Declining Market = Do Not Use?

[CANative]

I was told recently by a rep at Chase that if Declining Market is checked the underwriters do an across the board 5% adjustment.

It's called a "haircut."

 

[Shelley4146]

Crazy, everyone in the business from Direct Lender to buyer knows that it is a declining market. I'm sure if we don't put declining they go to review!!
I have also found that properties that have gone to auction are selling higher than the comparables.

 

[444nutman]

I just sign blank reports and attach my E&O. The phone has not stopped ringing. (j/k) The inherit problem with the system is we are supposed to report the truth. The problem the company that ordered the appraisal does not want the truth. The truth keeps loans from closing. The lender then finds someone to give them what they want. We will always lose clients due to the truth. Sad but true. The system needs fixing. I don't know what the solution to our problem. BTW I have lost work from checking "THE BOX"

 

[SmilingDog]

We're all going to hell in a handbasket...some without the basket.

 

[Riick]

this is a double post -- Sorry

---- FNMA knows what's coming down the pipeline -------

http://appraisalnewsonline.typepad.c...-mae-anno.html


"Current home price trends indicate that home values continue to decline in many markets across the country. As a result, and based on our continued monitoring of loan performance, Fannie Mae is reinstating a policy to restrict the maximum loan-to-value (LTV) ratio and combined loan-to-value (CLTV) ratio for properties located within a declining market to five percentage points less than the maximum permitted for the selected mortgage product."
"The reinstatement of the maximum financing policy and the other changes outlined in this Announcement are necessary in light of current market conditions. These policies are effective for all loans delivered with application dates on or after January 15, 2008."

 

[Randolph Kinney]

this is a double post -- Sorry

---- FNMA knows what's coming down the pipeline -------

http://appraisalnewsonline.typepad.c...-mae-anno.html


"Current home price trends indicate that home values continue to decline in many markets across the country. As a result, and based on our continued monitoring of loan performance, Fannie Mae is reinstating a policy to restrict the maximum loan-to-value (LTV) ratio and combined loan-to-value (CLTV) ratio for properties located within a declining market to five percentage points less than the maximum permitted for the selected mortgage product."
"The reinstatement of the maximum financing policy and the other changes outlined in this Announcement are necessary in light of current market conditions. These policies are effective for all loans delivered with application dates on or after January 15, 2008."

Just thinking out loud what the above policy's effect will have.

If asset values are falling and credit is restricted or denied in response, intrinsic demand must also fall for that asset. That, in turn, leads to continued falling asset values. You have a syndrome that feeds back upon itself until and if an equilibrium is reached at a lower value.

 

[Riick]

^^^^
Exactomundo
As I posted elsewhere next leg down starts 1/15/08

__________________________________________________
EDIT and aside -
Just came across this memorable quote... so how is that 99% of the properties we see are "average" in condition ??

"...we've found a very serious problem [with grading]: no matter how carefully we select the mean,
no matter how patiently we make the analysis, when they [the incoming students at Caltech] get here something happens:
it always turns out that approximately half of them are below average!" - Richard P. Feynman

 

[CANative]

This is the "generic" lead in I'm using before discussing the specific market...

Market conditions:
The current mortgage lending market remains very volatile six months after a global repricing of credit risk in July 2007. Many lending programs and products that were readily available less than a year ago are no longer available and there has been a significant decline of investors in the secondary market. The result is higher borrower qualification, less liquidity and other conditions resulting in fewer loans being made. Fewer loans available reduces the amount of purchase-ready buyers and increases the amount of competition among the sellers for those fewer buyers. When sellers are competing for buyers, they do so by lowering prices. Media saturation campaigns detailing the current problems in the mortgage lending industry and it's effect on real estate markets, in particular the spector of upcoming foreclosures resulting from resetting adjustable rate mortgages in combination with declining residential property values appears to be exacerbating the problem. This dynamic has become apparent in trend analysis and its influence, based on my research and conversations with market participants, is present in the market and is likely to increase. Therefore, the reasonable conclusion I draw is that this market is best described as volatile and unsteady and is in decline at this time.

 

[Doug Smith SRA]

Compared to what?

Exactomundo
so how is that 99% of the properties we see are "average" in condition ?

Most appraisers operate on the basis that condition on the 1004 is relative to the subject. In effect, "average" reflects that the comparable is similar in condition. They learn this early on when the Loan officer calls stating that the deal has been killed because the appraiser stated the property was in "poor" or "fair" condition. So by selecting com parables equally poor in condition hides the overall condition of the property. No one looks at the uncomfortable numbers in the depreciation section of the cost approach.

We live in a weasel world when it comes to what is the truth. Wait about a year from now when all these new FHA appraisals start to ripen bearing the fruit of missed repair items and other omissions.

Imagine the chaos that would ensue if there was a check mark on the 1004 for condition.

 

[Riick]

Lake Wobegon, where, "all the women are strong, all the men are good-looking, and all the children are above average."

BTW... Back when the dinosaurs roamed ((and I sold them Real Estate)),
the Speculators would write Agreements of Sale with various Weasle Clauses.
Buyer shown as "Mr. XX and/or his Nominee" was a favorite -
Then they'd try to resell, before settlement date, since they could sell the Agreement -the right to purchase.