REO Appraisal - Lower list price?

[JSmith43]

Financed amount was a bit over 99% of the sale price. I thought that was odd also and is why I brought that up. It's on it's way to HUD investigations.

The borrower needs 3% skin in the game including allowed gifts. In a so called high closing cost state, the max. base loan amount is 97.75%. Add on 1.5% financed MIP and you have 99.25. The borrower, in that case, would have to pay at least .75% in closing costs to reach the minimum 3% investment threshold.

I simplified this a bit, since the rules are a bit different for small loans....50K or less, I believe.

 

[TJSum]

This is another great example why I am in the camp that does not adjust listings on the market grid based on an average historical LP to SP ratio...

 

[Betty H Church]

If you talk to any real banker who has anything to do with the banks audits, you will soon come to understand that the bank's do not really like to take back a house. And the thing that they least like to do is take back a house in a declining market. The reason is that if the secondary market does not come looking to sell the loan back to the originator, the bank auditors will as some very pointed questions about risk assessment, etc. And properties taken back in a declining market are of course harder to get rid of.

So what do you do when you get a property back that has a market value of $200,000 with $120,000 owing on the loan? You price it just above what is owed and get your money (or most of it) and run like hell. You do not care a tinkers dam what the MV is. All you care about is clearing out of the transaction and getting the property off of the books. That is one of the reasons why I hold that REO and short-sales should not be used when the FNMA definition of MV applies to an appraisal. The seller is just not typically motivated.

That sure sounds reasonable, except what I'm seeing is the list price is way below what was owed on the loan. Two recent examples, one REO now listed at $259K and Trustees Deed shows $330K was owed. Another home that was listed at $119K shows $274K was owed on the loan when the bank took it back. By the way, both of these homes are now under contract, after being on the market less than 10 days. I don't know yet what the agreed to price is.

 

[Karl]

That sure sounds reasonable, except what I'm seeing is the list price is way below what was owed on the loan. Two recent examples, one REO now listed at $259K and Trustees Deed shows $330K was owed. Another home that was listed at $119K shows $274K was owed on the loan when the bank took it back. By the way, both of these homes are now under contract, after being on the market less than 10 days. I don't know yet what the agreed to price is.

Don't forget to factor in the money the bank gets from PMI Insurance, & the Intrest only payments that the bank may have received. The banks are NOT actually losing that much money when you figure all the little hidden cost they have past on to the customers. Plus the money that they are making on those that were brought up in a time when you were trained that you pay your bills & make your payments, no matter what. Then factor in the assistance that WILL come from the Government (Which is actually money from those that actually work know as the working class) in order to FIX any problems so we can carry on to the next crisis.

 

[Abzntminded]

I see this everyday. Recently I've been doing alot of short sales, which the bank orders a full with REO addendum. The agent usually has the property listed at some very low price to get a buyer frenzy. Most of the time my appraisal will come in higher than their listing price. My mom's a realtor and sometimes I ask her to call up these listing agents and find out why the low listing price. She usually calls and says she has a buyer at the price listed, but every time the listing agent says we are not accepting any offers that low or there are multiple offers already.

The majority of recent REO sales (in some areas the only sales) I see were listed with this strategy now. All you have to do is call the agent and ask what's going on. In the "agents only" comment area of some listings will be, "property subject to multiple bids".
Some agents are calling regular listings "short" sales even though they aren't in or close to being in default.
And yeah, you could still use a LP/SP ratio if you wanted to grid and adjust a listing - the ratio would be upside down, but it would still reflect what's going on.

 

[Pa'akai]

Out here the listing prices are way short of market values due to most pricing being set by Realtors via BPO's. Seems the lenders trust the BPO value more than an appraisers.

 

[Richard Carlsen]

That sure sounds reasonable, except what I'm seeing is the list price is way below what was owed on the loan. Two recent examples, one REO now listed at $259K and Trustees Deed shows $330K was owed.

Look at this way: When a lender takes a house back, they do so only after not receiving payments for 2-3-maybe 4 months. Then there is the 6 months to get the sheriffs deed. In the meantime, the attorneys clock is running at $250/hour so on top of the dollars owed on the original note, you add the loss of interest income (the owner is not paying any you don't have those dollars to loan out resulting in a loss to the lender). now you get the property back, send someone out to secure the place, maybe winterize it but at least turn the utilities off and get an appraisal to see where the market is at. On your $330K loan, you could be out of any interest payments or use of the money for a year. At 6%, that $19,.800. Add to that the attorneys fees (maybe another $12,000 to $18,000) plus tax and insurance liability plus miscellaneous fees. Now to break even on your $330,000 loan, you have to get $395,000 just to break even. And we did not even count management fees or employee time involvement. And then it is a crap shoot as to the house selling or not. You may be sitting on it for another year trying to get MV. So you cut your losses, and take what you can get right now, getting out of the property just as fast as you can. You take what you can get and loan it out as fast as you can to generate income. Remember a $330,000 loan in default generates no income while a $250,000 sale puts dollars in the lenders coffers so the can loan it out again ASAP.

 

[Betty H Church]

Thanks Richard - you must have been a banker at one time. I printed out your response and will keep it for future reference.

 

[Betty H Church]

This is another great example why I am in the camp that does not adjust listings on the market grid based on an average historical LP to SP ratio...

After all is said and done, we just need to make all those necessary phone calls and then decide whether to adjust the listings/pendings, etc. And then explain to CYA. I don't think there is a blanket answer that would be appropriate.

 

[Pamela Crowley (Florida)]

In the "agents only" comment area of some listings will be, "property subject to multiple bids".

Be careful about believing that 'multiple bids' claim. I ask them to prove it by faxing copies of those offers, they can redact the names of the offerers, but they typically will start hemming and hawing about then. Most of the 'multiple bids' claims are not true.