Weighing In On Brexit: A Loan Officer's Perspective

Thursday's historical 'Brexit' ("British exit", which refers to the June 23, 2016 referendum by British voters to exit the European Union) vote has caused panic and uncertainty in the financial markets.  Whenever something like this happens there is an immediate flight to safety.  That means that large institutional investors move their money out of stocks and buy bonds.  When bonds are in demand, their price goes up and thus their yield or effective interest rate goes down.  This is why we saw rates fall between .125-.25% on Friday, June 24th, 2016.

The challenge with the rates falling is that they are near historical lows.  Realistically they don’t have much room to go lower.  The large institutional investors will get to a point where a return less than 3.5% is just not worth tying their money up and they will look for either higher returns or short term places they can wait for the market to determine when the uncertainty is over.

We have had a sellers’ market all year long with a large amount of buyers, small housing inventories and low interest rates.  That being said, the changes made to the mortgage underwriting process after the mortgage crash of 2008 has placed a significant amount of weight on accurate appraisal values.  Even with competing offers, buyers offering over list price and houses selling the first day of listing (or even before), the scrutiny in which appraisals are facing will control any potential bubble.  

Over the past 90 days I have seen 5-10% of the purchase transactions where the appraised value has been lower than the sales price.  This forces either the seller to lower their price or the buyer to pay the difference.  In both cases the mortgage industry and the country are protected from a perceived “bubble.”  The lender is lending off of the appraised value or the sales price, whichever is lower.  Thus they are certain that their risk is appropriate for the loan program that the buyer has chosen.  If there is one lesson that the industry learned in 2008 it was that collateral appropriately valued is key.  The industry is continuing to hang their hat on that and we will not see the overvaluations that occurred prior to 2008.

One thing to keep in mind though, is that if you purchased your home between January of 2013 and March of 2016 there is a good chance that your interest rate may be higher than the market and with the increase in home valuations that has occurred your equity position may have changed enough to warrant a mortgage fitness checkup.  I highly recommend that you reach out to your preferred loan officer and discuss your situation with them.  

Please feel free to contact me with questions or for a mortgage fitness checkup.

-Chris Scheer

Appraisals: Five Common Questions Answered

WHAT IS AN APPRAISAL?

A real estate appraisal is required on a property whenever it’s financed, whether you are buying or refinancing a home. (With a few exceptions, contact me for more information). It is done after an offer is made on a home, or during a refinance.  An appraisal costs several hundred dollars, and generally the borrower pays this fee.

Customer Service or Lack There Of!

If you have read my previous posting on Manufactured Housing you may be aware of the challenge that I had getting the appraiser to put the Make, Model, serial number and year manufactured on an appraisal of a Manufactured house. The appraisal form clearly states that this information is needed, yet the appraiser we chose to use could not find the information on the property and thus felt it was not his responsibility to locate. Over a 2 week period my assistant requested the information be added to the appraisal and each time she was told he didn’t have it or have access to it. Since this was one of my first challenges working with this assistant I let her attempt to handle the situation until it became a crisis. I recognize I should have stepped in sooner, but until you see someone perform under fire you don’t know how good they are.

At the eleventh hour I went to the internet and found the source of the information within 10 minutes. Prior to doing that I sent an e-mail to the managing partner of the appraisal company that was very direct and to the point, see the following:

We have a challenge. As you are aware, we have asked the appraiser to supply the Manufacture’s serial number, name, trade/model and date manufactured for the property on Lynch road. At this time this is the only item I need to get a clear to close, however we will not close until we have it. In the appraiser’s defense, the realtor and her clients went through the entire house tonight and could not find it. However, since there is the HUD certification label #RAD730051 as per his appraisal, this should be the basis to track down the required information. If the realtor manages to find this information then the appraiser looks bad. If we manage to find this information, then the appraiser looks bad. If HUD provides it, he still looks bad, but not as bad. If he finds it, then he gets off the hook. See the challenge? I realize that this is extra work and frustrating for everyone. However we have a client who is trying to purchase a home and helping them achieve their goal is what we do.

Feel free to call me if you have any questions or comments.

I have inserted “the appraiser” and “realtor” where the names were in the correspondence. I received no reply to this e-mail from the appraiser and when I was contacted that day by the appraiser to review the value on another property nothing was mentioned of the e-mail until I brought the situation up. The defense of the appraiser was that no other lender had ever requested this information and he felt it was not his responsibility. I reiterated that the underwriter requested that the appraiser complete this section of the appraisal, therefore at that time it becomes the appraiser’s responsibility. He continued to contend that since he couldn’t find it then it wasn’t his job to get it. When I explained how easy it was for me to obtain, he asked why I didn’t do that sooner. It became a circle of discussion with me telling him what I expected as the client and him saying that he wouldn’t do it. Later that day I addressed the situation with one of the other principals at the company whom the e-mail was sent to and he defended his partner. Going further to say that we didn’t know what we were doing.

I appreciate a business partner defending his associates, but at the point that you have a client telling you that you screwed up and that what was being requested was not out of the ordinary for out industry this is not the stance to take if you want to keep the relationship. As the lender I have a choice of the appraisers I choose and the stance this company took will keep them from getting any more of my business.

For questions or comments on this post, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.