I check to make sure it is correct too.
By requesting the clients spend a couple hundred on an appraisal for a loan that (according to the lender right now) won’t fund, I wouldn’t be doing my job would I?
“Which brings us back to the question - what determines a declining market?”
S&P/Case-Schiller Home Price Indices, OFHEO Index, and NAR stats….page two.
Paul - I saw that too. I went there too. Not good enough. Which is why I went to Altos Research.
But let’s start with the S&P/Case-Schiller:
http://www2.standardandpoors.com/spf/pdf/index/SP_CS_Home_Price_Indices_Factsheet.pdf
“20 metropolitan regional indices, two composite indices and a national index.”
The nearest to my area is San Francisco. Not narrow enough.
OFHEO Index: Once again - nothing there that narrows down to even the city level.
http://www.ofheo.gov/media/pdf/3q07hpi.pdf
NAR: Do we even need to go there?
BTW: Fannie’s Memo had the wrong links to the OFHEO download.
Mike, as one who originates in Florida, I share your zeal. Trust me on that my brother.
The question of how to deal with declining markets can be dealt with in many ways (emotionally, pragmatically, etc.), but there’s only one way that matters and that’s how the U/W judges.
My point is that I believe FNMA has shifted the risk (or attempted to based on reps and warranties) from FNMA to the lender.
I think we all agree that time will be the determinant on whether or not a market was in fact declining or not, right?
My guess (and I hope I’m wrong) is that the LTV will be reduced for aps dated 1/15/08 or later, whenever we see declining market in the findings.
Paul - we’re on the same page.
Actually - I cannot find a lender now (why wait till 1/15/08?) who will do a Fannie at 100% LTV with that declining maket verbage. That means there is no 100% financing for fannie borrowers in looking to buy in counties deemed “declining”.
You nailed it with “My point is that I believe FNMA has shifted the risk (or attempted to based on reps and warranties) from FNMA to the lender.”
If the appraisal indicates the neighborhood is stable then Wachovia will finance FNMA max LTV.
For the time being…
Great discussion. Glad to be a fly on the wall.
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