Scenario:
Customer has an $800,000 loan secured by about 45 properties. Loan to value is about 50%. We require the customer to maintain insurance on these properties. The customer doesn’t want to insure all the properties any longer in order to save money. The loan officer would like to have the customer maintain insurance on as many properties needed to keep an 80% loan to value (LTV allowable in bank policy) and release the insurance requirement on the remaining properties. The remaining properties will still secure the loan, no liens will be released.

This loan is already on the books and will not mature until 2015, so this is not a new loan. All the properties have appraisals in the file, but many are older. The loan officer wants to ensure that we have an accurate value of the properties in today’s market. To save the money he has suggested the following:

Option 1 – hire an appraiser to drive by each property and give an opinion as to the current value. The loan officer hopes that the appraiser would be willing to this in an unofficial manner, not as a full blown appraisal, and for a minimal price. (not sure any appraiser would agree to this)

Option 2 – have the appraiser conduct full appraisals of the 10 or so houses with the most value to ensure our 80% LTV.

While it is very important to know the value of the properties before dropping insurance to ensure we have enough collateral value to secure the loan. My question is…Is this necessary since this is not a new loan and it is only for the purpose of waiving insurance on some of the properties? Would it be acceptable for the Bank to work something up on its own?