The Rise of the Government loan.
Monday, December 21st, 2009
Question: How to get out of a box that keeps getting smaller?
Answer: The Government. Seriously.
Conventional lending is getting tighter. Beyond the new max 45% debt to income ratio you now have the push back on appraisals escalated to an all time high. One would think that with all our new and expensive shiny hoops we get to jump through to get an appraisal that then that appraisal would be enough. Jump through the hoops=get to the end. Not so much.
Keep in mind as a loan officer we are now not allowed to choose who does the appraisal. Appraisers are chosen at random and then we are not told who it is until after we get the appraisal back. This is so we will not contact them and “convince” them to “inflate” the value of the home. This system was set up to protect consumers from corruption and greed. Well, one would think that since the appraisal is now done in such a non- corrupt way that it would actually be used as a way to value the home. That is what you are paying $375-$450 for right?
Not so much. Enter the 2nd appraisal my friends. Jump through the hoops see the end and then 30 more hoops pop up. If you are buying a home with 20% down the chances of you needing either a desk review appraisal or full 2nd appraisal are 90%. If you are putting 25% or more down the chances go down, however, some banks require a desk review on all loans even if you put 90% down. Other lenders/banks require a field review or full 2nd appraisal on purchases or refinances with 20% down. Why is 20% down not enough to escape the 2nd appraisal? Because investors are scared and we are in a declining market.
The 2nd appraisal is like a little yummy cookie in the file that makes the investor feel like they are getting a good deal. If two appraisals say the house is worth $200,000 then it must be. While this is a lovely cookie for the investor it is less than great for the borrower who gets to pay for 2 appraisals.
The lender is stuck with the desk review fees in many cases but if the underwriter wants a 2nd appraisal (which is becoming more and more common every day; loans need to be sold, my friends) then you get to pay for it. Awesome right? Bright side; you will have multiple opinions on your home and pictures:)
Strangely enough on a FHA loan under $417,000 with 3.5% down we never need 2nd appraisals or desk reviews. Easier and faster to get a government loan? Yep, that is the way the cookie crumbles. You can have higher debt to income, put less down and have less appraisal drama. We all know who the investor is on these loans and they are insured which means we do not need “cookies” in the files. Keep in mind in late 2007 FHA was a bad word. Inmost offices there were few people who did FHA loans. They were considered too difficult and time consuming. Now the majority of loan consultants in the business who stay busy have become FHA experts and can quote the guidelines in their sleep. What a difference 2 years makes. If you had told the loan consultants of 2006 that 2009 would be the year of the government loan they would have thought you were mad.
Forecasting for 2010 it will be another year of the government loan. The conventional market will not loosen up for quite awhile.
FHA, VA and USDA (yes they do loans) bring it on, we can quote your guidelines in our sleep. ZZZZZZZZ
